The Supreme Court has clarified that the mere act of leasing a residential property does not automatically exclude a buyer from the definition of 'consumer' under the Consumer Protection Act, 1986. The judgment reasserts that the dominant purpose behind the purchase, not subsequent use, determines consumer status - a critical doctrinal shift with wide implications for housing disputes.
Background & Facts
The Dispute
The appellants, Vinit Bahri and another, purchased a residential flat in Gurgaon’s 'The Villas' housing project in 2005 for personal use, intending to live near their parents. They paid Rs.15,00,000 as booking amount and executed a Flat Buyer’s Agreement in 2006, which stipulated possession within 36 months. Despite delays, they paid additional amounts under protest and took possession in January 2015. The respondents, M/S MGF Developers Ltd., altered the layout of Tower-C without notice and demanded extra payments for area increase and statutory charges.
Procedural History
- March 2005: Appellants booked the flat
- June 2006: Flat Buyer’s Agreement executed
- September 2009: Possession due date expired
- January 2015: Appellants took possession after paying additional sums
- March 2016: Appellants leased the flat to Shri Sunil Raman
- January 2017: Complaint filed before NCDRC alleging deficiency in service and unfair trade practices
- May 2023: NCDRC dismissed complaint on grounds that appellants were not 'consumers' due to leasing
- 2023: Appeal filed in Supreme Court
Relief Sought
The appellants sought: (i) Rs.1.59 crore as 18% interest on delayed possession; (ii) Rs.50 lakh for mental agony; (iii) Rs.15 lakh for change in tower location; (iv) Rs.35.61 lakh for excess charges on fixtures; (v) Rs.2.5 lakh litigation costs; and (vi) any other just relief.
The Legal Issue
The central question was whether leasing a residential flat after purchase automatically excludes the buyer from the definition of 'consumer' under Section 2(1)(d) of the Consumer Protection Act, 1986, or whether the dominant purpose of the original purchase must be examined.
Arguments Presented
For the Appellant
The appellants contended that their purchase was exclusively for personal residential use, with the sole intent of residing near elderly parents. They relied on IREO Private Ltd. v. Aloke Anand and Synco Textiles Pvt. Ltd. v. Greaves Cotton, arguing that occasional leasing does not alter the primary purpose of acquisition. They emphasized that the Consumer Protection Act is a beneficial legislation meant to protect genuine buyers, and that the burden of proving commercial intent lies with the seller.
For the Respondent
The respondents argued that leasing the flat to a third party in March 2016 transformed the property’s use into a commercial activity, thereby excluding the appellants from the definition of 'consumer'. They cited the lease deed and the fact that the flat was not occupied by the appellants to assert that the transaction was undertaken for profit generation, invoking Section 2(1)(d)’s exclusion clause.
The Court's Analysis
The Court undertook a comprehensive review of precedents, including Laxmi Engineering Works, Lilavati Kirtilal Mehta Medical Trust, and Rohit Chaudhary v. Vipul Limited, to define the contours of 'commercial purpose'. It held that commercial purpose must be determined by the dominant intention at the time of purchase, not by subsequent use. The Court emphasized that the Explanation to Section 2(1)(d) clarifies that self-employment use does not constitute commercial purpose, and that the value or nature of the property is irrelevant - only the purpose matters.
"The mere factum of leasing out the flat does not, by itself, demonstrate that the appellants purchased the property with the dominant purpose of engaging in commercial activity."
Crucially, the Court reaffirmed the burden of proof doctrine from Shriram Chits v. Raghachand Associates: the onus to prove that the transaction was for a commercial purpose rests squarely on the service provider, not the complainant. The respondents failed to produce any documentary evidence - such as financial records, business plans, or prior commercial dealings - to establish that the appellants’ purchase was motivated by profit. The Court noted that leasing, even if proven, is a post-purchase act and cannot retroactively convert a residential purchase into a commercial transaction.
The Court further held that the NCDRC erred in treating leasing as conclusive proof of commercial intent, without examining the context, timing, or motive behind the purchase. The preponderance of probabilities standard was not met by the respondents.
The Verdict
The appellants won. The Supreme Court held that leasing a residential flat does not automatically exclude a buyer from the definition of 'consumer' under the Consumer Protection Act, 1986. The Court set aside the NCDRC’s judgment and restored the complaint for adjudication on merits, emphasizing that the burden of proving commercial purpose lies with the seller.
What This Means For Similar Cases
Dominant Purpose Is Decisive
- Practitioners must now focus on the buyer’s intent at the time of purchase, not subsequent use
- Leasing, renting, or letting out a residential unit cannot be treated as conclusive evidence of commercial purpose
- Evidence of personal intent - such as proximity to family, lack of rental history, or declaration of residence - must be prioritized
Burden of Proof Shifts to Builder/Developer
- Builders must now proactively establish, with credible evidence, that the buyer’s dominant purpose was profit-driven
- Mere production of a lease deed is insufficient; financial records, business registration, or prior commercial transactions are required
- Failure to discharge this burden will result in automatic restoration of the consumer complaint
Residential Units Are Presumed Non-Commercial
- All residential property purchases are presumed to be for personal use unless proven otherwise
- Multiple unit purchases do not trigger the exclusion clause unless linked to a profit-generating business model
- Courts will scrutinize whether the transaction has a 'close and direct nexus' with commercial activity, as per Lilavati Kirtilal Mehta
