The Supreme Court in a batch of appeals filed by a National Insurance Company has held that where an insured commercial entity seeks the claim of insurance to only indemnify the loss and has no close or direct nexus with the profit-generating activity with services insured, then such commercial entity is a “consumer” under Section 2(1) (d) of the Consumer Protection Act, 1986 and the dispute will not necessarily qualify as a commercial dispute as per the Commercial Courts Act, 2015.

In the judgment pronounced by the bench of Justice Ajay Rastogi and Justice C.T. Ravikumar held that each case has to be examined on its own facts and circumstances and that there cannot be any straight-jacket formula to determine whether the activity or transaction is for commercial purposes to generate profits.

The Court clarified that to determine whether the dispute filed by a commercial entity would qualify as a consumer dispute or a commercial dispute, then the two ­fold classifications are the commercial purpose and non­commercial purpose, the Court by quoting several examples stated that "...if the goods are purchased for resale or for commercial purpose, then such consumer would be excluded from the coverage of the Act, 1986" and " against this, if the same manufacturer purchases a refrigerator, television or air­conditioner for his use at his residence or even for his office has no direct or indirect nexus to generate profits, it cannot be held to be for commercial purpose and for afore­stated reason he is qualified to approach the Consumer Forum under the Act, 1986.

The appeal was filed challenging the judgment passed by the National Consumer Dispute Redressal Commission which had held that the insurance policy taken for indemnification of an actual loss and not intended to generate profits, any complaint filed in breach of such policy would be maintainable and despite the insured being a commercial entity would qualify as a consumer as per 1986 Act.

The Respondents before the Court were entities having a business in vehicle dealing and were insured with the Appellant company for any loss due to fire, that during the 2002 Gujrat Godhra Riots massive damage was caused to the goods of the Respondents and the Appellant company had either denied to indemnify the loss or in some cases undervalued the loss. The Respondents aggrieved with the action of the insurance company had approached the State Consumer Redressal Commission wherein the complaint was dismissed as non-maintainable on the finding of the Commission that the business from the premises to earn profits falls under the term “for commercial purpose”.

The findings were reversed by the National Consumer Redressal Commission on the appeal filed, it was observed that in a case where goods purchased or services hired in an activity that is not intended to generate profit, it would not be a commercial purpose and held that a person who takes the policy of insurance to cover the envisaged risk, for indemnification of the actual loss suffered is not ordinarily intended to generate profits and accordingly held that the respondent/complainant was a “consumer” under Section 2(1)(d) of the Act, 1986.

Aggrieved by the same, the insurance company approached the Apex Court.

The Court held that the Act of 1986 is a social benefit­ oriented legislation and that services defined under Section 2(1)(o) of the Act include banking, insurance, and if there is a deficiency in service in the matter of banking/insurance remedy is to invoke the jurisdiction of the Act, 1986. The Court stated that profit is the main aim of commercial purpose, but in a case where goods purchased or services hired are an activity, which is not directly intended to generate profit, it would not be a commercial purpose.

The Court further stated that every case has to be examined on the broad principles which have been laid down by the Court. Further, it was held that the complaint filed by the respondent insured herein has no close or direct nexus with the profit-generating activity and the claim of insurance is to indemnify the loss which the respondent insured had suffered and that that ordinarily the nature of the insurance contract is always to indemnify the losses.

Accordingly, the Court dismissed the appeals.

Cause Title: National Insurance Co. Ltd v. Harsolia Motors and others

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