JUSTICE V.K.JAIN (ORAL)

The complainant / appellant opened  Demat Account with respondent No.1 in India Infoline Ltd.  The case of the complainant in nutshell is that respondent No.3 - Siddesh A. Prabhudesai, an employee of respondent No.1 carried out unauthorized trading of shares in his Demat Account without his consent and caused heavy losses to him. This was brought by the complainant to the notice of respondent Nos.1 & 2 but, they did not address his complaint. This is also his case that by 20.10.2009, a loss of Rs.55,000/- had been caused to him. Therefore, he tried to close the account but was not allowed to do so and further trading was carried out by respondent No.3 from his Demat Account without his consent, causing him a loss of Rs.1,72,020/-.  The loss happened on account of the shares mentioned in para 11 of the complaint having been sold without instructions from him. The complainants, therefore, approached concerned the  District Forum by way of a consumer complaint seeking the above-referred amount of Rs.1,72,020/- with compensation, etc.

2.      Respondent Nos.2 & 3 did not contest the consumer complaint. Respondent no.1 however, filed the written version contesting the complaint and interalia stated in its written version that the complainant had entered into a mutual agreement with respondent No.3 allowing him to trade into his account and on coming to know of this, respondent no.1 terminated the services of respondent Nos.2 & 3.

3.      The District Forum having allowed the consumer complaint, respondent No.1 approached the concerned State Commission  by way of an appeal. Vide impugned order dated 7.4.2014, the State Commission  allowed the appeal and dismissed the complaint solely on the ground that the complainants were not consumers within the meaning of the Consumer Protection Act.

4.      I have carefully perused the written version filed by respondent No.1. Nowhere it has been pleaded in the written version that the complainants were not consumers.

5.      The question who can be said to be a consumer recently came up for consideration of a Three-Members Bench of this Commission recently in CC No. 349 of 2017 - Springdale Core Consultants Pvt. Ltd. Vs. Pioneer Urban Land and Infrastructure Ltd. dated 16.03.2020  and the following view was taken:-

6.     In a recent decision Lilavati Kirtilal Mehta Medical Trust Vs. Unique Shanti Developers & Ors. IV (2019) CPJ 65 (SC), the appellant before the Hon’ble Supreme Court, which was a Trust, purchased 29 flats in two residential buildings, for providing hostel facilities to the nurses employed in Lilavati Hospital being run by the said Trust.  The structure of the flats allegedly became dilapidated because of poor building quality and the appellant therefore had to vacate the flats.  A consumer complaint was then filed by the Trust before this Commission seeking compensation etc. from the builder.  The complaint was dismissed by this Commission, holding that the Trust was not a consumer within the meaning of Section 2(1(d) of the Consumer Protection Action, which excludes a person who obtains goods and services for a commercial purpose.  It was held by this Commission that providing hostel facilities to the nurses was directly connected to the commercial purposes of running the Hospital and was consideration for the work done by them in the hospital.  Being aggrieved, the Trust approached the Hon’ble Supreme Court by way of an Appeal. 

7.     Having considered its several other decisions such as Laxmi Engineering Works Vs. P.S. G. Industrial Institute, II (1995) CPJ I (SC), Cheema Engineering Services V. Rajan Singh VI (1998) SLT 20, Kalpavruksha Chairtable Trust V. Toshniwal Brothers (Bombay) Pvt. Ltd., III (1999) CPJ 26 (SC)  Synco Textiles Pvt. Ltd. Vs. Greaves Cotton & Company Ltd. (1991) 1 CPJ 499, and Paramount Digital Colour Lab.Vs. Agfa India Private Ltd., III (2018) CPJ 12 (SC) and setting aside the order passed by this Commission, the Hon’ble Supreme Court inter-alia held as under:

        “5.    It is true that the aforementioned decisions were rendered in the context of deciding whether the goods or services availed of in the facts of those cases were for a commercial purpose or exclusively for the purpose of self-employment.  This does not mean, however, that in every case a negative test has to be adopted wherein any activity that does not fall within the ambit of ‘earning livelihood by means of self-employment’ would necessarily be for a commercial purpose.  We reject Respondent No.1’s argument in this regard.”

 “7.    To summarize from the above discussion, though a strait-jacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is ‘for a commercial purpose’:

1. The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case.However, ordinarily ‘commercial purpose’ is understood to include manufacturing / industrial activity or business-to-business transactions between commercial entities.

          In another recent decision in RP No.2833 of 2018 Tosoh India Pvt. Ltd. Vs. Ram Kumar & Ors. dated 06.01.2020, a Three-Members Bench of this Commission inter-alia held as under:

5. The term ‘consumer’ has been defined in Section 2(1)(d) of the Consumer Protection Act, which to the extent it is relevant for the purpose of this petition means a person who buys goods or hires or avails services for consideration but does not include a person who obtains goods for resale or who purchases goods or avails services for any commercial purpose. As per the explanation, inserted with effect from 15.3.2003, for the purpose of the above referred clause, commercial purpose does not include use of the goods or services exclusively for the purpose of the earning livelihood by means of self-employment.

6. In Synco Textiles Pvt. Ltd. Vs. Greaves Cotton & Company Ltd. I (1991) CPJ, 499 (NC), which was a decision rendered before the amendment of the Act, the Hon’ble Supreme Court observed that in relation to the transaction of purchase of goods the words “ for any commercial purpose” are wide enough to take in all cases where goods are purchased for being used in any activity directly intended to generate profit. In this context the Hon’ble Supreme Court inter-alia held as under:

“5. ……………… It is thus obvious that Parliament wanted to exclude from the scope of the definition not merely persons who obtain goods for resale but also those who purchase goods with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit. On this interpretation of the definition clause, persons buying goods either for resale or for use in large scale profit making activity will not be ‘consumer’ entitled to protection under the Act. It seems to us clear that the intention of Parliament as can be gathered from the definition section is to deny the benefits of the Act to persons purchasing goods either for purpose of resale or for the purpose of being used in profit making activity engaged on a large scale. It would thus follow that cases of purchase of goods for consumption or use in the manufacture of goods or commodities on a large scale with a view to make profit will all fall outside the scope of the definition. It is obvious that Parliament intended to restrict the benefits of the Act to ordinary consumers purchasing goods either for their own consumption or even for use in some small venture which they may have embarked upon in order to make a living as distinct from large scale manufacturing or processing activity carried on for profit. In order that exclusion clause should apply it is however necessary that there should be a close nexus between the transaction of purchase of goods and the large scale activity carried on for earning profit.”

7. In Laxmi Engineering Works Vs. P.S.G. Industrial Institute (1995) 3 SCC 583 , which came to rendered after amendment with effect from 18.6.1993 but before the amendment with effect from 15.3.2003, the Hon’ble Supreme Court, while interpreting the expression ‘consumer’ inter-alia observed as under:

“11. ……………… The National Commission appears to have been taking a consistent view that where a person purchases goods ‘with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit’ he will not be a ‘consumer’ within the meaning of Section 2(d(i) of the Act. Broadly affirming the said view and more particularly with a view to obviate any confusion – the expression “Large scale” is not a very precise expression – Parliament stepped in and added the explanation to Section 2(d)(i) by Ordinance / Amendment Act, 1993. The explanation excludes certain purposes from the purview of the expression “commercial purpose” – a case of exception to an exception. Let us elaborate : a person who buys a typewriter or a car and uses them for his personal use is certainly a consumer but a person who buys a typewriter or a car for typing others’ work for consideration or for plying the car as a taxi can be said to be using the typewriter / car for a commercial purpose. The explanation however clarifies that in certain situation, purchase of goods for ‘commercial purpose’ would not yet take the purchaser out of the definition of expression ‘consumer’. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of self-employment, such purchaser of goods is yet a ‘consumer’. ……..

10. In Paramount Digital Colour Lab & Ors. Vs. Agfa India Private Limited & Ors. (2018) 14 SCC 81, the appellants who were unemployed graduates decided to start photography business in partnership for self-employment and for their livelihood. They purchased a Mini Lab machine for developing the photographs by use of Digital Technology for a consideration of Rs.62.00 lacs.  Alleging defect in the said machine, they filed a consumer complaint before the State Commission. The complaint was partly allowed by the State Commission. The appeal preferred by the opposite party before this Commission having been allowed, the complainants approached the Hon’ble Supreme Court by way of an appeal by Special Leave. Dealing with the question as to whether the appellants were consumers as defined in Section 2(1)(d) of the Act, the Hon’ble Supreme Court inter-alia observed and held as under:

11. The following legal propositions emerge from the above referred decisions of the Hon’ble Supreme Court:

(a) Only a person engaged in large scale commercial activities for the purpose of making profit is not a consumer;

6.      In the present case, there is no evidence of the complainants trading in the shares on a large scale. They are stated  to be in service though in the account opening form, they had claimed to be in business. That, however, would be insignificant,  the material aspect being the scale of the trading if any, carried out by them in the shares. There is no evidence or even allegation of the complainants carrying out large scale trading in stocks and shares. If a person engaged in a business or profession other than regular trading in shares, open a Demat Account and occasionally carries out trading in shares, it cannot be said that the services of the broker were hired or availed by him for a commercial purpose, the scale of such trading by a casual investor being very low. Such a person cannot be said to be in the business of buying and selling shares on a regular basis. Therefore, I have no hesitation in holding that the complainants were consumers within the meaning of Section 2(1)(d) of the C.P. Act.

7.      Coming to the merits of the case, the only issue involved in this petition is as to whether the trading  by Respondent No.3 in the Demat Account of the complainants was done  with the consent of the complainants or it was done unauthorizedly without their consent and without instructions from them. The trading in a Demat Account can be done either by the client himself or by the broker acting on the instructions of the client. There is absolutely no evidence of the shares mentioned in the consumer complaint having been sold on the instructions of the complainants. No such instructions either in writing or in the digital mode have been placed on record. A perusal of the letter dated 20.10.2009 written by respondent No.3 to the complainant clearly shows that he was trading without instructions from the complainants and that is why, he promised to the complainant that he would be responsible in case his losses were to increase.

8.      Though respondent No.1 has alleged a private agreement between  the complainant and  respondent No.3, there is no evidence of any such private agreement. Respondent No.3 did not come forward to contest the consumer complaint and claim that the trading was done by him pursuant to a private agreement he had with the complainants. In these circumstances, there would be no reason to disbelieve the case set out by the complainants which also finds corroboration from the letter dated 20.10.2009 which the complainant had delivered in the office of respondent No.1 alleging therein that Respondent No.3 Siddesh A. Prabhudesai had traded in his shares without his knowledge and had caused huge loss by selling his shares. He also stated in the said letter that on 15.9.2009, respondent No.3 had written and signed on his behalf stating therein that the matter has been resolved. It was also stated in the letter that the complainant wanted to close the account but the respondents refuse to close the said account.

9.      For the reasons stated hereinabove, I hold that respondent No.3 having caused loss to the complainant by unauthorized trading in his Demat Account, he is responsible to compensate the complainant for the loss suffered by them. Being the employer of respondent No.3 and being the broker with whom the Demat Account was opened, respondent No.1 is equally liable to compensate the complainants. The impugned orders are therefore set aside and the consumer complaint is disposed of by directing respondent Nos.1 & 3 to pay a sum of Rs.1,72,020/- alongwith compensation in the form of  simple interest on that amount @ 9% p.a. from the date of institution of the consumer complaint till the date of payment. The payment in terms of this order shall be made within three months from today. Respondent No.1 shall be entitled to avail such remedy as may be open to it in law, against respondent No.3.