SECTION 138 OF NI ACT: WHETHER S.P.A CAN PROSECUTE THE COMPLAINT?

 

Section 138 of NI Act: Whether S.P.A can prosecute the complaint?

The Courts of Magistrates are often beset with the objection as regards the maintainability of complaint instituted by a Power of Attorney authorized by the payee or by Authorised Representative of company. The validity of appointment of such Special Power of Attorney (SPA) or Authorised Person of a company, as the case may be are raised in pre-trial and post trial stage and considerable time is consumed to sort out the issues. More often, it is also found that the objections are aimed at delaying the proceedings.  The Supreme Court has periodically passed judgments in this regard so as to avoid any controversy. Most recently, the Supreme Court has again dealt with the issue in a matter captioned as M/s TRL Krosaki Refractories Ltd. Versus M/s SMS Asia Private Limited & Anr (Arising out of SLP (Crl.) No.3113 of 2018) reported as 1 2022 LiveLaw (SC) 196, to set at rest the issues arising in the above context.

When a company is the payee of the cheque and based on dishonor of the cheques, when a complaint is lodged filed under Section 138 of Negotiable Instruments Act (In short “NI Act”), the complainant shall be represented by an employee who is authorized, the company, being a juristic entity, could only be represented by a natural person. The sworn statement to the effect that the complainant (Company) is represented by an authorized person who has knowledge about the transaction is deemed sufficient for summoning the accused, if other ingredients of section 138 of NI Act are satisfied. If any serious dispute with regard to the authority crops up, the same are to be dealt with in trial.

HOW TO SHOW AUTHORITY IN COMPLAINT?

 The hon’ble Supreme Court in a matter reported as A.C. Narayanan vs. State of Maharashtra & Anr. (2014) 11 SCC 790 has held that "specific assertion as to the knowledge of the power of attorney holder" about the transaction should be "said explicitly". It is further held that there is no requirement of any specific format about it or no manner of doing it is prescribed. All that is necessary is to demonstrate before the concerned Magistrate that the complaint filed is in the name of the "payee" and further, if the person who is prosecuting the complaint is different from the payee, the authorization is provided and it should further be stated that the contents of the complaint are within his knowledge. Therefore, there is no straightjacket formula about it and can only be gathered from the circumstance and the manner in which it has been averred and conveyed, based on the facts of each case. The complaint may be drafted in a different ways and may vary from case to case basis and the same shall remain contingent on the level of the skills of the person drafting the same which by itself, cannot defeat a substantive right. However, what is to be gathered conclusively is the fact that the contents as available in the pleading that conveys the meaning to the effect that the person who has filed the complaint, is duly authorized and have knowledge of the transaction. There may be a situation, where the authorized person may also be, in addition, the witness to the transaction or in agreement and supporting documents on the record may by themselves demonstrate that and in such a circumstances, knowledge is inbuilt and therefore, the requirement of Section 142 of the NI Act shall stand satisfied.

 

The provisions of section 142 of NI Act are reproduced as under for ready reference:

“142. Cognizance of offences.—[(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),— (a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) xxxxxxxxxx (c) xxxxxxxxxx”

CAN A COMPLAINT BE QUASHED ON ALLEGED LACK OF AUTHORITY

The Supreme Court has held that a petition seeking quashing of complaint u/s 482 of Cr.P.C before high courts on the premise of lack of authorization in the initial stage of complaint should not be entertained as any serious dispute could only be dealt with in trial.

In M/s TRL Krosaki Refractories Ltd (Supra), the hon’ble Supreme Court while setting aside the order passed by the high court whereby the high court had quashed summoning on the accused, had clearly held that the cognizance was prima facie right, if necessary averments about knowledge of transaction and authority finds mention in complaint u/s 138 NI Act. The said issue could not have been entertained in a petition u/s 482 of Cr.P.C.  The Magistrate is required to be prima facie satisfied, while taking cognizance on the complaint, that there is sufficient material for issuance of summons.

In the M/s TRL Krosaki Refractories Ltd (Supra) the hon’ble Supreme Court has held that a perusal of the complaint  would disclose that the complainant named therein through its General Manager (Accounting). The cheques i.e the subject matter of the said complaint under Section 138 of NI Act would disclose that the “payee” named in the said cheques is M/s. TRL Krosaki Refractories Limited. If that be the position, the requirement as contemplated under Section 142 (1) (a) of NI Act that the complaint ought to be in writing and that it should be filed by the payee or the holder in due course, stands satisfied.

When, the complainant/payee is a company, an authorized employee can represent the company. Such averment and prima facie material is sufficient for the learned Magistrate to take cognizance and issue process. If at all, there is any serious dispute with regard to the person prosecuting the complaint not being authorized or if it is to be demonstrated that the person who filed the complaint has no knowledge of the transaction and, as such that person could not have instituted and prosecuted the complaint, it would be open for the accused to dispute the position and establish the same during the course of the trial. As noted in Samrat Shipping Co. Pvt. Ltd. Vs. Dolly George (2002) 9 SCC 455,, dismissal of a complaint at the threshold by the Magistrate on the question of authorisation, would not be justified. Similarly, in such circumstances entertaining a petition under Section 482 to quash the order taking cognizance by the Magistrate would be unjustified when the issue of proper authorisation and knowledge can only be an issue for trial.

 

AUTHORITY OF POWER OF ATTORNEY: Judicial prism

In A.C. Narayanan (supra) it is noticed that Supreme Court, while considering the scope of Section 142 (1)(a) of N.I. Act had referred to earlier decisions in M/s. M.M.T.C. Ltd. vs. Medchi Chemicals and Pharma (P} Ltd., (2002) 1 SCC 234, Vishwa Mitter vs. O.P. Poddar, (1983) 4 SCC 701 wherein it was held that anyone can set the criminal law in motion by filing a complaint of facts constituting an offence, before a Magistrate entitled to take cognizance. It was further held in Vishwa Mitter (supra) that if any special statute prescribes offences and makes any special provision for taking cognizance of such offences under the statute, then the complaint requesting the Magistrate to take cognizance of the offence must satisfy the eligibility criterion prescribed by such statute. It was thus held that the only eligibility criteria prescribed by Section 142 of NI Act is that the complainant must be by the payee or the holder in due course. However, in a subsequent decision in Janaki Vashdeo Bhojwani & Anr. vs. Indusind Bank Ltd. & Ors. (2005) 2 SCC 217, while considering the right of a power of attorney holder to act on behalf of the principal in a civil proceeding, the provision contained in Order III Rule 1 and 2 of CPC was kept in view and it was held that if the power of attorney holder has rendered some acts in  pursuance of the power of attorney, he may depose for the principal in respect of such acts, but he cannot depose for the principal for the acts done by the principal and not by him. Similarly, he cannot depose for the principal in respect of the matter of which only the principal is entitled to be cross examined. As the aforesaid two decisions which were rendered by the Two Member Benches were assumed to be in conflict with each other by another Division Bench and therefore it desired clarification.

In that view, the matter the Three Judge Bench in A.C. Narayanan (supra) has held then that the said two judgments of the Supreme Court are not in conflict with each other and has considered the scope and requirement of Section 142 (1)(a) of NI Act and formulated the questions for consideration as contained in para 21 of the judgment which read as hereunder:

 “21. In terms of the reference order, the following questions have to be decided by this Bench:

21.1. Whether a power of attorney holder can sign and file a complaint petition on behalf of the complainant? /Whether the eligibility criteria prescribed by Section 142(a) of the NI Act would stand satisfied if the complaint petition itself is filed in the name of the payee or the holder in due course of the cheque?

21.2. Whether a power of attorney holder can be verified on oath under Section 200 of the Code?

21.3. Whether specific averments as to the knowledge of the power of attorney holder in the impugned transaction must be explicitly asserted in the complaint?

21.4. If the power of attorney holder fails to assert explicitly his knowledge in the complaint then can the power of attorney holder verify the complaint on oath on such presumption of knowledge?

21.5. Whether the proceedings contemplated under Section 200 of the Code can be dispensed with in the light of Section 145 of the NI Act which was introduced by an amendment in the year 2002?”

The consideration made in paras 29 to 30 would be relevant to be noted, which read as hereunder:

“29. From a conjoint reading of Sections 138, 142 and 145 of the NI Act as well as Section 200 of the Code, it is clear that it is open to the Magistrate to issue process on the basis of the contents of the complaint, documents in support thereof and the affidavit submitted by the complainant in support of the complaint. Once the complainant files an affidavit in support of the complaint before issuance of the process under Section 200 of the Code, it is thereafter open to the Magistrate, if he thinks fit, to call upon the complainant to remain present and to examine him as to the facts contained in the affidavit submitted by the complainant in support of his complaint. However, it is a matter of discretion and the Magistrate is not bound to call upon the complainant to remain present before the court and to examine him upon oath for taking decision whether or not to issue process on the complaint under Section 138 of the NI Act. For the purpose of issuing process under Section 200 of the Code, it is open to the Magistrate to rely upon the verification in the form of affidavit filed by the complainant in support of the complaint under Section 138 of the NI Act. It is only if and where the Magistrate, after considering the complaint under Section 138 of the NI Act, documents produced in support thereof and the verification in the form of affidavit of the complainant, is of the view that examination of the complainant or his witness(s) is  required, the Magistrate may call upon the complainant to remain present before the court and examine the complainant and/or his witness upon oath for taking a decision whether or not to issue process on the complaint under Section 138 of the NI Act. 30. In the light of the discussion, we are of the view that the power-of-attorney holder may be allowed to file, appear and depose for the purpose of issue of process for the offence punishable under Section 138 of the NI Act. An exception to the above is when the power-of-attorney holder of the complainant does not have a personal knowledge about the transactions then he cannot be examined. However, where the attorney holder of the complainant is in charge of the business of the complainant payee and the attorney holder alone is personally aware of the transactions, there is no reason why the attorney holder cannot depose as a witness. Nevertheless, an explicit assertion as to the knowledge of the power-of-attorney holder about the transaction in question must be specified in the complaint. On this count, the fourth question becomes infructuous.”

The answer to the question raised for consideration is contained in para 33 which read as hereunder:

33. While holding that there is no serious conflict between the decisions in M.M.T.C. and Vashdeo Bhojwani, we clarify the position and answer the questions in the following manner:

33.1. Filing of complaint petition under Section 138 of the NI Act through power of attorney is perfectly legal and competent.

33.2. The power of attorney holder can depose and verify on oath before the court in order to prove the contents of the complaint. However, the power of attorney holder must have witnessed the transaction as an agent of the payee/holder in due course or possess due knowledge regarding the said transactions.

33.3. It is required by the complainant to make specific assertion as to the knowledge of the power of attorney holder in the said transaction explicitly in the complaint and the power of attorney holder who has no knowledge regarding the transactions cannot be examined as a witness in the case.

33.4. In the light of Section 145 of the NI Act, it is open to the Magistrate to rely upon the verification in the form of affidavit filed by the complainant in support of the complaint under Section 138 of the NI Act and the Magistrate is neither mandatorily obliged to call upon the complainant to remain present before the Court, nor to examine the complainant of his witness upon oath for taking the decision whether or not to issue process on the complaint under Section 138 of the NI Act. 33.5. The functions under the general power of attorney cannot be delegated to another person without specific clause permitting the same in the power of attorney. Nevertheless, the general power of attorney itself can be cancelled and be given to another person.”

         A cumulative perusal of the facts of the instant case would indicate that the requirement as indicated in A.C. Narayanan, (supra) are in fact satisfied in M/s TRL Krosaki Refractories Ltd (Supra). Firstly, as noted above, the complaint was filed in the name of the company i.e., “the payee”, through General Manager (Accounting). The authorisation by the Managing Director in his favour  discloses that Managing Director of the appellant company had authorised the General Manager (Accounting) to institute criminal proceedings, including proceedings under the provisions of the NI Act and civil proceedings on behalf of the company against M/s. SMS Asia Private Limited (respondent), to represent the company and take all necessary actions in the matter in learned SDJM’s Court. The specimen signature of AR was also attested by the Managing Director. The Managing Director apart from himself being the key managerial personnel of the appellant company, has also been delegated the power by the Board of Directors through the document. Through the said document the Managing Director has been delegated, in general, all powers necessary for the management and operation of the company and it has been specified among others, to exercise the power relating to important issues affecting the company’s land and property. Through the said document, the Managing Director is also empowered to delegate where necessary and to the extent required, any of the powers delegated to him, to his subordinate officers. The above noted documents would disclose that the complaint under Section 138 NI Act was filed on behalf of the “payee” company with due authorisation.

A meaningful reading of the complaint shall be of significance and what can be treated as an explicit averment, cannot be put in a straitjacket but will have to be gathered from the circumstance and the manner in which it has been averred and conveyed, based on the facts of each case. The manner in which a complaint is drafted may vary from case to case and would also depend on the skills of the person drafting the same which by itself, cannot defeat a substantive right. However, what is necessary to be taken note of is as to whether the contents as available in the pleading would convey the meaning to the effect that the person who has filed the complaint, is stated to be authorized and claims to have knowledge of the same. In addition, the supporting documents which were available on the record by themselves demonstrate the fact that an authorized person, being a witness to the transaction and having knowledge of the case had instituted the complaint on behalf of the “payee” company and therefore, the requirement of Section 142 of N.I. Act was satisfied.

In Vinita S. Rao vs. Essen Corporate Services (P) Ltd. (2015) 1 SCC 527, it is held that a pleading of such a nature to indicate the power to prosecute the complaint and knowledge of the transaction as sufficient to maintain the complaint.

The Supreme Court had clarified that it is to be kept in perspective that though the case in A.C. Narayanan (supra) the facts involved therein were in the background of the complainant being an individual and the complaint filed was based on the power of attorney issued by the “payee” who was also an individual. In such an event, the manner in which the power was being exercised was to be explicitly stated so as to establish the right of the person prosecuting the complaint, to represent the payee i.e., the complainant. The position that would emerge when the complainant is a company or a corporate entity will have to be viewed from a different standpoint. In this regard in Samrat Shipping Co. Pvt. Ltd.(supra), while disapproving the manner in which cognizance was refused to be taken and the complaint had been dismissed by the learned Magistrate at the threshold, the Supreme Court has held as hereunder:

“ Having heard both sides we find it difficult to support the orders challenged before us. A company can file a complaint only through human agency. The person who presented the complaint on behalf of the Company claimed that he is the authorized representative of the company. Prima facie, the trial court should have accepted it at the time when a complaint was presented. If it is a matter of evidence when the accused disputed the authority of the said individual to present the complaint, opportunity should have been given to the complainant to prove the same, but that opportunity need be given only when the trial commences. The dismissal of the complaint at the threshold on the premise that the individual has not produced certified copy of the resolution appears to be too hasty an action. We, therefore, set aside the impugned orders and direct the trial court to proceed with the trial and dispose of it in accordance with law. Parties are directed to appear before the trial court on 31.1.2000.”

Further, in National Small Industries Corporation Ltd. Vs. State (NCT of Delhi) and Ors. (2009) 1 SCC 407, the Supreme Court has exhaustively considered the validity of a complaint under Section 138 of N.I. Act and the satisfaction of the requirement under Section 142 thereof. In the said context this Court has held as hereunder:

“ The term “complainant” is not defined under the Code. Section 142 of the NI Act requires a complaint under Section 138 of that Act to be made by the payee (or by the holder in due course). It is thus evident that in a complaint relating to dishonour of a cheque (which has not been endorsed by the payee in favour of anyone), it is the payee alone who can be the complainant. The NI Act only provides that dishonour of a cheque would be an offence and the manner of taking cognizance of offences punishable under Section 138 of that Act. However, the procedure relating to initiation of proceedings, trial and disposal of such complaints, is governed by the Code. Section 200 of the Code requires that the Magistrate, on taking cognizance of an offence on complaint, shall examine upon oath the complainant and the witnesses present and the substance of such examination shall be reduced to writing and shall be signed by the complainant and the witnesses. The requirement of Section 142 of the NI Act that the payee should be the complainant, is met if the complaint is in the name of the payee. If the payee is a company, necessarily the complaint should be filed in the name of the company, if a company is the complainant. A company can be represented by an employee or even by a nonemployee authorized and empowered to represent the company either by a resolution or by a power of attorney”.

While passing a combined judgment in the cases A.C. Narayanan v. State of Maharashtra & Anr. (Criminal Appeal No. 73 of 2007) and Shri. G. Kamlakar v. M/S Surana Securities Ltd. & Anr. (Criminal Appeal No. 1437 of 2013), the Supreme Court held that Power of Attorney can file a complaint under Section 138 of Negotiable Instruments Act, 1881 provided that he must specifically plead and support the complaint by relevant documents. If the Power of Attorney does not know about the transactions of the company then he/she cannot be examined.

SECTION 142 NI Act and Section 200 Cr.P.C: DIAGNOSTIC FEATURES

Thus in every complaint, where the complainant is an incorporeal body, there is a complainant – de jure, and a complainant de facto. Clause (a) of the proviso to Section 200 provides that where the complainant is a public servant, it will not be necessary to examine the complainant and his witnesses. Where the complainant is an incorporeal body represented by one of its employees, the employee who is a public servant is the de facto complainant and in signing and presenting the complaint, he acts in the discharge of his official duties. Therefore, it follows that in such cases, the exemption under clause (a) of the first proviso to Section 200 of the Code will be available.

Resultantly, when in a complaint in regard to dishonour of a cheque issued in favor of a company or corporation, for the purpose of Section 142 of the NI Act, the company will be the complainant, and for purposes of Section 200 of the Code, its employee who represents the company or corporation, will be the de facto complainant. In such a complaint, the de jure complainant, namely, the company or corporation will remain the same but the de facto complainant (employee) representing such de jure complainant can change, from time to time. If the de facto complainant is a public servant, the benefit of exemption under clause (a) of the proviso to Section 200 of the Code will be available, even though the complaint is made in the name of a company or corporation.” (emphasis supplied)

In that view, the position that would emerge is that when a company is the payee of the cheque based on which a complaint is filed under Section 138 of N.I. Act, the complainant necessarily should be the Company which would be represented by an employee who is authorized. Prima facie, in such a situation the indication in the complaint and the sworn statement (either orally or by affidavit) to the effect that the complainant (Company) is represented by an authorized person who has knowledge, would be sufficient. The employment of the terms “specific assertion as to the knowledge of the power of attorney holder” and such assertion about knowledge should be “said explicitly” as stated in A.C. Narayanan (supra) cannot be understood to mean that the assertion should be in any particular manner, much less only in the manner understood by the accused in the case. All that is necessary is to demonstrate before the learned Magistrate that the complaint filed is in the name of the “payee” and if the person who is prosecuting the complaint is different from the payee, the authorisation thereof and that the contents of the complaint are within his knowledge.

REMARK

Thus, what is borne out from above is the fact that the Special Power of Attorney (SPA), if duly authorized by the payee can prosecute the complaint on behalf of the complainant, so long as, the said SPA shall have personal knowledge about the transaction and the said averments are there in complaint or affidavit and the document with regard to the authority is placed on record. The Magistrates shall thus be within its authority to take cognizance of the complaint. Similarly, authorization, either through resolution passed by Board of Directors’ of complainant company, or through GPA coupled with personal knowledge and averments to that effect in the complaint shall be enough. Even a non- employee of the complainant company could be authorized, if the said person has personal knowledge to that effect and necessary averment is there in the complaint or in affidavit filed before the ld Magistrate u/s 138 of NI Act. It is also clearly settled that any serious dispute with regard to the authority to the AR or SPA shall be the subject matter of trial and invocation of section 482 of Cr.P.C by a party for seeking quashing on that premise is clearly deprecated by hon’ble Supreme Court and in the dicta as referred to above, it is clearly held that the quashing of summoning order cannot be permitted in the above backdrop. Still further, as held in in A.C Narayanan (Supra) there is no impediment in authorising someone as SPA in individual complaint, if the stipulations as narrated above i.e personal knowledge about the transaction and averments to that effect finds mention in the complaint.

                                           Anil K Khaware

                                           Founder & Senior Associate

                                           Societylawandjustice.com

CONSUMER COURTS CANNOT ENTERTAIN COMMERCIAL PURPOSE COMPLAINTS

 

 

The Consumer Protection Act 1986 and subsequent amendment in 1993 and 2002 as also the Consumer Protection Act of 2019 clearly stipulates that a consumer shall be the one who does not avail services or goods for commercial purposes. If it is so, the provision of Consumer Protection Act shall not be attracted. The law as evolved shows what may constitute “commercial purpose”. The great deal, of course, depend upon the facts and circumstances of each case, as what could constitute “commercial purpose” is not defined in the Act. Ordinarily, "commercial purpose" shall encompass within its ambit manufacturing/industrial activity or business -to -business transactions between commercial entities. In other words, the purchase of the good or service should have a close and direct nexus with a profit- generating activity. Thus, the dominant intention or dominant purpose for the transaction and as to whether the same was to facilitate some kind of profit generation for the purchaser and/or their beneficiary. If the dominant purpose, behind purchasing the good or service was for the personal use and the consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, then the same shall not be construed as commercial purpose. If a purchase was for the purpose of "generating livelihood by means of self employment" then, the same shall clearly be out of commercial purposes. What is of significance that personal livelihood aspect did not find mention in the 1986 Act and subsequently, the said aspect was made part of the act vide Amendments in 1993 and 2002 in the Consumer Protection Act, 1986.

The Section 2(1)(d)(ii) of the Act excludes a person who avails of services for ‘any commercial purpose. The explanation to the provision shows that if the services availed by him were exclusively for the purposes of earning his livelihood by means of self-employment, then the same shall not be construed as commercial purposes.

Section 2(1)(d) of the said Act, as it exists today, which is as follows: “2.Definition. (1) In this Act, unless the context otherwise requires, (a)…………………………………………………… ………………………………………

(d) “consumer” means any person who,—

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is 6 made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purpose;

Explanation.—For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment;”

HISTORICAL PERSPECTIVES

The legislature upon finding that, though, there were various provisions contained in various enactments to protect the consumers and provide relief to them, yet it was felt necessary to protect the consumers from the exploitation and to save them from adulterated and substandard goods and services and to safeguard the interests of the consumers. In order to provide for better protection of the interests of the consumer, the Consumer Protection Bill was introduced in the Parliament. Perusal of the ‘Statement of Objects and Reasons’ of the said Act would show that the said Act seeks to provide for better protection of the interests of consumers and for that purpose, to make provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and for matters connected therewith. One of the objects for enacting the said Act was the right to be heard and to be assured that consumers’ interests will receive due consideration at appropriate forums. To provide speedy and simple redressal to consumer disputes, a quasi judicial machinery was sought to be set up at the district, State and Central levels. It will be apposite to refer to the preamble of the said Act, which reads thus:

“An Act to provide for better protection of the interests of consumers and for that purpose to make provision for the establishment of consumer councils and other authorities for the settlement of consumers’ disputes and for matters connected therewith.”

Over the space of time it was realized that the commercial purposes and its ambit required further specification and further, in order to plug loopholes and enlarge the scope of areas covered, the legislature brought certain amendments to the said Act by the Consumer Protection (Amendment) Act, 1993  (In short “1993 Amendment Act”). One of the objects of the said Act was to enable the consumers, who are self-employed, to file complaints before the redressal agencies, where goods bought by them exclusively for earning their livelihood, suffer from any defect. By subsection (5) of Section 2 of the 1993  Amendment Act, the following amendments were effected to the definition of the term ‘consumer’:

“(5) in clause (d),

(A) in sub clause (ii), for the word “hires”, in both the places where it occurs, the words “hires or avails of” shall be substituted;

(B) after sub clause (ii), the following Explanation shall be     inserted at the end, namely:‘

Explanation. For the purposes of sub clause (i), “commercial purpose” does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment’;”

Thus, it is apparent that by virtue of 1993 Amendment Act, insofar as services are concerned, wherever the word “hires” was used, the same was substituted by the words “hires or avails of”.

In he said 1993 Amendment Act, insofar as Section 2(1)(d)(i) is concerned, an Explanation was provided to the effect that ‘commercial purpose’ does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood by means of self-employment. It could thus be seen that though the original Act of 1986 excluded a person from the ambit of definition of the term ‘consumer’ whenever, such purchases were made for commercial purpose. However, vide the amendment and by the Explanation, which is an exception to an exception, even if a person made purchases for ‘commercial purpose’, he was included in the definition of the term ‘consumer’, if such a person bought and used such goods exclusively for earning his livelihood by means of self-employment.

The legislative intent is clear, that though the purchases for commercial purposes are out of the ambit of the definition of the term ‘consumer’ in the said Act, if a person buys and uses such goods exclusively for earning his livelihood by way of self employment, he would still be entitled to protection under the said Act.

As hiccups still persisted and with a view to avoid the bottleneck and impediments as regards the implementation of various provisions of the said Act and with a view to facilitate quicker disposal of consumer complaints, and to make the said Act more effective by removing various lacunae, the legislature amended the said Act by the Consumer Protection (Amendment) Act, 2002 (In short  “the 2002 Amendment Act”). One of the objects for bringing out the 2002 Amendment Act was “exclusion of services availed for commercial purposes from the purview of the consumer disputes redressal agencies”.

It could thus be seen that the legislature noticed the mischief, that though Section 2(1)(d)(i) of the said Act kept out of its purview the goods purchased for commercial purpose, the said restriction was not found in Section 2(1)(d)(ii) of the said Act. As such, in order to bring Section 2(1)(d)(ii) at par with Section 2(1)(d)(i), the following amendment was effected to in clause (d):

“(c) in clause (d), (i) in sub clause (ii), the following words shall be inserted at the end, namely: “but does not include a person who avails of such services for any commercial purpose”;

The following Explanation was substituted, namely:

‘Explanation.—For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment’;”

By virtue of the 2002 Amendment Act, the legislature clearly provided that a person, who avails of such services for any commercial purpose would be beyond the ambit of definition of the term ‘consumer’.

The Explanation, which is an exception to an exception, which earlier excluded a person from the term ‘commercial purpose’, if goods were purchased by such a person for the purposes of earning his livelihood by means of self-employment, was substituted and the Explanation was made applicable to both clauses (i) and (ii). It can thus clearly be seen that by the 2002 Amendment Act, though the legislature provided that whenever a person avails of services for commercial purposes, he would not be a consumer; it further clarified that the ‘commercial purpose’ does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self employment.

What is therefore conspicuously evident is that the legislature’s clearly intended that if a person buys goods for commercial purpose or avails services for commercial purpose, ordinarily, he would have been out of the ambit of the term ‘consumer’, by virtue of Explanation, which is now common to both Sections 2(1)(d)(i) and 2(1)(d)(ii), he would, however,  still come within the ambit of the term ‘consumer’, if purchase of such goods or availing of such services was exclusively for the purposes of earning his livelihood by means of self-employment.

LAW ON THE ASPECT

(1)      Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and others, (2020) 2 SCC 265; 

(2)    Paramount Digital Colour Lab and others vs. AGFA India Private Limited and others, (2018) 14 SCC 81;

(3)    Sunil Kohli and another vs. Purearth Infrastructure Limited, (2020) 12 SCC 235; (

(4)     CBI, AHD, Patna vs. Braj Bhushan Prasad and others, (2001) 9 SCC 432.

(5)    Laxmi Engineering Works vs. P.S.G. Industrial Institute, (1995) 3 SCC 583

(6)    Cheema Engineering Services vs. Rajan Singh, (1997) 1 SCC 131

(7)    Kalpavruksha Charitable Trust vs. Toshniwal Brothers (Bombay) Pvt. Ltd. and another, (2000) 1 SCC 512

(8)    SHRIKANT G. MANTRI VERSUS PUNJAB NATIONAL BANK1 2022 LiveLaw (SC) 197  CIVIL APPEAL NO.11397 OF 2016; FEBRUARY 22, 2022

The Consumer Protection Act is a special statute and is enacted with the purpose of providing a speedy and simple redressal to consumer disputes. It provides a summary procedure so that the consumer disputes are settled without undue delay. If the definition of the word ‘consumer’ is expanded, so as to include in it a person who avails of such services for any commercial purpose, the very purpose of the said Act would be defeated. No commercial dispute between the service provider and the availer/recipient of the service could be included in the definition of the word ‘consumer’ as in that event this will open floodgates of complaints.

The purpose of the said Act has been succinctly described by Supreme Court in the case of Laxmi Engineering Works vs. P.S.G. Industrial Institute, (1995) 3 SCC 583 which is as under:

 “10. A review of the provisions of the Act discloses that the quasi-judicial bodies/authorities/ agencies created by the Act known as District Forums, State Commissions and the National Commission are not courts though invested with some of the powers of a civil court. They are quasi-judicial tribunals brought into existence to render inexpensive and speedy remedies to consumers. It is equally clear that these forums/ commissions were not supposed to supplant but supplement the existing judicial system. The idea was to provide an additional forum providing inexpensive and speedy resolution of disputes arising between consumers and suppliers of goods and services. The forum so created is uninhibited by the requirement of court fee or the formal procedures of a court. Any consumer can go and file a complaint. Complaint need not necessarily be filed by the complainant himself; any recognized consumers' association can espouse his cause. Where a large number of consumers have a similar complaint, one or more can file a complaint on behalf of all. Even the Central Government and State Governments can act on his/their behalf. The idea was to help the consumers get justice and fair treatment in the matter of goods and services purchased and availed by them in a market dominated by large trading and manufacturing bodies. Indeed, the entire Act revolves round the consumer and is designed to protect his interest. The Act provides for “business-to-consumer” disputes and not for “business-to business” disputes. This scheme of the Act, in our opinion, is relevant to and helps in interpreting the words that fall for consideration in this appeal.”

The object of the amendment, therefore, was to help the consumers get justice and fair treatment in the matter of goods and services purchased and availed by them in a market dominated by large trading and manufacturing bodies. It has been held that the entire Act revolves round the consumer and is designed to protect his interest. It provides for “business-to-consumer” disputes and not for “business-to-business” disputes. It has been held that forums/commissions provided by the said Act are not supposed to supplant but supplement the existing judicial system. The idea was to provide an additional forum providing inexpensive and speedy resolution of disputes arising between consumers and suppliers of goods and services.  In the case of Laxmi Engineering Works (supra), the Supreme Court, while considering the scope of the definition of the expression ‘consumer’ with relation to Section 2(1)(d)(i) of the said Act and the Explanation added by 1993 Amendment Act, observed thus:

“11. Now coming back to the definition of the expression ‘consumer’ in Section 2(d), a consumer means insofar as is relevant for the purpose of this appeal, (i) a person who buys any goods for consideration; it is immaterial whether the consideration is paid or promised, or partly paid and partly promised, or whether the payment of consideration is deferred; (ii) a person who uses such goods with the approval of the person who buys such goods for consideration; (iii) but does not include a person who buys such goods for resale or for any commercial purpose. The expression ‘resale’ is clear enough. Controversy has, however, arisen with respect to meaning of the expression “commercial purpose”. It is also not defined in the Act. In the absence of a definition, we have to go by its ordinary meaning. ‘Commercial’ denotes “pertaining to commerce” (Chamber's Twentieth Century Dictionary); it means “connected with, or engaged in commerce; mercantile; 11 having profit as the main aim” (Collins English Dictionary) whereas the word ‘commerce’ means “financial transactions especially buying and selling of merchandise, on a large scale” (Concise Oxford Dictionary). The National Commission appears to have been taking a consistent view that where a person purchases goods “with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit” he will not be a ‘consumer’ within the meaning of Section 2(d)(i) of the Act. Broadly affirming the said view and more particularly with a view to obviate any confusion — the expression “large scale” is not a very precise expression — Parliament stepped in and added the explanation to Section 2(d)(i) by Ordinance/ Amendment Act, 1993. The explanation excludes certain purposes from the purview of the expression “commercial purpose” — a case of exception to an exception. Let us elaborate: a person who buys a typewriter or a car and uses them for his personal use is certainly a consumer but a person who buys a typewriter or a car for typing others' work for consideration or for plying the car as a taxi can be said to be using the typewriter/car for a commercial purpose. The explanation however clarifies that in certain situations, purchase of goods for “commercial purpose” would not yet take the purchaser out of the definition of expression ‘consumer’. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of self-employment, such purchaser of goods is yet a ‘consumer’. In the illustration given above, if the purchaser himself works on typewriter or plies the car as a taxi himself, he does not cease to be a consumer. In other words, if the buyer of goods uses them himself, i.e., by self-employment, for earning his livelihood, it would not be treated as a “commercial purpose” and he does not cease to be a consumer for the purposes of the Act. The explanation reduces the question, what is a “commercial purpose”, to a question of fact to be decided in the facts of each case. It is not the value of the goods that matters but the purpose to which the goods bought are put to. The several words employed in the explanation, viz., “uses them by himself”, “exclusively for the purpose of earning his livelihood” and “by means of self-employment” make the intention of Parliament abundantly clear, that the goods bought must be used by the buyer himself, by employing himself for earning his livelihood”.

In the case of Cheema Engineering Services vs. Rajan Singh, (1997) 1 SCC 131 the Supreme Court held that the manufacture and sale of bricks in a commercial way may also be to earn livelihood. As such, the question as to whether the complainant used the machinery for the manufacture of bricks alone or with members of his family and as to whether the same was for earning his livelihood, were the questions of fact to be decided on the basis of evidence.

In the case of Kalpavruksha Charitable Trust vs. Toshniwal Brothers (Bombay) Pvt. Ltd. and another, (2000) 1 SCC 512 this Court considered the question as to whether the machines purchased by the Charitable Trust for use in the Diagnostic Centre were meant for ‘commercial purpose’ or not. It was sought to be urged on behalf of the Trust that the T rust was not carrying out a profit making activity and as such, the purchase of diagnostic machines would not come within the ambit of the term ‘commercial purpose’. It was, therefore, sought to be urged that it would fall within the definition of the term ‘consumer’. This Court held that the finding of the National Commission that the machinery was installed for commercial purpose and as such, the Trust was not a ‘consumer’ within the meaning of the said Act, required no interference.

In the case of Paramount Digital Colour Lab (supra), the Supreme Court was considering the case of unemployed graduates, who had started a business of photography in partnership for self-employment and for their livelihood. For the said purpose, they had purchased an advanced photo processing, developing and printing machine. It was the case of the appellants therein that the respondents, despite having the knowledge that the machine was not working properly, had unfairly and carelessly sold the same to the appellants. As such, the appellants were required to file a complaint under the said Act. The State Commission had allowed the complaint. In appeal, the National Commission held that the appellants were not the consumers as envisaged under Section 2(1)(d) of the said Act, since the purchase of the machine was for commercial purpose. Reversing the view taken by the National Commission and upholding the view taken by the State Commission, the Supreme  Court observed thus:

“ In this case, since the appellants have purchased the machine, Section 2(1)(d) of the Act is applicable. “Consumer” as defined under Section 2(1)(d) of the Act does not include a person who obtains goods for a “commercial purpose”. The Explanation supplied to Section 2(1)(d) clarifies that “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of “self-employment”. If both these provisions are read together, it leads to the conclusion that if a person purchased the goods for consideration not for any commercial purpose, but exclusively for the purposes of earning his livelihood by means of “self-employment”, such purchaser will come within the definition of “consumer”. If a person purchases the goods for a “commercial purpose” and not for the purposes of earning his livelihood by means of “self-employment”, such purchaser will not come within the definition of “consumer”. It is therefore clear, that despite “commercial activity”, whether a person would fall within the definition of “consumer” or not would be a question of fact in every case. Such question of fact ought to be decided in the facts and circumstances of each case”.

 “Self-employment” necessarily includes earning for self. Without earning generally there cannot be “self-employment”. Thus, if a person buys and uses the machine exclusively for the purposes of earning his livelihood by means of “self-employment”, he definitely comes within the definition of “consumer”. In the matter on hand, the quality of ultimate production by the user of the machine would depend upon the skill of the person who uses the machine. In case of exigencies, if a person trains another person to operate the machine so as to produce the final product based on skill and effort in the matter of photography and development, the same cannot take such person out of the definition of “consumer”.”

In the case of Lilavati Kirtilal Mehta Medical Trust (supra), the Supreme Court after considering the earlier judgments held thus:

To summarise from the above discussion, though a strait jacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is “for a commercial purpose”:

(1) The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, “commercial purpose” is understood to include manufacturing/ industrial activity or business-to-business transactions between commercial entities.

(2)  The purchase of the good or service should have a close and direct nexus with a profit generating activity.

(3) The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. It has to be seen whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.

(4)  If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of “generating livelihood by means of self-employment” need not be looked into.”

It is thus clear, that the Supreme Court has held that the question, as to whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, “commercial purpose” is understood to include manufacturing / industrial activity or business-to-business transactions between commercial entities; that the purchase of the good or service should have a close and direct nexus with a profit-generating activity; that the identity of the person making the purchase or the value of the transaction is not conclusive for determining the question as to whether it is for a commercial purpose or not? What is relevant is the dominant intention or dominant purpose for the transaction and as to whether the same was to facilitate some kind of profit generation for the purchaser and/or their beneficiary. It has further been held that if the dominant purpose behind purchasing the good or service was for the personal use and the consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, then the question of whether such a purchase was for the purpose of “generating livelihood by means of self-employment” need not be looked into.

In the case of Sunil Kohli (supra), the Supreme  Court on the basis of the evidence, clearly found that the complainants wanted to dispose of property in Denmark and wanted to come down to Delhi to start a business. It has further been found that for this purpose, the premises in question were booked. As such, said case was a case wherein the commercial premises were booked by the appellants therein, who had left their employment in Denmark and purchased the premises only for the purposes of starting their business for earning their livelihood by way of self-employment. Therefore, the said case was a case wherein the appellants therein had availed of the services exclusively for earning their livelihood by means of self-employment.

In the above backdrop, the Supreme Court recently had occasion to deal with the issue in 1 2022 LiveLaw (SC) 197  CIVIL APPEAL NO.11397 OF 2016 (judgment delivered on  FEBRUARY 22, 2022)  in a matter captioned as SHRIKANT G. MANTRI VERSUS PUNJAB NATIONAL BANK , the Supreme Court has held that it is not in dispute that the appellant was already engaged in the profession of stockbroker, much before he availed of service of the overdraft facility from the respondent-Bank. It is also not in dispute that he was also acting as a stockbroker for the respondent-Bank. It is also not in dispute that the appellant took the overdraft facility and also sought enhancement of the same from time to time in furtherance of his business as a stockbroker and for the purpose of enhancing the profits therein. As already held by the Supreme Court in the case of Laxmi Engineering Works (supra), the terms “services availed by him”, “exclusively for the purpose of earning his livelihood” and “by means of self-employment” will have to be given its meaning, as intended by the legislature. The said terms will have to be construed in context with the purpose for which the said Act is enacted.

The legislative history as to how Section 2(1)(d) of the said Act has come in its present form from the original form stands described. The amendments incorporated by the 1993 Amendment Act as well as by the 2002 Amendment Act would clearly show that the legislative intent is to keep the commercial transactions out of the purview of the said Act and at the same time, to give benefit of the said Act to a person who enters into such commercial transactions, when he uses such goods or avails such services exclusively for the purposes of earning his livelihood by means of self-employment. In the above case, the National Commission has come to a finding that the appellant had opened an account with the respondent-Bank, took overdraft facility to expand his business profits, and subsequently from time to time the overdraft facility was enhanced so as to further expand his business and increase his profits. The relations between the appellant and the respondent was purely “business to business” relationship. As such, the transactions would clearly come within the ambit of ‘commercial purpose’. It cannot be said that the services were availed “exclusively for the purposes of earning his livelihood.

No doubt, in  Internet and Mobile Association of India vs. Reserve Bank of India, (2020) 10 SCC 274 it is held that the services of the Bank provide lifeline for any business, trade or profession. It is also obvious that without involvement of bank there could be any worthwhile work. However, the ‘business to business’ relationship cannot be construed as consumer disputes, thereby defeating the very purpose of providing speedy and simple redressal to consumer disputes. The appellant was therefore held to be raising a commercial dispute and that is clearly excluded under the Consumer Protection Act and no consumer complaint shall lie.

REMARK

It could thus be seen, that when a person avails a service for a commercial purpose, to come within the meaning of ‘consumer’ as defined in the said Act, he will have to establish that the services were availed exclusively for the purposes of earning his livelihood by means of self-employment. There cannot be any straitjacket formula and such a question will have to be decided in the facts of each case, depending upon the evidence placed on record.

The aforesaid dicta clearly encapsulates that a clear commercial transaction for profit generating purpose may ex facie be treated as commercial dispute and as such the Consumer Commissions cannot be approached for redressal, though, civil action may lie. However, any transaction for the livelihood, though, may have a trap of commercial transaction, but if the same is for perusal livelihood, it cannot be treated as commercial purpose and therefore, within the meaning of section 2(1)(d)(ii) and as per the explanation, the person, who availed of goods and services shall be treated as consumer and therefore Consumer complaint in this regard before the appropriate Consumer Commission shall lie.

                                                   Anil K Khaware

                                           Founder & Senior Associate

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