When is buy­ing prop­erty not a com­mer­cial act?

Buy­ing a house to rent out is not a com­mer­cial ac­tiv­ity which de­nies a home­owner the rights of a consumer, rules NCDRC

HT Estates - - HTESTATES - Su­nil Tyagi

The Consumer Pro­tec­tion Act was en­acted in the year 1986 by Par­lia­ment to pro­tect the in­ter­ests and rights of con­sumers. One of the ob­jec­tives of the Act was to pro­vide the right to seek re­dres­sal against un­fair trade prac­tices or un­scrupu­lous ex­ploita­tion of con­sumers.

Be­fore 1993, sale of flats, vil­las, hous­ing agree­ments for construction and sale of the con­structed struc­ture weren’t cov­ered by the Act. How­ever, a very vast amend­ment was made to the Act in 1993, wherein apart from goods, many ser­vices were also brought un­der the purview of the Act. These in­cluded hous­ing ser­vices by construction com­pa­nies and hous­ing boards. It was then that the buyer of an apart­ment be­came a consumer within the mean­ing of the Act. Hous­ing ser­vices pro­vided by construction com­pa­nies, builders, de­vel­op­ers and hous­ing boards etc came un­der the ju­ris­dic­tion of the consumer dis­pute res­o­lu­tion fo­rums across the coun­try. As a con­se­quence, consumer courts could re­solve dis­putes over hous­ing agree­ments and pro­vide re­lief to the com­plainant(s).

An in­ter­est­ing ques­tion that of­ten came up in the courts of law was re­lated to the proper in­ter­pre­ta­tion of the def­i­ni­tion of ‘consumer’. Ac­cord­ing to the Act, this def­i­ni­tion specif­i­cally ex­cludes the per­son who avails any ser­vices for any ‘com­mer­cial pur­pose’. In the con­text of sale- pur­chase trans­ac­tion of a prop­erty, this as­pect of the def­i­ni­tion in re­la­tion to ‘com­mer­cial pur­pose’ has of­ten been con­strued to mean that the Act would not be ap­pli­ca­ble to any in­vest­ment made in real es­tate with the in­ten­tion to earn profit.

How­ever, a re­cent judg­ment by National Consumer Dis­putes Re­dres­sal Com­mis­sion (NCDRC) dis­cussed a mat­ter re­lated to com­mer­cial i nvest­ment. The ques­tion was: would a trans­ac­tion be con­sid­ered ‘com­mer­cial’ if (a) a per­son booked an apart­ment not for his im­me­di­ate use but for let­ting it out af­ter he got pos­ses­sion or (b) he pur­chased the prop­erty as an in­vest­ment, in­tend­ing to make a profit af­ter sell­ing it later? Could such a pur­chaser then be a consumer as per the def­i­ni­tion pro­vided un­der the Consumer Pro­tec­tion Act, 1986?

The case in ques­tion came up for the con­sid­er­a­tion of NCDRC in the case of San­tosh Jo­hari and oth­ers (ap­pel­lant) vs Unitech Ltd ( re­spon­dent) wherein it was con­tended by the re­spon­dent that since some of the com­plainants move into their own homes only af­ter their re­tire­ment and pre­fer to rent out the prop­er­ties af­ter tak­ing pos­ses­sion; their in­vest­ment has been made for a com­mer­cial pur­pose. There­fore, it was ar­gued, that the com­plainant(s) could not be called ‘con­sumers’ within the mean­ing of the Act.

The com­mis­sion did not find any merit in this con­tention and re­it­er­ated the view taken by the Supreme Court in this re­gard that in the ab­sence of a def­i­ni­tion of ‘com­mer­cial pur­pose’, there was a need to go by the or­di­nary dic­tio­nary mean­ing wherein ‘com­mer­cial’ de­noted ‘per­tain­ing to com­merce’ and meant ‘ con­nected with, or en­gaged in com­merce; mer­can­tile, hav­ing profit as the main aim’. SC had also said that the word ‘com­merce’ meant fi­nan­cial trans­ac­tions, es­pe­cially buy­ing and sell­ing of mer­chan­dise on a large scale. The apex court also opined that as far as hir­ing or avail­ing ser­vices were con- cerned, a per­son could be said to have hired ser­vices only if he was re­lated to busi­ness or com­merce in which he was en­gaged. To ex­clude a hirer from the am­bit of the act, ser­vices should be availed for pro­mot­ing, ad­vanc­ing or aug­ment­ing an ac­tiv­ity, the pri­mary aim of which was to earn profit with use of the said ser­vices.

Con­sid­er­ing SCs ob­ser­va­tions, NCDRC held the pur­chase of a house can only be for a ‘com­mer­cial pur­pose’ if the pur­chaser is en­gaged in the busi­ness of pur­chas­ing and sell­ing houses or plots on a reg­u­lar ba­sis, solely with a view to make profit by way of sale of such houses. If, the house is pur­chased purely as an in­vest­ment and the pur­chaser is not un­der­tak­ing the trad­ing of houses on reg­u­lar ba­sis, then it would be dif­fi­cult to say that he had pur­chased it for ‘com­mer­cial pur­pose’.

The ra­tio­nale of the court was that peo­ple in­vested sur­plus money in bank de­posits, shares etc as they don’t want money to sit in their bank ac­counts. There­fore, one was free to in­vest in prop­erty to get bet­ter re­turns by rent­ing it out or sell­ing it at a fu­ture date. It could be said that a pur­chaser would still be a consumer even if he pur­chased a house to rent or an as in­vest­ment for max­i­mum re­turns. If this ac­tiv­ity of pur­chas­ing and sell­ing houses be­comes a busi­ness, he would cease to a consumer.


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