Firms availing loans for business cannot move against bank under Consumer Protection Act: Supreme Court

The Supreme Court on Friday held that entities availing banking services for profit generation do not qualify as "consumers" under the Consumer Protection Act, 1986 [Central Bank of India v. Ad Bureau Advertising Pvt Limited].A bench of Justices Sudhanshu Dhulia and Prashant Kumar Mishra held,“What has weighed with us in coming to the conclusion that, in the instant case, Respondent No.1 cannot be said to be a ‘consumer’ is the fact that the transaction in question—i.e., obtaining a project loan—had a close nexus with a profit-generating activity. In fact, the dominant purpose of securing this loan was to generate profits upon the successful post-production of the movie titled Kochadaiyaan.".The dispute arose from a project loan of ₹10 crore sanctioned by Central Bank of India to M/s Ad Bureau Advertising in 2014. The loan was intended for the post-production of the Rajinikanth starrer Kochadaiyan, with a property pledged as collateral. However, the company defaulted on repayments, leading the bank to classify the account as a Non-Performing Asset (NPA) in 2015. The bank initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, eventually accepting a one-time settlement of ₹3.56 crore from the company.Despite the settlement, the bank incorrectly reported M/s Ad Bureau as a defaulter to the Credit Information Bureau of India Limited (CIBIL), causing reputational damage and financial losses to the company. This included the loss of an advertising tender with the Airports Authority of India as the company was unable to secure a bank guarantee due to its defaulter status..Ad Bureau filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC), alleging deficiency in service and unfair trade practices by the bank. In its order dated August 30, 2023, the NCDRC ruled in favour of the company, directing the bank to pay ₹75 lakh in compensation, issue a no-dues certificate and to correct its reporting to CIBIL. The bank was also ordered to pay ₹20,000 in litigation costs.The bank challenged the NCDRC's decision before the Supreme Court, arguing that Ad Bureau did not qualify as a "consumer" under the Consumer Protection Act, as the loan was availed for commercial purposes. .The Court agreed with this contention, emphasising that the dominant purpose of the loan was to generate profits through the post-production of a movie which constitutes a commercial activity."We are not convinced by this argument put forth on behalf of Respondent No.1 for the simple reason that, even if it is partly true that the loan was availed for a self-branding exercise, the dominant purpose behind brand-building itself is to attract more customers and consequently generate profits or increase revenue for the business. A bald averment that the company engaged in the post-production of the movie solely for the purpose of brand-building does not alter the fundamental nature of the transaction—i.e., the availing of a credit facility from the appellant bank—which was purely a business-to-business transaction entered into for a commercial purpose.".The Court referred to Section 2(1)(d)(ii) of the Consumer Protection Act which excludes individuals or entities availing services for commercial purposes from the definition of a "consumer." It also cited precedents to underscore that the intent behind a transaction determines whether it is commercial in nature..While allowing the appeal, the Court ruled:"From an analysis of the aforementioned decisions, it is quite clear that what is to be seen here is whether the dominant intention or dominant purpose of the transaction was to facilitate some kind of profit generation for the person who has availed the service. Therefore, it is our considered opinion that Respondent No.1 is not a ‘consumer’ in terms of Section 2(1)(d)(ii) of the Act."The Court made it clear that it was only dealing with the issue of maintainability of the consumer complaint and not the merits of the dispute..Central Bank was represented by advocates Ashish Wad, Manoj Wad, Swati Arya, Akriti Arya and Mohd. Hadi from M/s JS Wad & Co..The company was represented by advocates M Abirchand Nahar, Dharav Shah, Dhawal Desai and Pranaya Goyal..[Read Judgment]