Does leasing out flat exclude homebuyer from consumer protection? Supreme Court answers

The Supreme Court recently held that the mere act of leasing out a residential flat does not automatically exclude a homebuyer from the definition of “consumer” under the Consumer Protection Act, 1986. [Vineet Bhari v. MGF Developers].Setting aside an order of the National Consumer Disputes Redressal Commission (NCDRC), the Court ruled that a buyer can be treated as a consumer unless it is proved that the dominant purpose behind the purchase of the property was commercial profit-making..A Bench of Justices Prashant Kumar Mishra and NV Anjaria held, "The determinative question is whether the dominant intention or dominant purpose behind purchasing the flat was to facilitate profit generation through commercial activity, and whether there exists a close and direct nexus between the purchase and such profit-generating activity.".The case arose from a consumer complaint filed by homebuyers who had booked a residential unit in a group housing project titled The Villas in Sector 25, Gurgaon, in 2005. The buyers alleged delay in handing over possession, unilateral changes to the layout plan, excess monetary demands and deficiency in services.Although possession was eventually taken in January 2015, the buyers approached the NCDRC in 2017 seeking interest for delayed possession, compensation for mental agony, refund of excess charges and other relief.The developer opposed the complaint, contending that the buyers were not “consumers” under the 1986 Act since the flat had been leased out after possession and was allegedly purchased for commercial purposes. Accepting this argument, the NCDRC dismissed the complaint..Allowing the appeal, the Supreme Court held that the NCDRC had erred in excluding the buyers from the definition of “consumer”.The Court reiterated that under Section 2(1)(d) of the Consumer Protection Act, 1986, a person is excluded from the definition of consumer only if goods or services are obtained for a commercial purpose. Whether a transaction is commercial depends on the dominant intention behind it.“The mere factum of leasing out the flat does not, by itself, demonstrate that the appellants purchased the property with the dominant purpose of engaging in commercial activity,” the Court held..Significantly, the Court clarified that the burden of proving commercial purpose lies on the service provider, not the consumer.Since it was the developer who pleaded that the flat was purchased for commercial use, the onus was on it to establish this on a preponderance of probabilities. The Court found that no material had been placed on record to establish a close and direct nexus between the purchase of the flat and any profit-generating commercial activity.."The onus of proving that the appellants fall within the exclusion clause of Section 2(1)(d) of the 1986 Act rests upon the respondents, and the respondents have failed to discharge this onus on a preponderance of probabilities.".Holding that the buyers could not be excluded from the definition of “consumer”, the Supreme Court set aside the NCDRC’s May 11, 2023 order and restored the consumer complaint to its original number.The NCDRC has been directed to decide the complaint on merits in accordance with law..The appellants were represented by Advocates Krishnamohan K, Priya, Dania Nayyar and Prerna Jain Kala..The respondents were represented by Senior Advocate Diya Kapur, along with Advocates Yudister Singh, Akhil Sachar, Aman Gupta, Srishti Ghoshal, Tonmoy Talukdar, Payal Rani, Siddhartha Iyer and Sonakshi Malhan..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.