Supreme Court Restores Consumer Complaint, Holds Mere Leasing Does Not Automatically Defeat Consumer Status

A bench of Justice Prashant Kumar Mishra and Justice N.V. Anjaria heard an appeal challenging the National Consumer Disputes Redressal Commission's (NCDRC) order that dismissed a complaint on the ground that the complainants were not "consumers" under Section 2(1)(d) of the Consumer Protection Act, 1986 because they had let out the purchased residential unit.

The Court allowed the appeal, set aside the NCDRC judgment dated 11.05.2023 and restored Consumer Complaint No.74/2017 to the file of the NCDRC for fresh consideration on merits. The Court clarified that the respondent-promoter bore the onus of proving that the purchasers fell within the exclusion clause of Section 2(1)(d) and that the standard of proof was a "preponderance of probabilities." The Court noted that "the mere factum of leasing out the flat does not, by itself, demonstrate that the appellants purchased the property with the dominant purpose of engaging in commercial activity" and directed the NCDRC to decide the complaint in accordance with law. The Court, in its reasoning, observed: "The onus of proving that the appellants fall within the exclusion clause of Section 2(1)(d) of the 1986 Act rests upon the respondents, and the respondents have failed to discharge this onus on a preponderance of probabilities. The determinative question is whether the dominant intention or dominant purpose behind purchasing the flat was to facilitate profit generation through commercial activity, and whether there exists a close and direct nexus between the purchase and such profit-generating activity. The mere factum of leasing out the flat does not, by itself, demonstrate that the appellants purchased the property with the dominant purpose of engaging in commercial activity... In absence of such proof, the appellants cannot be excluded from the definition of 'consumer' under the 1986 Act."

Background

The dispute arose from a group housing project launched in 2005. The appellants booked a unit in March 2005, executed a Flat Buyer’s Agreement on 12.06.2006 for Unit No. VP-C/802 (super built area 3,590 sq. ft.) and alleged that possession was due within 36 months (plus 90 days grace), i.e., by 11.09.2009. They contended respondents unilaterally changed Tower-C's layout and raised additional demands; possession was taken by the appellants on 08.01.2015 and the occupation certificate issued on 14.08.2015. The appellants filed a consumer complaint on 10.01.2017 claiming delayed payment interest, compensation for mental agony and change of location, refund of excess charges, and litigation costs.

Respondent No.1 (the developer) stated that delay compensation had been paid and accepted, that the flat area had increased by 271.08 sq. ft. for which the appellants were liable, and that the appellants had let the flat to a third party from March 2015, arguing therefore that the purchase was for a commercial purpose and the complainants were not "consumers." Respondent No.2 contended it had been absolved of liabilities by settlement/indemnity deeds. The NCDRC accepted the respondents' position and dismissed the complaint.

On appeal the Supreme Court analysed Section 2(1)(d) and relevant precedents including Laxmi Engineering Works v. P.S.G. Industrial Institute, Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers, Rohit Chaudhary v. Vipul Limited and Shriram Chits (India) Pvt. Ltd. v. Raghachand Associates. The Court reiterated established principles that "commercial purpose" is a question of fact depending on dominant intention and nexus with profit-generating activity, and that the service provider or seller bears the burden to prove exclusion under Section 2(1)(d). Finding that respondents had not discharged that onus by a preponderance of probabilities, the Court held the NCDRC erred in law in dismissing the complaint and remitted the matter for fresh adjudication on merits. The appeal was allowed and the complaint restored; the NCDRC was directed to proceed in accordance with law.

Case Details: Case No.: CIVIL APPEAL NO.6588 OF 2023 (2026 INSC 114) Case Title: VINIT BAHRI AND ANOTHER v. M/S MGF DEVELOPERS LTD. AND ANOTHER Appearances: For the Petitioner(s): (Names not specified in the judgment extract) For the Respondent(s): (Names not specified in the judgment extract)