Supreme Court Rules Borrower Not a 'Consumer' if Loan is for Profit-Making Activity

New Delhi, March 1: In a landmark decision, the Supreme Court ruled that borrowers who obtain loans from banks specifically for profit-generating activities cannot be classified as "consumers" under the Consumer Protection Act.

A bench comprising Justices Sudhanshu Dhulia and Prashant Kumar Mishra delivered this judgment while hearing an appeal filed by the Central Bank of India against an order from the National Consumer Disputes Redressal Commission (NCDRC).

Case Background: Central Bank vs Ad Bureau Advertising Pvt Ltd.​

The case revolves around a Rs 10 crore loan granted by the Central Bank of India to Ad Bureau Advertising Pvt Ltd for the post-production of the Rajinikanth-starrer movie, Kochadaiyaan. After the company defaulted on repayments, the matter reached the Debts Recovery Tribunal, which subsequently facilitated a one-time settlement at Rs 3.56 crore.

Despite this settlement, the bank reportedly continued marking Ad Bureau as a defaulter in reports sent to the Credit Information Bureau of India Limited (CIBIL), significantly damaging the company’s reputation and affecting its business opportunities.

NCDRC's Earlier Verdict​

Responding to a complaint filed by Ad Bureau alleging deficiency in service by the bank, the NCDRC had ordered the Central Bank to pay compensation of Rs 75 lakh along with litigation costs. Additionally, the bank was instructed to issue a clearance certificate confirming the settlement of the loan account and affirming no outstanding dues.

Supreme Court Overturns NCDRC Order​

Challenging this verdict, the Central Bank of India approached the Supreme Court. Upon review, the apex court concluded that the primary intent behind obtaining the loan was clearly profit generation through the film’s post-production activities.

“We are cognisant of the fact that respondent No. 1 (company) would not be excluded from the definition of consumer merely on account of the fact that it is a commercial entity/enterprise,” stated the Supreme Court bench.

However, the bench further clarified, “What has weighed with us in coming to the conclusion that respondent No. 1 cannot be said to be a ‘consumer’ is the fact that the transaction in question, i.e., obtaining a project loan, had a close nexus with a profit-generating activity. The dominant purpose for getting this loan sanctioned was to generate profits upon successful post-production of the movie titled Kochadaiyaan.”

This judgment marks a significant clarification in the interpretation of who qualifies as a 'consumer' under the Consumer Protection Act, especially concerning commercial borrowing intended for profit-making ventures.