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  • Writer's pictureTrivedi and Parashar (Advocates and Solicitors)

Judicial Updates -



In the case of National Insurance Co. Ltd. v. Harsolia Motors & Ors. [Civil Appeal No. 5352-5353/2007], the Respondent had availed fire insurance for a cover of Rs. 75,38,000/- from the Appellant. When the Godhra Riots occurred, the insured goods were destroyed by fire. The Respondent raised a claim for the damaged goods, but the Appellant repudiated its liability under the policy. The Respondent filed a complaint before the Gujrat State Consumer Disputes Redressal Commission (“GSCDRC”), which came to be rejected. Aggrieved by this, the Respondent filed an appeal before the Nation Consumer Dispute Redressal Commission (“NCDRC”), wherein the findings of the GSCDRC were reversed and an order was issued in favour of the Respondent. Aggrieved by the order of the NCDRC, the Appellant filed an appeal before the Supreme Court.

Before the Supreme Court, the issue for consideration was whether the insurance policy taken by the insured amounts to the hiring of service within the meaning of “commercial purpose”, thus excluding them from the ambit of the expression “consumer” under the Act.

The Supreme Court, upon observation, reiterated that in order to determine whether the insured is a "consumer" or not, certain factors need to be considered. These factors include assessing whether the insurance service has a close and direct connection to the activity that generates profit, and determining the dominant intention or purpose behind the transaction for which the claim has been made. The aim is to ascertain whether the transaction was primarily intended to facilitate profit generation for the insured. To illustrate this point, the Supreme Court provided an example. If a manufacturer is producing a product and needs to purchase articles such as raw materials, then the purchase of these materials would be considered for "commercial purposes." However, if the manufacturer buys items like refrigerators, televisions, or air conditioners for the office, these purchases would have no direct connection to profit generation. Therefore, they would not be considered for a "commercial purpose."

The Court referred to the definitions of 'consumer', 'person' and 'service' given in the Consumer Protection Act, 1986. It noted that the definition of consumer precludes use by a consumer of goods bought and used by them exclusively for the purpose of earning their livelihood by means of self-employment, while the definition of 'person' includes a firm and that of 'service' includes banking, and insurance. Thereafter, the Court referred to a catena of judgments and stated that it may be so that a person who is otherwise engaged in a commercial activity purchases goods/avails service for personal use or consumption, which is not linked to their ordinary profit-generating activities or for creation of self-employment. Such a purchase may correspond to a consumer.

The Court emphasised the transaction in relation to which the complaint has been filed under the Consumer Protection Act, 1986, claiming to be a 'consumer', is of utmost importance. It was held that - "there is no such exclusion from the definition of the term "consumer" either to a commercial enterprise or to a person who is covered under the expression "person" defined in Section 2(1)(m) of the Act, 1986 merely because it is a commercial enterprise. To the contrary, a firm whether registered or not is a person who can always invoke the jurisdiction of the Act, 1986 provided it falls within the scope and ambit of the expression "consumer" as defined under Section 2(1)(d) of the Act, 1986."

Furthermore, the Supreme Court stressed on the need to determine the purpose of the goods purchased, whether they are intended for resale or for commercial use or whether the services are availed for any commercial purpose of the goods or services are intended for either of these purposes, the insured party would not qualify as a 'consumer'. In the context of the present case, the Court concluded that the insurance service in question did not have a direct connection to the activity of profit generation. It clarified that an insurance contract is primarily meant to indemnify losses and does not involve the element of profit generation. However, it emphasized that each case should be examined individually, taking into account the specific transaction for which the claim has been raised.

The Court directed the matter to be returned to the State Commission for prompt adjudication of the insured party's complaint, with a deadline of one year to do so.


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