LAXMI ENGINEERING WORKS V. P.S.G. INDUSTRIAL INSTITUTE: AMBIT OF COMMERCIAL PRURPOSE UNDER CONSUMER DEFINITION

Author: Bhavuk Bansal 1st year BCom.LLB (Hons.) UILS Panjab University, Chandigarh

Civil Appeal No.: 4193 of 1995

Decided on: 4thApril 1995

Bench: Justice B.P. Jeevan Reddy and Justice Sujata V. Manohar

Introduction

Laxmi Engineering Works v. P.S.G Industrial Institute is a landmark judgment that defined the term ‘consumer’. In this case, the Supreme Court had interpreted the meaning of several terms – ‘consumer’, ’commercial purpose’, ‘livelihood’, and ‘self-employed’ to determine whether the appellant should be considered a consumer.

Facts

Laxmi Engineering Works, the appellant, was established under the Employment Promotion Program and was registered as a small business with the Directorate of Industries, Maharashtra. It had obtained the Maharashtra State Finance Corporation’s cash assistance in the form of term loans. It was worth Rs.22.10 lakhs and had received financial assistance from various sources. On May 28, 1990, the appellant entrusted the respondent industry to deliver the PSG 450 CNC Universal Turing General Motors. The appellant claimed that the respondent not only provided the equipment six months after the delivery date but had delivered a faulty machine. After several meetings on this issue, the respondent sent a few people to redress the faults but even after that, the machine could not be put in proper order. The appellant submitted that he was suffering monetary losses because of the inadequate working of the machine. 

Maharashtra Consumer Disputes Redressal Commission: A complaint (No. 116 of 1992) claiming an amount of Rs.4,00,000/-  from the respondent was lodged by the appellant.

Objections raised – The respondent appeared before the State Commission and objected to the plaintiff’s complaint because the appellant had purchased the machine for commercial purposes, hence he is not the consumer under Section 2 (d) of Consumer Protection Act, 1986 (hereinafter referred to as ‘the Act’).

Judgement – The commission passed the order holding that the respondent should pay the appellant a sum of Rs.2.48 lakhs within 30 days at an interest rate of 18% per annum, which partially supported the appellant’s claim.

 National Consumer Disputes Redressal Commission: National Commission approved the appeal, which was filed by the respondent on December 7, 1993 because the appellant was not a “consumer” as defined by the Act.

Objections raised The appellant has developed a large-scale equipment production business for profit-making purposes. There is one significant machinery of Rs. 21 lakhs with respect to which the appellant has filed the petition.

Judgement The complaint was rejected. The National Commission was of opinion that its decision cannot prevent the appellant from pursuing his remedy by filing an ordinary civil suit

 The plaintiff filed an appeal in the SC to challenge the National Commission’s decision.

Issue Raised

What is the meaning and extent of the term ‘commercial purpose’ as used under section 2(d) of the Consumer Protection Act, 1986?

Appellant’s Arguments

❖ The appellant argued that it has purchased said machinery for a purpose which does not fall within the scope of “commercial purpose” and it cannot be said that the appellant’s business of manufacturing machine parts “on a large scale” was for the purpose of earning profits.

❖ The appellant also submitted that it is a small-scale industry as it was enlisted with Directorate of Industries, Maharashtra in the category of small-scale industries and argued that it had been purchased for the purpose of earning a livelihood.

❖ It was argued by the  appellant that such a narrow definition of the term ‘person’  would not be able to fulfill the purpose of the Act. Such narrow definition would imply that if there was no difference between an old or invalid man who had no different means to earn a livelihood and an individual who buys an auto-rickshaw or any vehicle or other machinery to be operated by another person either on payment of consideration on a daily, weekly or monthly basis.

Respondent’s Arguments:

❖ The respondent contended that the reason for which the appellant had bought the said the machine was a commercial purpose as held by the National Commission consistently.

❖ The respondent further contended that there was direct nexus between the purchased machinery and large scale activity carried on for earning profit.

Analysis of the Case in Light of the Provisions of Consumer Protection Act

The exclusion of commercial purpose under Sec 2(d) of Consumer Protection Act, 1986 ensures that any conflict arising out of any commercial activity is not considered within the ambit of definition of the consumer. In the absence of a definition, we may go by its ordinary meaning. “Commercial” means connected to commerce with the main aim to earn profit. The National Commission unanimously believe that the person who purchases goods “in order to use these goods for large-scale paid activities” is not a “consumer” with the definition of Section 2(d)(i) of the Act.

Section 2(d)(i) and the Explanation Added by the 1993 Amendment Act:

❖ Since the term “large-scale” is not a very clear, the Parliament came into the picture and included an explanation to Section 2(d) (i) Amendment Act, 1993. It excludes certain purposes from the scope of “commercial purpose”

❖ For e.g., A person who buys any machine for his personal use is undoubtedly a consumer but a person who buys a machine to use it for certain consideration can said to be using the machine for a commercial purpose. It was held that in certain circumstances purchase of goods for “commercial purpose” would not yet take the purchaser out of the definition of expression “consumer”.

❖ If the buyer himself uses it commercially to earn a living by self-employment, the buyer of the goods is still a “consumer”. If the customer in such a scenario works on a typewriter or uses a car like a taxi, then he should also be regarded as a consumer. In other words, if the purchaser of the goods uses it himself, to earn a living, this is not regarded as a commercial purpose, “he is still a consumer in the legal sense.”

❖ Additionally, the value of the goods is irrelevant but the purpose of buying the goods is relevant. The use of different terms in the Explanation, namely “uses them by himself”, “exclusively for the purpose of earning his livelihood” and “by means of self-employment”, clearly shows the intention of the Parliament that the purchased goods should be used by buyers himself to earn his livelihood.

❖ For e.g. A person who buys a car in order to use it to acquire occupation, he is a consumer; If a person buys a truck to use it as public transportation without anyone’s assistance, he will be a consumer for the purposes of the Act.

❖ If in the above scenario, the customer needs the assistance of one or more people to operate the vehicle or machine, he is also regarded as a consumer. In contrast, people who buy cars or other machines operated by others exclusively are not consumers. The confusion in the meaning of the words “for the purpose of earning his livelihood” is explained and clarified by differentiating between commercial purpose and commercial activity

Clarification – Difference between Commercial Purpose and Commercial Activity:

 “The word used in Sec.2 (l)(d)(i) “for commercial purpose” must be given a concise and clear meaning: it is necessary to distinguish between Commercial purpose and commercial Activities.”

The various tests for determining whether the goods have been purchased for a commercial purpose would be:

❖ If they have been purchased for a resale purpose.

❖ There should be a direct nexus between the purchase of a product and the profit and loss from its removal. An immediate nexus is not there when the merchandise or administrations are to be changed over for production of different products or administrations.

Conclusion

The appeal was dismissed (without costs). With respect to the nature and character of the machine and the materials, it was held that the appellant for the use did not purchase them by himself exclusively or for earning his livelihood by means of self-employment, as explained hereinabove. Therefore, this judgement was in line with judicial precedents and the amendment Act’s clarification of “commercial purpose”. The most vital aspect that determines whether the person falls within the ambit of consumer is whether the purpose for which a person has bought goods is a “commercial purpose” within the meaning of the definition of expression “consumer” in Section 2(d) of the Act.

LAXMI ENGINEERING WORKS V. P.S.G. INDUSTRIAL INSTITUTE[1]: AMBIT OF COMMERCIAL PRURPOSE UNDER CONSUMER DEFINITION


[1] (1995) 3 SCC 583

[1] (1995) 3 SCC 583

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