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  • Tejas Venkatesh

Companies as “Consumers” under Consumer Protection Act 1986: A Confused Approach?

[Tejas is a student at Jindal Global Law School.]

On 23 March 2024, the Supreme Court of India (SC), in a significant pronouncement in M/S Kozyflex Mattresses Private Limited v. SBI General Insurance Corporation and Another (Kozyflex), held that a corporate entity would be considered a “person” under the Consumer Protection Act 1986 (1986 Act), and complaints by such corporate entities would be maintainable under the 1986 Act. While the judgment broadens the scope of application of the 1986 Act, it also raises several concerns regarding the retrospective attribution of legislative intent and the inconsistent judicial understanding of the concept of commercial purpose under the Act.

Current Legal Regime

The 1986 Act is a socially beneficial legislation intended to protect the interests of consumers by providing for a quasi-judicial machinery for the speedy resolution of disputes. While the definition of “person” under the Consumer Protection Act 2019 (2019 Act) includes corporations and companies, the 1986 Act does not expressly include companies within the definition of person. The question of whether companies or corporations can maintain a complaint under the 1986 Act has been a contentious one. The conundrum has significantly impacted the maintainability of pending claims by companies under the 1986 Act. In all the cases considered here, the courts have implicitly granted companies the locus standi by referring to the beneficial intent of the statute, to justify a wider reading of the term “person”. However, the issue has been whether companies can be considered as “consumers” under the 1986 Act.

Section 2(1)(d) of the 1986 Act defines “consumer” to mean any person who purchases any goods or hires or avails services for consideration, but it does not include persons who buys such goods or avails such services for a commercial purpose. The explanation to the clause clarifies that commercial purpose does not include goods (or services) bought by a person solely for earning his livelihood by means of self-employment. In essence, the explanation serves as an exception to the exception of commercial purpose. A joint reading of the provisions would indicate that a person purchasing for a commercial purpose would still be considered a “consumer” if they demonstrate that the purchase was solely for earning a livelihood by means of self-employment.

The meaning of the term commercial purpose although contested for a long time, is a settled one now. The SC in Laxmi Engineering Works v. PSG Industrial Institute, considered the question and concluded that there can be no straitjacket formula for establishing what a commercial purpose is. It is a question of fact to be considered in each case. Further, the court noted that the use of the words “livelihood” and “self-employment” clarifies the intent of the parliament that the good has to be used by the buyer himself for earning a livelihood, to be considered as a consumer. The above rule applies even if the purchase was for a commercial purpose. Self-employment was intended to mean earning for the self, although the work may be delegated to others.

The court in Shrikant G Mantri v. Punjab National Bank (Shrikant) further clarified that commercial purpose generally includes manufacturing and business-to-business transactions. Further, the purpose of purchase of goods or services should bear a close and direct nexus with a profit-generating activity for it to be considered a commercial purpose. In the case of multiple purposes, the dominant purpose for the purchase of good or service has to be determined. If the dominant purpose of the transaction was intended for the personal use of the purchaser and not linked to any commercial activity, the analysis of whether the activity was to “earn a livelihood by means of self-employment” is not necessary. However, in case there is a nexus between the purchase of a good or service and any commercial purpose, the second analysis becomes pertinent. Resultantly, the test to determine whether a person is a consumer is a disjunctive one if the purchase is not for a commercial purpose but a conjunctive one if the purchase is for a commercial purpose.

Finally, the ruling of the SC in National Insurance Company Limited v. Harsolia Motors and Ors) (National Insurance) is also relevant for two reasons. First, the case reiterates the ruling of the SC in Shrikant while merely imbibing the disjunctive test and failing to consider the conjunctive test. Second, the case bears close factual relevance to Kozyflex which dealt with the hiring of an insurance policy by a company. The court in National Insurance concluded that although insurance policies purchased by companies are primarily to indemnify a future risk and ordinarily bear no nexus to profit generation, a case-to-case analysis of each claim has to be made by the court to determine whether there is a close and direct nexus with any profit-generating activity.

Critical Analysis

 The ruling in Kozyflex relates to an insurance claim for loss caused by fire to the premises of the insured appellant (Kozyflex). Kozyflex was a small industry engaged in the manufacture and sale of coir from cushions, pillows, and other coir-by products. On the first issue of whether the company was covered within the definition of “person” under the 1986 Act, the court advocated for a liberal interpretation of the Act. It attributed the inclusion of companies within the definition of person in the 2019 Act as a mere rectification of anomaly by the legislature. Thus, the court retrospectively held that the term person always has included a company within its ambit even under the 1986 Act. On the second issue of whether the claim was filed for a commercial purpose, the court differentiated the factual situation from Srikanth and held that the purpose of the fire and special perils insurance in the present case was only to indemnify the loss suffered and nothing else. Although the ruling broadens the scope of application of the 1986 Act, nevertheless, it raises several concerns regarding its implications.

The inconsistency in the judicial approach to the question of commercial purpose is apparent in the rulings. While the ruling in Srikanth focuses on both the disjunctive and conjunctive tests to determine commercial purpose, the court in National Insurance ends its analysis after establishing that there is no direct nexus between the availed service and any profit-generating activity of the company. It makes no reference to the self-employment exception. Further, in Kozyflex, the court neither reiterates nor alludes to the test laid in National Insurance and Srikanth. This diluted understanding of Section 2(1)(d) has serious implications for the understanding of commercial purpose.

First, a holistic textual reading of the section with its explanation would highlight the practical difficulty in including companies within the definition of consumer. For instance, if it is established that there is a close nexus between the availed service and the profit-generating activity of the company, then the court ought to look into the self-employment exception (as per the test laid in Srikanth). The difficulty would arise in considering what would constitute self-employment for a company with complex structures and multiple shareholders. Further, the question as to whose livelihood is being considered in a company is one that lacks clarity. Thus, the conjunctive test is ineffective while considering companies as a consumer under the Act.

Second, the ruling in Kozyflex never enters into a fact-based analysis of whether there is a nexus between the availed insurance service and the profit-generating activity of the company. Rather, the court blindly assumes that insurance services availed by a company are always meant to indemnify the company and can never be for earning a profit. This goes starkly against the ruling in National Insurance and Srikanth, which call for a case-to-case factual analysis to determine whether the activity falls within the ambit of commercial purpose. The cases present other ambiguities such as the general presumption that business-to-business activities are done for commercial purpose. The court does not clarify whether the phrase has to be construed literally or liberally. If constructed literally, an insurance service availed by a company would always be for a commercial purpose.

Thus, given the practical difficulty in harmoniously constructing the provision (i.e., Section 2(1)(d)) to include companies, coupled with the inconsistent and confused application of the rule by the SC, the court ought to stick to a literal interpretation of the provision. It is a settled rule of interpretation of statutes that in case of ambiguity in meaning, the court should always prefer a literal reading of the statute over a liberal reading. A retrospective attribution of legislative intent (as discussed in Shyam Sundar and Others v. Ram Kumar and Another) from the 2019 Act, would then violate the settled rule of statutory interpretation.


The court in Kozyflex takes a lax approach to the question of locus standi of companies under the 1986 Act. It not only fails to recognize the ambiguity in law but fails to fully recognize the established rules in the first place. A further reconsideration of the question by a larger bench is necessary.

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