The Supreme Court ruled that a borrower does not qualify as a consumer under the Consumer Protection Act if the loan is taken for profit-making purposes. A bench comprising Justices Sudhanshu Dhulia and Prashant Kumar Mishra made this observation while hearing an appeal by the Central Bank of India against a decision of the National Consumer Disputes Redressal Commission (NCDRC). The ruling clarifies the scope of consumer rights in financial transactions.
The Supreme Court ruled that a borrower cannot be classified as a consumer under the Consumer Protection Act if the loan was taken from a bank for a profit-generating purpose.
This decision was made by a bench comprising Justices Sudhanshu Dhulia and Prashant Kumar Mishra while hearing an appeal from the Central Bank of India regarding a directive from the National Consumer Disputes Redressal Commission (NCDRC).
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The NCDRC ordered the bank to compensate Ad Bureau Advertising Pvt Limited with Rs.75 lakh, along with litigation costs, for allegedly reporting the borrower as a defaulter to the Credit Information Bureau of India Limited (CIBIL).
In this case, the Central Bank had approved a Rs. 10 crore loan to Ad Bureau for the post-production of the Rajinikanth film Kochadaiyan.
After Ad Bureau defaulted on payments, a legal process was initiated at the Debts Recovery Tribunal, which concluded with a one-time payment settlement of Rs.3.56 crore.
Despite settling the amount, the Ad Bureau argued that the bank continued to label it as a defaulter, leading to reputational harm and business losses.
Consequently, the company filed a complaint with the NCDRC, which ruled in its favor and required the bank to pay compensation and issue a certificate confirming that no dues remained.
The Supreme Court noted,
“We are cognizant of the fact that respondent No. 1 (company) would not be excluded from the definition of consumer merely on account of the fact that it is a commercial entity/enterprise. But what has weighed with us in coming to the conclusion that in the instant case, respondent No. 1 cannot be said to be a ‘consumer’ is the fact that the transaction in question i.e., obtaining a project loan did have a close nexus with a profit-generating activity and in fact, the dominant purpose for getting this loan sanctioned was to generate profits upon successful post-production of the movie titled Kochadaiyan.”
The Supreme Court ruled that a borrower is not considered a ‘consumer’ under the Consumer Protection Act if the loan is taken for profit-making purposes. The judgment came while hearing an appeal by the Central Bank of India against an NCDRC order. The ruling clarifies that commercial borrowers cannot seek consumer dispute remedies under the Act.
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