Supreme Court Ruling: Real Estate Purchase for Director's Personal Use Not Commercial under CPA

August 27, 2024

In a recent ruling on whether a real estate company that bought a flat for a Director’s personal use qualifies as a “consumer” under Section 2(7) of the Consumer Protection Act, the Supreme Court reaffirmed that the assessment of whether a transaction is commercial or personal should be based on the dominant purpose and context of the purchase.

The Court stated, “The key is to determine the primary intention behind the transaction to see if it is linked to profit-making as part of commercial activities.”

Referring to the case of M/s Daimler Chrysler India Pvt. Ltd. v. M/s Controls & Switchgear Company Ltd. & Anr., Justices PS Narasimha and Pankaj Mithal noted that whether a purchase is considered for commercial purposes depends on the specific facts of each case. Generally, “commercial purpose” includes manufacturing/industrial activities or business-to-business transactions, and the purchase should have a direct connection to profit generation.

The Court added, “If the main intent behind the purchase was for personal use by the buyer or the beneficiary, and not tied to commercial activities, then the question of whether the purchase was for ‘generating livelihood through self-employment’ need not be examined.”

Factual Background:

The respondent, a real estate company, purchased a flat for the residential use of one of its directors, paying a booking amount of Rs. 51,00,000/- and part consideration of Rs. 6,79,97,071/-. A letter of allotment with a possession date of 31.12.2018 was issued, but the date was later advanced to early 2017. The respondent was asked to take possession immediately and pay the remaining amount of Rs. 28,87,80,526/- within 30 days.

When the respondent discovered that the flat had been reserved for someone else, it refused to take possession and make the final payment. The appellant then canceled the booking and forfeited the entire amount. The respondent sought a refund of Rs. 7,16,41,493/- plus interest, claiming deficiency in service and unfair trade practices. The National Consumer Disputes Redressal Commission (NCDRC) ruled in favor of the respondent, ordering a refund and compensation.

Issues:

Was the complaint maintainable, given the argument that the respondent was not a “consumer” under Section 2(7) of the CPA?
Was there any deficiency in service by the appellant, or was the cancellation and forfeiture justified?

Court Observations:

The Court found that the maintainability issue was well-established. It referred to past decisions, such as Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Crompton Greaves Limited v. Daimler Chrysler India Private Limited, which clarified that the dominant purpose of a transaction must be considered to determine its commercial nature.

In this case, the Court noted that the flat was intended for the personal use of a director and his family, not for the company’s business. The burden of proving that the purchase was part of commercial activity rested with the appellant, which failed to provide such evidence.

Regarding deficiency and unfair trade practices, the Court found that the issue of double allotment had been resolved, and the cancellation of the allotment before resolving this dispute was unjustified. Therefore, the forfeiture was also deemed unlawful.

Conclusion:

The Court upheld the NCDRC’s decision, dismissing the appeal. It directed the appellant to refund Rs. 3,00,00,000/- within two weeks, with the balance to be paid by December 31, 2024.

Posted and reproduced in Public Interest by

Adv. Sulaiman Bhimani Legal Consultant

Expert in RERA & Consumer Matters, Co-operative Scty Matters,

Deem Conveyance, Family Matters, and Property Disputes.

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