Supreme Court Now Mandates Service Providers To Prove “Commercial Purpose”

The Supreme Court of India has passed a judgment placing the onus of the burden of proof on the service provider to prove that the service was obtained for commercial purposes. This order was passed by Justice Aravind Kumar and Justice Pamidighantam Sri Narasimha on May 10, 2024.

Facts of the Case

This case involved a dispute between Raghachand Associates (complainant) and Shriram Chits (India) Private Limited (service provider). The complainant had subscribed to certain chits in the chit business of the service provider.

It is the case of the complainant that the service provider had illegally stopped the chit business in the year 1996. The complainant requested the service provider to repay the chit amount deposited until stoppage of the business. The service provider refused to re-pay the subscription amount since, according to it, the complainant owed certain dues to it and therefore, it adjusted the subscription amount against pending dues of the complainant.

The complainant sought protection under the Consumer Protection Act (CPA) of 1986 for grievances related to the services received. However, the chit fund argued that the company wasn’t a “consumer” under the CPA because the service was obtained for a commercial purpose.

Key Issue

The central question revolved around who holds the burden of proof regarding the purpose for which the service was obtained. Does the consumer need to prove it wasn’t commercial, or does the service provider need to prove it was commercial and exclude the consumer from CPA protection?

Judicial experience has shown us that the service providers most often than not take up a plea in their written version that the service obtained/ goods bought was for a commercial purpose. For, if they succeed in their plea, the complainant is excluded from availing any benefit under the Act, the court remarked.

Supreme Court’s Decision

The Supreme Court ruled in favor of the consumer. The Court held that the burden of proving a service was obtained for a commercial purpose lies with the service provider, not the consumer.

Since it is always the service provider who pleads that the service was obtained for a commercial purpose, the onus of proving the same would have to be borne by it. Further, it cannot be forgotten that the Consumer Protection Act is a consumer-friendly and beneficial legislation intended to address grievances of consumers. Moreover, a negative burden cannot be placed on the complainant to show that the service available was not for a commercial purpose.


Analysis of the Definition of “Consumer”

The Court clarified the three-part definition of a “consumer” under the CPA:

  1. Jurisdictional Prerequisites: Purchase of goods or services for consideration.
  2. Exclusion Clause: Excludes those who obtain services for resale or commercial purposes.
  3. Exception to Exclusion Clause: Limits the scope of “commercial purpose.” Commercial purpose’ does not include persons who bought goods ‘exclusively for the purpose of earning his livelihood, by means of self-employment’.

Significance of the Decision

This judgment empowers consumers by making it easier for them to seek redressal under the CPA. It removes the initial burden of proving they are not using the service commercially.

This decision strengthens consumer protection in India by:

  • Shifting the burden of proof to service providers.
  • Making it easier for consumers to file complaints under the CPA.
  • Promoting a fairer marketplace where consumers are protected from faulty services.

Overall, this case sets a crucial precedent for consumer rights in India, ensuring a more balanced system for resolving service disputes.