The Supreme Court has ruled that businesses taking loans for commercial purposes cannot be considered “consumers” under the Consumer Protection Act, 1986. The decision came in a case where a company, M/s Ad Bureau Advertising, had accused Central Bank of India of wrongly labeling it as a defaulter despite settling its loan.
Background of the Case
The dispute began in 2014 when Central Bank of India approved a ₹10 crore project loan for Ad Bureau Advertising. The loan was meant for the post-production of the movie Kochadaiyaan, starring Rajinikanth. As part of the agreement, the company pledged a property as collateral.
However, Ad Bureau Advertising failed to repay the loan on time, leading the bank to classify it as a Non-Performing Asset (NPA) in 2015. The bank then took legal action under the SARFAESI Act and Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act to recover the money. Eventually, the company and the bank reached a one-time settlement, and the company paid ₹3.56 crore to close the loan.
The Dispute Over CIBIL Reporting
Despite settling the dues, the bank mistakenly reported Ad Bureau Advertising as a defaulter to the Credit Information Bureau of India Limited (CIBIL). This had severe consequences for the company, as it lost an important advertising tender with the Airports Authority of India due to its defaulter status. Unable to secure a bank guarantee, the company faced financial losses and reputational damage.
In response, Ad Bureau Advertising filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC), accusing the bank of deficiency in service and unfair trade practices.
NCDRC Ruling and Bank’s Appeal
On August 30, 2023, the NCDRC ruled in favor of the company, ordering the bank to:
- Pay ₹75 lakh in compensation
- Issue a no-dues certificate
- Correct its CIBIL reporting
- Pay ₹20,000 in legal costs
The bank challenged this order in the Supreme Court, arguing that Ad Bureau Advertising did not qualify as a consumer under the Consumer Protection Act, since the loan was taken for commercial purposes.
Supreme Court’s Verdict
A bench of Justices Sudhanshu Dhulia and Prashant Kumar Mishra sided with the bank, ruling that Ad Bureau Advertising was not a consumer under the law.
The Court explained that the company took the loan for a profit-generating activity—specifically, for post-production of a movie. Since the main purpose of the loan was business-related, the company could not seek protection under the Consumer Protection Act.
The Court further clarified:
- The “dominant purpose” of the transaction must be considered to determine if someone is a consumer.
- The Consumer Protection Act excludes entities using services for commercial gain from its protection.
- Even if the company claimed the loan was for branding, branding itself is a commercial activity aimed at increasing profits.
The Court ruled that the case could not be heard under consumer law, but it did not comment on the company’s actual claims against the bank.
Final Decision
The Supreme Court set aside the NCDRC’s order, ruling that Ad Bureau Advertising was not a consumer in this case.
Legal Representation
- Central Bank of India was represented by Advocates Viresh B Saharya, Akshat Agarwal, and Rishabh Mathur.
- Ad Bureau Advertising was represented by Advocates M Abirchand Nahar, Dharav Shah, Dhawal Desai, and Pranaya Goyal.
This ruling sets an important precedent, making it clear that businesses taking loans for commercial purposes cannot file consumer complaints against banks.
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