Borrower Availing Loan for Profit-Generating Exercise Not a Consumer Under Consumer Protection Act

The Hon’ble Supreme Court of India, in its recent judgment in The Central Bank of India & Ors. v. M/s AD Bureau Advertising Pvt. Ltd. & Anr¹, has categorically held that borrowers who avail loans for commercial or profit-generating purposes do not fall within the definition of ‘consumer’ under Section 2(1)(d)(ii) of the Consumer Protection Act, 1986² (hereinafter, “the Act”). This ruling effectively precludes such borrowers from seeking remedies before consumer forums for disputes arising from loan transactions.

The dispute involved M/s AD Bureau Advertising Pvt. Ltd. (the borrower) and the Central Bank of India (the lender). The borrower had obtained a project loan of ₹10 crores for the purpose of engaging in the post-production of a movie. Upon default, the bank classified the loan as NPA³ and initiated recovery proceedings under the SARFAESI Act⁴ and the RDB Act⁵.

Following a One-Time Settlement, the borrower alleged that the bank had wrongly reported it as a defaulter to the CIBIL⁶, leading to financial losses and reputational harm. Consequently, the borrower approached the National Consumer Disputes Redressal Commission, which ruled in its favor, awarding compensation of ₹75,00,000 and directing rectification of the credit record. Aggrieved by the decision, the bank filed an appeal before the Supreme Court.

Before addressing the issue of whether a borrower availing a commercial loan qualifies as a consumer, it is essential to examine the statutory framework and judicial interpretation of the term “consumer” to clarify who qualifies as a consumer.

The Consumer Protection Act, 1986, was enacted to safeguard the interests of consumers and provide an efficient mechanism for the redressal of consumer grievances. Section 2(1)(d) of the Act defines “consumer” as any person who:

• Buys goods or avails services for consideration,
• Does not include a person obtaining such goods or services for resale or for any commercial purpose.

The term ‘commercial purpose’ has been interpreted by courts to exclude transactions where goods or services are availed for profit-making or large-scale business activities. However, an exception exists where services are availed exclusively for earning a livelihood through self-employment.

The Court relied on several judgments to reinforce its stance. In Synco Textiles Pvt. Ltd. v. Greaves Cotton & Co. Ltd.⁷, in which it clarified that when goods or services are obtained for commercial use, the complainant does not qualify as a consumer.

In Canara Bank v. United India Insurance Co. Ltd.⁸, the Supreme Court reiterated that entities engaged in commercial transactions cannot claim consumer protection.

The the Supreme Court held that if a person avails services for a profit-driven business activity, they do not qualify for protection under the Act⁹

Relying upon the interpretation and judgments, the Supreme Court clarified who qualifies as a ‘consumer’ and, in the present case, observed that the loan was business-to-business transaction rather than a business-to-consumer transaction and the service was availed with the dominant intention of generating profits, and the primary purpose of the loan was to generate additional revenue for the company.

In the context of financial transactions, particularly loan agreements, the Supreme Court has clarified that when a loan is taken for a commercial or profit-generating activity, the borrower ceases to be a consumer within the meaning of the Act. The purpose of availing of the service (loan) becomes crucial in determining consumer status.

Relying on National Insurance Co. Ltd vs Harsolia Motors¹⁰, the court reaffirmed that if the dominant purpose of availing a service is self-employment and livelihood, it would not be considered a “commercial purpose”. However, a project loan typically funds large-scale infrastructure or business-related ventures, thus falling within the exclusionary clause of “commercial purpose.”

In Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers¹¹, the court observed that there is no straitjacket formula to determine whether a transaction is commercial. Each case depends on its specific facts, and if the dominant intention of a transaction is profit-generation, it qualifies as a “commercial purpose,” thereby falling outside the scope of consumer protection laws.

In Shrikant G. Mantri vs. Punjab National Bank¹², The court held that an overdraft facility taken to expand business profits establishes a purely business-to-business relationship, bringing the transaction within the ambit of “commercial purpose”.

This ruling specifies that borrowers of commercial loans cannot seek relief under consumer protection laws and must resolve disputes through appropriate civil courts, tribunals, or arbitration rather than consumer forums. It also safeguards banks and financial institutions from consumer complaints arising out of purely commercial transactions, thereby reducing litigation in consumer forums. Furthermore, it reinforces the distinction between consumer disputes and commercial contract disputes, ensuring that commercial loan transactions are adjudicated under specialized financial and commercial laws.

A borrower who takes a loan for personal needs such as a home loan or education loan would still qualify as a consumer under the Act and can seek redressal before consumer forums. However, if a loan is taken exclusively for livelihood through self-employment, such as a tailor purchasing a sewing machine, the borrower may still qualify as a consumer. The ruling primarily impacts loans taken for business or commercial activities, and consumer protection laws continue to apply to personal banking and individual transactions.

For commercial borrowers in dispute with banks, the appropriate legal recourse would be through civil courts, debt recovery tribunals¹³, or arbitration, depending on the terms of their loan agreements. The judgment is beneficial to financial institutions as it reduces unnecessary litigation in consumer courts and ensures that commercial disputes are resolved through specialized financial forums, providing greater certainty and efficiency in banking litigation.

In conclusion, the Supreme Court’s ruling provides much-needed clarity on the scope of consumer protection laws concerning financial transactions. It affirms that borrowers who avail loans for profit-generating activities do not qualify as consumers under the Act.

This judgment aligns with prior judicial interpretations and ensures that consumer protection laws remain applicable only to genuine consumer transactions, thereby preventing their misuse in commercial disputes. Commercial borrowers must resort to appropriate judicial forums such as civil courts or tribunals for dispute resolution.

The judgment sets a crucial precedent in financial litigation and reinforces the distinction between commercial and consumer transactions under the law.

1. (2025 SCC OnLine SC 460)
2. Section 2(1)(d)(ii) of the Consumer Protection Act, 1986
3. Non-Performing Asset
4. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
5. Recovery of Debts and Bankruptcy Act, 1993
6. Credit Information Bureau India Limited
7. (1991) 1 CPJ 499 (NC)
8. (2020) 3 SCC 455
9. Laxmi Engineering Works v. P.S.G. Industrial Institute (1995) 3 SCC 583
10. (2023) 8 SCC 362
11. (2020) 2 SCC 265
12. (2022) 5 SCC 42
13. DRTs