Who is a consumer: Courts focus on dominant objective to determine status

A recent Supreme Court ruling reinforces that developers and service providers must prove profit-first motive before denying consumer status

The Supreme Court has reiterated in a recent case that buying immovable property, even multiple units, does not automatically make the buyer a “commercial” investor or strip them of protection under the Consumer Protection Act. The judgment reinforces the point that companies cannot deny consumer status casually.

 

Definition of consumer

 

Under the Consumer Protection Act, 2019, a consumer is a person who buys goods or avails services for a consideration, whether paid fully, partly, or on deferred terms. “The definition also covers users and beneficiaries, so long as such use is with the buyer’s approval. However, purchases made for resale or for a ‘commercial purpose’ are excluded. Courts have clarified that a commercial purpose means an activity directly linked to profit-making, with the focus on the dominant intention behind the transaction rather than its form,” says Vishal Gehrana, partner designate, Karanjawala & Co.

 

Mere ownership, investment, or even the purchase of multiple units does not, by itself, amount to commercial purpose. There must be clear evidence that profit-making was the dominant objective.

 

The self-employment exception

 

The law makes an exception for goods or services used for self-employment or to earn a livelihood. Even where the buyer generates income, the law does not treat the transaction as commercial if the individual uses the goods or services personally and exclusively for their own work.

 

“Initially, the service provider must show that the transaction was commercial. The burden then shifts to the complainant to establish that the self-employment exception applies. Courts examine the substance of the activity, not labels. Where the goods or services are used directly to earn a livelihood, without a larger commercial enterprise, the complainant remains a consumer,” says Gehrana.

 

Grey areas used to deny consumer status

 

Developers, insurers and other service providers often invoke the commercial-purpose test. They argue that when goods or services are linked to profit generation, and the buyer uses them in the regular course of business, the complainant cannot claim consumer status unless they show livelihood-based use.

 

“Insurers and developers, for instance, often contend that high-value insurance policies or purchases of commercial property reflect a dominant profit motive and fall outside consumer protection. Courts, however, have repeatedly held that no presumption arises merely from the nature or value of the transaction. Consumer status must be decided on the specific facts and the dominant purpose behind it,” says Tannya Baranwal, partner, IndiaLaw LLP.

 

How courts determine commercial purpose

 

Courts and consumer commissions apply the dominant purpose test to decide whether a transaction is for a “commercial purpose”. The test focuses on the real intention behind the purchase and its actual use, not the buyer’s status or the scale of the activity.

 

Baranwal says the Supreme Court laid down this principle in Laxmi Engineering Works v. P.S.G. Industrial Institute, holding that the decisive factor is whether the goods or services have a direct nexus with profit-oriented commercial activity. “The determination is fact-specific and cannot rest solely on the value of the goods or the buyer’s business profile,” says Baranwal.

 

Handling objections

 

Consumers should address their consumer status upfront. They should state the purpose of the purchase clearly, confirm it was not for business use, and explain any later leasing, if applicable. They should file key documents—such as agreements, payment records, and loan papers—early.

 

“Later renting of the property does not automatically make the purchase commercial. The key issue is whether there was an intention, from the outset, to engage in commercial leasing as a business. Buyers should clearly state their intent and avoid loosely labelling the purchase as an ‘investment’, which may be misconstrued,” says Shankey Agrawal, partner, BMR Legal.

 

While the consumer must plead basic facts, the burden of proving a commercial purpose lies on the company raising the objection. “If the company cannot show clear evidence linking the transaction to a business activity, the objection is likely to fail,” says Agrawal.

 

What consumers should keep in mind

 

Companies raise such objections as a routine defence. Consumers should respond with consistency: statements in the complaint should align with bank records, tax treatment, and other documents.

 

“Facts must be presented clearly and without exaggeration. Courts generally take a practical view and are cautious about rejecting genuine complaints on technical grounds. Proper records and a coherent narrative often make the decisive difference,” says Agrawal.

 

Experts emphasise that consumer law aims to protect individuals acting in good faith, not to provide an escape route for service providers.

 

Documents and conduct to prove residential purpose

• Buyer agreements describing the unit as residential
• Personal home loan records
• Communications showing housing or family needs
• Follow-ups for possession

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(The writer is a Delhi-based independent journalist)