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Consumer Protection Act Applies Even to Real Estate Companies: Supreme Court Rules on 'Dominant Purpose' of Transactions

Summary of the Judgment


  • Case Name: Omkar Realtors and Developers Pvt. Ltd. vs. Kushalraj Land Developers Pvt. Ltd. & Anr.

  • Court: Supreme Court of India

  • Case Number: Civil Appeal No. 858 of 2023

  • Date of Judgment: August 23, 2024

  • Judges: Hon'ble Justice Pamidighantam Sri Narasimha and Hon'ble Justice Pankaj Mithal

  • Acts and Sections Involved: Section 67 of the Consumer Protection Act, 2019 Section 2(7) of the Consumer Protection Act, 2019.

  • Advocates: For the Appellant- Shri Vinay Navare, Senior Counsel, For the Respondent.- Smt. Malvika Kapila

  • Cited Judgments:

    Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Others (2020) 2 SCC 265

    Crompton Greaves Limited and Others vs. Daimler Chrysler India Private Limited (2016 SCC OnLine NCDRC 2121)

    M/s Daimler Chrysler India Pvt. Ltd. vs. M/s Controls & Switchgear Company Ltd. & Anr., Civil Appeal No. 353 of 2008

    National Insurance Company Ltd. vs. Harsolia Motors and Ors. (2023) 8 SCC 362


Introduction


The Supreme Court of India, in a judgment delivered on August 23, 2024, in the case of Omkar Realtors and Developers Pvt. Ltd. vs. Kushalraj Land Developers Pvt. Ltd. & Anr., provided significant clarity on the interpretation of the term "consumer" under the Consumer Protection Act, 2019. The case, which revolved around a dispute over the allotment of a flat in a high-profile real estate project in Mumbai, raises crucial issues about the rights of individuals and companies under consumer protection laws, and the extent to which these laws can be invoked in cases involving commercial entities.


Background of the Case


The appellant, Omkar Realtors and Developers Pvt. Ltd., is a well-known real estate developer, while the respondent, Kushalraj Land Developers Pvt. Ltd., is also engaged in real estate development. The dispute arose when the respondent booked a flat in the appellant's luxury residential project, "Omkar 1973 Worli." The booking was made for residential use by one of the respondent’s directors and his family members, a fact that became central to the litigation.


The respondent paid a substantial amount towards the flat but later discovered that the flat had been double-booked—once to the respondent and another time to a third party, Mr. Nakul Arya. When the respondent sought a refund of the amount paid, the appellant refused and instead forfeited the amount, leading the respondent to file a complaint with the National Consumer Disputes Redressal Commission (NCDRC).


The NCDRC ruled in favor of the respondent, directing the appellant to refund the amount with interest. The appellant challenged this decision in the Supreme Court, arguing that the respondent, being a real estate company, did not qualify as a "consumer" under the Act.


Key Legal Issues


The case presented two primary legal issues:

  1. Whether the respondent qualifies as a "consumer" under Section 2(7) of the Consumer Protection Act, 2019.

  2. Whether there was any deficiency in service or unfair trade practice on the part of the appellant.

Analysis of the Supreme Court's Judgment


Definition of "Consumer"


The core issue in this case was whether a real estate development company that purchased a flat for the residential use of its director could be considered a "consumer" under the Consumer Protection Act, 2019. Section 2(7) of the Act defines a "consumer" as any person who buys goods or avails services for a consideration but excludes those who purchase goods or services for resale or for commercial purposes.

The Supreme Court reaffirmed that the definition of "consumer" is not confined solely to natural persons and can include legal entities such as companies. The Court emphasized that the dominant purpose of the transaction must be considered. If the purchase is for personal use, it would not be deemed a commercial activity, even if the purchaser is a commercial entity.

The Court referred to its earlier judgments in Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Others and Crompton Greaves Limited and Others vs. Daimler Chrysler India Private Limited, where it was held that purchases made by legal entities for the personal use of their employees or directors could still fall under the definition of "consumer."

"In the case at hand, the complainant specifically mentions that the flat was being purchased for the purpose of residence of one of its Directors and his family and that the company is a family owned company." 

This observation by the Court underscores that the purpose behind the transaction is critical in determining consumer status. The mere fact that the respondent is a real estate company did not automatically disqualify it from being a consumer. The Court also noted that the burden of proof lies on the appellant to demonstrate that the purchase was for commercial purposes, a burden which the appellant failed to discharge.


Deficiency in Service and Unfair Trade Practice


The second issue concerned the appellant's actions in handling the respondent's booking and the subsequent double allotment of the flat. The Supreme Court upheld the NCDRC's findings that there was a clear deficiency in service on the part of the appellant. The double allotment of the flat created a situation of uncertainty and confusion for the respondent, who was unable to take possession of the flat or arrange for financing due to the appellant's actions.

The Court found that the appellant's decision to terminate the allotment and forfeit the amount paid by the respondent was unjustified, especially since the confusion over the double allotment was not resolved until much later.

"Since the very cancellation/termination of the allotment of the respondents in the facts and circumstances of the case is not justified, consequently the forfeiture is also bad in law." 

This statement reflects the Court's view that the appellant's conduct amounted to an unfair trade practice.

The Court also highlighted that the appellant’s insistence on transferring possession before resolving the double allotment issue was not tenable. The NCDRC had rightly directed the refund of the amount with interest, considering the appellant's deficiency in service.


Directions Issued


In conclusion, the Supreme Court upheld the NCDRC's order, directing the appellant to refund the amount of Rs. 7,16,41,493 with interest. Additionally, the Court imposed a timeline for the refund, with a significant portion to be paid within two weeks and the remainder by the end of December 2024. Failure to comply with these directions would result in the recovery of the amount as arrears of land revenue, underscoring the seriousness of the Court's order.


Conclusion


The Supreme Court's judgment in this case reaffirms the broad and inclusive interpretation of the term "consumer" under the Consumer Protection Act, 2019. It clarifies that even commercial entities can be considered consumers if the goods or services purchased are for personal use rather than for commercial purposes. The judgment also highlights the importance of transparency and fairness in commercial transactions, particularly in the real estate sector, where the stakes are high for all parties involved.

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