Software had nexus with generation of profits, purchaser can’t be said a consumer – SC

Purchase of software had a nexus with generation of profits, therefore purchaser was not a consumer under Consumer Protection Act – SC

In a recent judgment, Hon’ble Supreme Court had held that the transaction of purchase of software by the company had a nexus with generation of profits and, therefore, qua that transaction the purchaser/company could not be considered a consumer as defined in Section 2(1)(d) of the Consumer Protection Act,1986. 

ABCAUS Case Law Citation:
4857 (2025) (11) abcaus.in SC

In the instant case, the appellant company was aggrieved by the order of the National Consumer Disputes Redressal Commission (NCDRC) who upheld the view taken by the State Consumer Disputes Redressal Commission that complaint was not maintainable as the complainant/appellant was not a “consumer” as per Section 2(1)(d) of the Consumer Protection Act, 1986 (the 1986 Act).

The appellant was a company engaged in export and import of medical devices and equipment. In order to install and implement an export/ import documentation system, it purchased a software from the respondent, but the software did not function properly.

In consequence, claiming deficiency in service, a complaint was filed, inter alia, for refund of the entire amount paid by the complainant and additional development cost together with interest.

The respondent contested the complaint before State Commission claiming, inter alia, that the complaint is not maintainable as the complainant was not a consumer as defined in Section 2(1)(d) of the 1986 Act.

The State Commission held that since purchase of the software license was for a commercial purpose, the complainant would not qualify as a “consumer”; hence, the complaint was not maintainable.

Before the Hon’ble Supreme Court, the appellant contended that it cannot be said that purchase of software was for commercial purpose as it was  for self-utilization with no intention to directly generate profit from it. Therefore, would qualify the purchaser of such goods or services as a “consumer” by virtue of Explanation to Section 2(1)(d) of the 1986 Act.

Placing reliance on the judgment of the Apex Court it was contended that identity of a person making the purchase, or the value of the transaction, is not conclusive to determine whether it is for a commercial purpose. What is to be seen is the dominant purpose for the transaction, that is, whether it is to facilitate some kind of profit generation for the purchaser / other beneficiary.

Also, on the strength of another judgment of Hon’ble Supreme Court it was argued that if purchaser of a property puts it to commercial use to earn his livelihood, by way of self-employment, such a purchaser would be a consumer.

The Hon’ble Supreme Court observed that the sub-clause (ii) of Clause (d) of sub-section (1) of Section 2 in simple terms provides that a person who hires or avails of any services for a consideration shall also be a consumer provided such services are not for any commercial purpose. The Explanation carves out an exception by clarifying that commercial purpose does not include use by a person of goods bought and used or/ and services availed by him exclusively for the purpose of earning his livelihood by means of self-employment.

The Hon’ble Supreme Court further observed that as per law laid down by it, there can be no doubt that even an incorporated company could be a consumer within the meaning of Section 2(1)(d) read with Section 2(1)(m) of the 1986 Act.

The Hon’ble Supreme Court further observed that previously it had laid down out broad principles for determination as to when an activity or transaction of purchase of goods or services availed can be understood as for a commercial purpose. It was held that the identity of the person making the purchase, or the value of the transaction, is not conclusive to determine whether the transaction or activity is for a commercial purpose. What is to be seen is the dominant intention or dominant purpose for the transaction i.e. whether it is to facilitate some kind of profit generation for the purchaser(s) and/or its/ their beneficiary.

The Hon’ble Supreme Court opined that there is a difference between a self-employed individual and a corporation. Where a company purchases a software for automating its processes, the object is to maximise profits and, therefore, it would not fall within the explanation of Section 2(1)(d) of the 1986 Act.

The Hon’ble Supreme Court further noted that in a previous judgment, it had held that though it is correct that if goods or services purchased or availed are for self-employment, it cannot be categorized as commercial purpose, but each case has to be seen in light of its own facts.

The Hon’ble Supreme Court opined that in the case on hand, the complainant had been an established company doing business which bought the product license to automate its processes.  In such circumstances, the object of the purchase was not to generate self-employment but to organize its operations with a view to maximise profits. Therefore, the case of the complainant did not fall within the Explanation to Section 2(1)(d) of the 1986 Act.

With respect to reliance placed by the appellant in a case of insurance claim, the Hon’ble Supreme Court observed that the Court had held that when a person takes an insurance cover for indemnification of actual loss suffered, the intention is not to generate profits.

The Hon’ble Supreme Court pointed out that the examples of purchase of refrigerator, television or air-conditioner do not relate to generation of profit as these products/ goods are for comfort having no direct nexus to generation of profits. But if a transaction has nexus with generation of profits, it would be for a commercial purpose.

The Hon’ble Supreme Court noted that in the instant case, not only the complainant was a commercial entity, the purchase of software was with a view to automate the processes of the company which were linked to generation of profit inasmuch as automation of business processes is undertaken not just for better management of the business but to reduce costs and maximise profits. Thus, the transaction of purchase of software had a nexus with generation of profits and, therefore, qua that transaction the appellant could not be considered a consumer as defined in Section 2(1)(d) of the 1986.

Accordingly, the appeal was dismissed.

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