SC: Borrowers taking loans for profit not protected under consumer law

NEW DELHI: The Supreme Court has ruled that a borrower cannot be classified as a "consumer" under the Consumer Protection Act if the loan was taken for a profit-generating exercise. The verdict came as the top court set aside an order by the National Consumer Disputes Redressal Commission (NCDRC), which had directed the Central Bank of India to compensate a company for alleged incorrect reporting to the Credit Information Bureau of India Limited (CIBIL).
A bench comprising Justices Sudhanshu Dhulia and Prashant Kumar Mishra was hearing an appeal filed by the Central Bank of India against the NCDRC's decision in favour of Ad Bureau Advertising Pvt Ltd. The case stemmed from a loan dispute involving the financing of post-production work for the Rajinikanth-starrer "Kochadaiyan".
The Central Bank had sanctioned a Rs 10 crore loan to Ad Bureau, which later defaulted on payments. The matter was eventually settled through a one-time payment of Rs 3.56 crore after litigation before the Debts Recovery Tribunal. However, Ad Bureau alleged that despite the settlement, the bank reported it as a defaulter to CIBIL, causing reputational and business losses.
The NCDRC, ruling in the company’s favour, ordered the bank to pay Rs 75 lakh in compensation and issue a certificate confirming that the loan account was settled with no outstanding dues. Challenging this, the bank approached the Supreme Court.
The apex court, in its ruling, emphasised that while commercial entities are not automatically excluded from being "consumers," the purpose of the loan plays a crucial role. Since Ad Bureau's loan was directly linked to a profit-making activity, it could not claim consumer protection.
"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. But what has weighed with us... is the fact that the transaction in question—obtaining a project loan—had a close nexus with a profit-generating activity," the top court observed.