Borrower Not ‘Consumer’ If Loan Was For Profit Generation, Consumer Complaint Not Maintainable Against Bank : Supreme Court
Introduction
The Supreme Court has delivered a significant judgment, dealing a blow to the notion that a borrower can be considered a ‘consumer’ under the Consumer Protection Act, 1986, if the loan was taken for a profit-generating exercise. In a recent ruling, the Apex Court has held that a borrower will not come within the definition of ‘consumer’ under Section 2 (1) (d) (ii) of the Consumer Protection Act, 1986 if the loan was taken for a profit-generating purpose.
The case in question pertains to Ad Bureau Advertising Pvt Limited, which had taken a loan of Rs 10 crore from the Central Bank of India in 2014 to finance the post-production of the Rajinikanth film, Kochadaiyan. The loan became irregular, leading to litigation before the Debt Recovery Tribunal, and eventually, a One Time Settlement was reached for Rs 3.56 crore. Despite paying the amount as per the OTS, the Bank marked Ad Bureau as a defaulter to the Credit Information Bureau of India Limited (CIBIL), resulting in reputational damage and business loss.
<h4-The Legal Dispute and the Supreme Court’s Ruling
Ad Bureau filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) alleging deficiency of service on the part of the Bank. The NCDRC allowed the complaint, directing the Bank to pay a compensation of Rs 75 lakh and litigation costs. The Bank appealed against this order before the Supreme Court.
<h5-The Courts’ Decision
A bench comprising Justices Sudhanshu Dhulia and Prashant Kumar Mishra allowed the Bank’s appeal, holding that the borrower is not a ‘consumer’ as defined under the Consumer Protection Act. The Court observed that even if Ad Bureau had availed the loan for a self-branding exercise, the dominant purpose behind brand-building is to attract more customers and generate profits. The Court rejected Ad Bureau’s argument that the loan was taken solely for self-use, holding that the transaction was a business-to-business transaction entered into for a commercial purpose.
<h6-Judicial Rationale
The Court relied on two of its earlier judgments: Shrikant G. Mantri vs. Punjab National Bank (2022) and National Insurance Company Limited vs. Harsolia Motors & Ors. (2023). In these cases, the Court had held that a dominant intention or dominant purpose of the transaction has to be seen to ascertain if it was commercial in nature. The Court noted that the dominant intention or dominant purpose of the transaction is not just to facilitate some kind of profit generation but to generate profits or increase revenue for the business.
<h7-Consequences of the Judgment
The Supreme Court’s decision has far-reaching implications for the finance industry, where borrowers may not be able to claim the protection of the Consumer Protection Act, 1986 if they take a loan for a profit-generating purpose. This judgment underscores the importance of understanding the purpose of a loan and the commercial nature of the transaction.
<h8-Conclusion
In conclusion, the Supreme Court’s ruling in this case has clarified that a borrower will not be considered a ‘consumer’ under the Consumer Protection Act, 1986 if the loan was taken for a profit-generating purpose. This judgment is a significant development in the area of consumer law, and its implications will be closely watched by both academia and practitioners.
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