Dis­putes on Deals with Com­mer­cial Pur­poses

These can­not be heard at con­sumer fo­rums

Consumer Voice - - Contents -

“Ethics or sim­ple hon­esty is the build­ing blocks upon which our whole so­ci­ety is based, and business is a part of our so­ci­ety ,and it's in­te­gral to the prac­tice of be­ing able to con­duct business, that you have a set of hon­est stan­dards.”

~Kerry Stokes

Ev­ery law has a loop­hole. The Con­sumer Pro­tec­tion Act, too, had one un­til 2002 and sev­eral business en­ti­ties tried tak­ing un­due ad­van­tage of sev­eral rules that were to favour con­sumers and not busi­nesses. Un­til the amend­ment of 2002, con­sumers fo­rums were hav­ing a tough time es­tab­lish­ing if a com­pany fil­ing a case against an­other com­pany was ac­tu­ally el­i­gi­ble to do the same – in other words, if a com­mer­cial en­tity could be es­tab­lished as a con­sumer and granted com­pen­sa­tion, or if the prod­uct or ser­vice bought for com­mer­cial pur­pose qual­i­fied to be heard in con­sumer fo­rums. Real­is­ing that such cases in­volv­ing two com­mer­cial en­ti­ties were dis­rupt­ing the fo­rums and their es­sen­tial time and pur­pose, an amend­ment to Con­sumer Pro­tec­tion Act, 1986, was made in 2000.

Af­ter the amend­ment, all doors of con­sumer fo­rums for com­mer­cial units were closed. All busi­nesses were barred from go­ing to con­sumer

fo­rums for their re­dres­sal un­til a lit­tle re­lax­ation came with an ex­pla­na­tion on an ap­peal in 2004.

A Rede­fined Con­sumer and Re­lax­ation for Busi­nesses on Cer­tain Grounds

In 2004, the Na­tional Com­mis­sion clar­i­fied a num­ber of doubts on the is­sue of def­i­ni­tion of ‘con­sumer’ in its elab­o­rate judge­ment pro­nounced by Jus­tice MB Shah, who heard two ap­peals – Har­so­lia Mo­tors ver­sus Na­tional In­sur­ance Com­pany and Di­wakar Goiram Porkhayat ver­sus Na­tional In­sur­ance Com­pany (pro­nounced same judge­ment in the case of Trac­tor House ver­sus Na­tional In­sur­ance Com­pany).

Re­fer­ring to two cases – Laxmi Engi­neer­ing Works ver­sus PSG In­sti­tute case of 1995 and New Delhi Mu­nic­i­pal Cor­po­ra­tion ver­sus So­han Lal, Jus­tice Shah de­fined and dis­tin­guished be­tween com­merce and com­mer­cial pur­pose vis-à-vis per­sonal con­sump­tion. The ba­sic ques­tion for ad­ju­di­ca­tion was whether an in­sur­ance pol­icy taken by com­mer­cial units could be held to be hir­ing of ser­vices for com­mer­cial pur­pose and thereby ex­cluded from the purview of Con­sumer Pro­tec­tion Act. The words for ex­pla­na­tion be­fore the Com­mis­sion were com­mer­cial pur­pose, com­merce, ser­vices, and mainly ser­vices of in­sur­ance hired/ taken/availed by the in­surer. The crux of the whole dis­cus­sion in this or­der is ex­plained be­low:

a) Tak­ing in­sur­ance pol­icy by an in­di­vid­ual is a ser­vice un­der the Act.

b) Tak­ing in­sur­ance pol­icy by a com­mer­cial unit run­ning its business is a ser­vice as far as it is lim­ited to in­dem­ni­fi­ca­tion of the ac­tual loss suf­fered by the in­surer un­der the Act, but can­not be con­sid­ered as ser­vice if the re­ceiv­ing en­tity is reg­is­tered/li­censed for do­ing business of in­sur­ance.

For com­ing to this con­clu­sion, the Com­mis­sion fur­ther ex­plained as to how in one sit­u­a­tion ser­vices hired or availed is a ser­vice for com­mer­cial pur­pose and in an­other sit­u­a­tion it is not, by giv­ing ref­er­ence to an ear­lier case of Laxmi Engi­neer­ing Works Ltd in 1995. The fol­low­ing ex­am­ples help to sim­plify the mat­ter:

• If a typewriter is used for typ­ing by a per­son for him­self, it is not for com­mer­cial pur­pose. If a typewriter is pur­chased and is be­ing used for pro­vid­ing typ­ing ser­vices to oth­ers for profit or loss by a com­mer­cial unit, it is de­fined as com­mer­cial pur­pose.

• Sim­i­larly, a car driven as taxi by em­ploy­ees of a com­mer­cial unit for pro­vid­ing trans­port ser­vices

qualifies as com­mer­cial pur­pose, but a car used by an of­fi­cer of the unit for his own use is not com­mer­cial pur­pose.

An­other Case to Note

A sim­i­lar is­sue had come up be­fore the Na­tional Com­mis­sion due to var­ied in­ter­pre­ta­tions in two cases. There was an ap­par­ent con­flict in the de­ci­sions ren­dered by Na­tional Com­mis­sion in two cases: a) Con­trols and Switchgear Com­pany and Oth­ers ver­sus Daim­ler Chrysler In­dia and T & T Mo­tors, and b) Gen­eral Mo­tors ver­sus GS Fer­til­iz­ers. Both cases were ren­dered by benches com­pris­ing two mem­bers.

In the first case, Con­trols and Switchgear Com­pany filed a com­plaint al­leg­ing de­fects in two Mercedes Benz cars pur­chased by the com­pany for the use of its di­rec­tors. The com­plaint was re­sisted in­ter­alia on the ground that the cars were pur­chased for com­mer­cial pur­pose. Re­ject­ing the con­tention, the Com­mis­sion in­ter-alia had held as un­der:

“The cars are pur­chased for the use of the di­rec­tors and are not to be used for any ac­tiv­ity di­rectly con­nected with com­mer­cial pur­pose of earn­ing profit. Cars are not used for hire, but are for the per­sonal use of its di­rec­tors. Hence, it can­not be said that the com­plainant com­pany has pur­chased the cars for com­mer­cial pur­pose.”

An ap­peal against the above-re­ferred de­ci­sion is pend­ing be­fore the Supreme Court.

In the sec­ond case, the com­plainant al­leged de­fect in a car pur­chased by the com­plainant com­pany for use of its man­ag­ing direc­tor. The con­cerned State Com­mis­sion re­sisted in­ter-alia on the ground that pur­chase of the ve­hi­cle for the use of the man­ag­ing direc­tor of the com­pany amounted to pur­chase for com­mer­cial pur­pose. Ac­cept­ing the said con­tention, this Com­mis­sion in­ter-alia held as un­der:

“We agree with ap­pel­lants’ con­tention that this clearly amounts to its pur­chase for a ‘ com­mer­cial pur­pose’ since the Man­ag­ing Direc­tor of a pri­vate lim­ited com­pany would ob­vi­ously not use this ve­hi­cle for self-em­ploy­ment to earn his liveli­hood but for ‘com­mer­cial pur­poses’ as a perk of his of­fice.”

The above two judge­ments led to a con­tro­versy and these two con­flict­ing cases went un­der dis­cus­sion be­fore a larger bench com­pris­ing three judges Jus­tice DK Jain, pres­i­dent; Jus­tice VK Jain; and Jus­tice BC Gupta. The bench clar­i­fied the con­cept of ‘com­mer­cial pur­pose’ re­fer­ring to the Supreme Court judge­ments:

“As ob­served by the Supreme Court in Laxmi Engi­neer­ing Works, it is not the value of the goods but the pur­pose for which the goods are bought or put to use, which is rel­e­vant to de­cide whether the goods were ob­tained for a com­mer­cial pur­pose or not. The same would be the po­si­tion where ser­vices are hired or availed by a com­pany. If the business ac­tiv­i­ties of a com­pany can­not be con­ve­niently un­der­taken with­out the goods pur­chased or the ser­vices hired or availed

by a com­pany, such pur­chase or hir­ing/avail­ing, as the case may be, would be for a com­mer­cial pur­pose, be­cause the ob­jec­tive be­hind such pur­chase of goods or hir­ing or avail­ing of the ser­vices would be to en­able the com­pany to earn prof­its by un­der­tak­ing and ad­vanc­ing its business ac­tiv­i­ties.”

Three Cat­e­gories to Know

The goods and ser­vices made avail­able by a com­pany to its di­rec­tors or em­ploy­ees can be clas­si­fied into the fol­low­ing three broad cat­e­gories: a) One cat­e­gory is of goods and ser­vices that are ob­tained for and made avail­able to the di­rec­tors or em­ploy­ees of a com­pany and are used by them only for their per­sonal pur­poses, un­con­nected with the business of the com­pany – for in­stance, the cars used by the di­rec­tors and em­ploy­ees of the com­pany for their shop­ping trips, out­ings, recre­ations, etc., or for com­mut­ing to and from the of­fice of the com­pany. An­other ex­am­ple can be the air con­di­tion­ers and fur­ni­ture pro­vided at the res­i­dence of the di­rec­tors and em­ploy­ees of the com­pany, or the tele­phone or broad­band got in­stalled by the com­pany at their res­i­dence. This does not amount to com­mer­cial pur­pose be­cause the pur­pose is to make cer­tain fa­cil­i­ties and ameni­ties avail­able to the di­rec­tors and em­ploy­ees of the com­pany as a part of the in­cen­tive of­fered to them by the com­pany, or as re­mu­ner­a­tion for the work that they are ex­pected to per­form for the com­pany b) The next cat­e­gory is of goods and ser­vices made avail­able to the di­rec­tors or em­ploy­ees of the com­pany and used by them pri­mar­ily for their per­sonal pur­poses but in­ci­den­tally also for the pur­poses of the com­pany – for in­stance, a car used mainly for out­ings, recre­ations, per­sonal com­mut­ing, etc., of the di­rec­tors and em­ploy­ees or their fam­i­lies, but also for vis­it­ing the fac­tory and of­fices of the com­pany or at­tend­ing business meet­ings. This also does not amount to com­mer­cial pur­pose c) The last cat­e­gory is of goods and ser­vices made avail­able by a com­pany to its di­rec­tors and em­ploy­ees pri­mar­ily for the pur­poses of the com­pany, and used by them mainly for the pur­poses of the com­pany but in­ci­den­tally also for their per­sonal pur­poses – for in­stance, a ve­hi­cle pur­chased for be­ing used as a staff car or a de­liv­ery van but some­times also used for the per­sonal pur­poses of the di­rec­tors or em­ploy­ees, un­re­lated to the business of the com­pany. Such a ve­hi­cle is used for com­mer­cial pur­pose be­cause of di­rect re­la­tion with the business.

It is not the value of the goods but the pur­pose for which the goods are bought or put to use which is rel­e­vant to de­cide whether the goods are ob­tained for com­mer­cial pur­pose or not.

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