Laxmi Engineering Works v P.S.G. Industrial Institute (1995) and Faqir Chand Gulati v Uppal Agencies Pvt Ltd (2008)

Every consumer complaint begins with a threshold question that has nothing to do with the merits: is the complainant a "consumer"? If he is not, the Commission has no jurisdiction, however clear the deficiency. That gate is guarded by two words in s. 2(7) — "commercial purpose" — and by the Explanation that carves an exception out of the exclusion.

These are the two leading authorities on that gate, and they pull in opposite directions. Laxmi Engineering Works is the restrictive case: a small-scale industrialist who bought a machine costing over Rs 21 lakh was held not to be a consumer, because he did not use it himself, exclusively, to earn his livelihood by self-employment. Faqir Chand Gulati is the expansive case: a landowner who gave his plot to a builder and took a floor of the new building in return was held to be a consumer, because behind the label "collaboration agreement" the substance was that the builder would build him a house for consideration.

Together they teach the method: ignore labels, ignore the value of the transaction, look at the purpose and the substance.

Laxmi Engineering Works

Y.G. Joshi was a diploma holder in engineering who wanted to set up on his own. His proprietary concern, Laxmi Engineering Works, was established under the Employment Promotion Programme and registered as a small-scale industry with the Directorate of Industries, Maharashtra. It ran on borrowed money — a term loan of Rs 22.10 lakh from the Maharashtra State Finance Corporation, and assistance from other sources — and it had one line of business: an agreement with Premier Automobiles to supply parts for the manufacture of cars.

To make those parts it needed a machine. On 28 May 1990 it ordered a PSG 450 CNC Universal Turning Central Machine from the P.S.G. Industrial Institute. That single machine cost over Rs 21 lakh.

It arrived six months after the stipulated date, and it did not work. Defect after defect surfaced once it was installed; the supplier sent men to set it right; the machine could not be put in order. With a loan to service and a supply contract to honour, Joshi was losing money every month.

He complained to the Maharashtra State Commission, claiming Rs 4,00,000. The Commission allowed the claim in part and awarded Rs 2.48 lakh. On appeal the National Commission reversed on one ground only — that he was not a "consumer", because he was manufacturing machine parts on a large scale for profit and a machine worth Rs 21 lakh could only have been bought for a commercial purpose.

Faqir Chand Gulati

Faqir Chand Gulati owned premises No. L-3, Kailash Colony, New Delhi. He was old, and he wanted a new house on his own land — but he had neither the money nor the expertise to build one. On 17 May 1991 he signed a "collaboration agreement" with Uppal Agencies Pvt Ltd.

The bargain was of a kind familiar in every Indian city. He would give vacant possession and authorise the builder to obtain sanctions. The builder would demolish the old structure and put up a new building of ground, first and second floors at its own cost, to specifications in an annexure. On completion Gulati would take the entire ground floor, plus Rs 8 lakh in cash. The builder would keep the upper two floors and could sell them as it pleased. The land was to be held in undivided shares, one-third to the owner and two-thirds to the builder. Gulati gave an irrevocable power of attorney, was not to obstruct the construction in any manner, and had no voice in the choice of architects or contractors, though he could point out defects. Clause 24 said in terms that the agreement was not a partnership.

The builder got a sanctioned plan from the Municipal Corporation of Delhi and then departed from it. Deviation notices followed; the MCD ordered the premises sealed, then desealed them to let the builder rectify. Possession of the ground floor was delivered on 2 April 1992 — to Gulati's son, while Gulati was abroad. On his return he wrote on 29 October 1992 listing the shortcomings and the violations of the sanctioned plan and asked for rectification. Nothing was done. The builder sold the upper floors to four purchasers.

Gulati complained in 1994, asking for his title deeds back, for the completion certificate and C&D forms (the property-tax assessment listing) from MCD, and for the electricity meter deposit receipt and charges. Without the completion certificate he faced demolition threats and continuous harassment.

He then lost three times over. The District Forum dismissed the complaint on 10 May 1996: the agreement created mutual obligations enforceable by specific performance, not a hiring of services. The State Commission dismissed his appeal on 4 October 2000, holding it a "joint venture", relying on C. Narasimha Rao v K.R. Neelakandan and Har Sarup Gupta v Kailash Nath & Associates. The National Commission dismissed his revision on 3 February 2004 in the same terms. Fourteen years after signing, an old man was in the Supreme Court arguing about whether he could complain at all.

1. Laxmi Engineering: What is the ambit of "any commercial purpose"? Does the 1993 Explanation — that commercial purpose does not include use exclusively for earning a livelihood by self-employment — apply to a complaint filed before it was inserted?
2. Faqir Chand: Where a landowner gives land and takes constructed area in return, is he a consumer availing the builder's service, or a co-adventurer in a joint venture who must go to the civil court?

In Laxmi Engineering, the appellant said it was a small-scale unit, not a large-scale profit-making business, and the machine was bought by a qualified engineer to earn his livelihood under an employment promotion scheme. The respondent answered that the National Commission had for years treated the purchase of plant for a manufacturing business as a purchase for a commercial purpose.

In Faqir Chand, the landowner argued that the caption of the document was immaterial: the scheme was that the builder would construct and deliver a house to him. The builder argued that this was a single business adventure for mutual profit with obligations flowing both ways, so the remedy was a civil suit.

Laxmi Engineering — appeal dismissed. Three conclusions:

1. The Explanation added by Amendment Act 50 of 1993 (replacing Ordinance 24 of 1993) with effect from 18 June 1993 is clarificatory and applies to all pending proceedings; it "merely makes explicit what was implicit in the Act".
2. Whether a purpose is a "commercial purpose" "is always a question of fact to be decided in the facts and circumstances of each case."
3. "A person who buys goods and use them himself, exclusively for the purpose of earning his livelihood, by means of self employment is within the definition of the expression 'consumer'."

On the facts — "having regard to the nature and character of the machine and the material on record" — this was not such a purchase. He was not a consumer. But he could sue in the civil court and claim the benefit of s. 14 of the Limitation Act 1963 to exclude the time spent before the consumer fora.

Faqir Chand — appeal allowed on the point of law. The agreement was not a joint venture. The landowner is a consumer, the builder a service provider, and a complaint about deficiency in construction is a consumer dispute. The fora below "committed a serious error in wrongly assuming that agreements of this nature being in the nature of joint venture are outside the scope of consumer disputes"; Har Sarup Gupta was "clearly wrongly decided" and Narasimha Rao had been misread. On the second question, the builder's duty is not discharged by merely applying for a completion certificate: the obligation to build to the sanctioned plan carries "an implied obligation to comply with the requirements of municipal and building laws and secure the mandatory permissions/certificates". As none of the three fora had examined the facts, the matter went back for decision on the merits.

From Laxmi Engineering:

• "Commercial purpose" is undefined and bears its ordinary meaning — connected with commerce, having profit as the main aim. The Act "provides for 'business-to-consumer' disputes and not for 'business-to-business' disputes."
• The Explanation is an exception to an exception. Plying a bought car as a taxi is a commercial purpose; but if the buyer drives it himself for his living, he remains a consumer.
• Three expressions control the exception and each must be satisfied: the goods must be used "by him", "exclusively for the purpose of earning his livelihood", and "by means of self-employment". One who buys an auto-rickshaw, a car or a lathe "to be plied or operated exclusively by another person would not be a consumer". Taking the help of one or two persons to assist does not destroy the exception.
• "It is not the value of the goods that matters but the purpose to which the goods bought are put to." The same reasoning applies to a firm, a Hindu undivided family or a society.

From Faqir Chand:

• A true joint venture requires community of interest, a right to direct and govern policy, shared control and management, and a duty to share both profits and losses, each venturer standing as principal and agent of the other.
• Where the owner is barred from interfering, has no voice in appointing architects or contractors, no say in how the builder's floors are sold, no share in profit or loss, and only a right to demand delivery of his share, there is no joint venture. Such arrangements are "pseudo joint ventures" — hybrid agreements for construction for consideration and sale.
• Nomenclature does not determine character: "the use of the words 'joint venture' or 'collaboration' in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses."
• The consideration need not be money. Here it was the undivided two-thirds share in the land plus permission to build and own two floors — still "availment of services of the builder by the landowner for a house construction... for a consideration".
• The number of flats delivered to the owner is irrelevant: "The deciding factor is not the number of apartments deliverable to the landowner, but whether the agreement is in the nature of a joint venture or whether the agreement is basically for construction of certain area for the landowner."
• The remedies are asymmetric: if the landowner breaches, the builder must sue in the civil court, because the landowner provides no service; if the builder breaches, the owner may choose civil court or consumer forum, because s. 3 of the 1986 Act (now s. 100 of the 2019 Act) makes the remedy additional.

Obiter worth marking. In Laxmi Engineering, the passage on the fora as tribunals whose orders are final under s. 24 and unassailable in a civil court except on Dhulabhai grounds is a clarification "appended to obviate any confusion", not part of the decision on who is a consumer. In Faqir Chand, the extract from Friends Colony Development Committee v State of Orissa is background, and the statement that in a true joint venture the landowner would be no consumer is hypothetical on these facts.

Jeevan Reddy J. reads the exclusion against the scheme of the whole Act. The fora were created as cheap, quick, fee-free machinery for the ordinary buyer facing "a market dominated by large trading and manufacturing bodies". Once you see that the Act is aimed at business-to-consumer disputes, excluding purchases "for any commercial purpose" makes sense as excluding business-to-business litigation, which is what civil courts are for.

He then rescues the small man by taking the Explanation seriously. His illustrations are worth memorising, because problems are built on them: a typewriter or car for personal use — consumer; a typewriter used to type others' work for money, or a car plied as a taxi — commercial purpose; but if you type on it yourself, or drive the taxi yourself, to earn your living — consumer again; a lathe you operate yourself — consumer; a lathe operated exclusively by an employee — not.

Counsel put the hard case: the widow or the invalid with no other means who buys an auto-rickshaw and has it plied by a driver. Jeevan Reddy J. conceded "there is certainly some logic in the said submission" but held the language — "used by him", "exclusively", "self-employment" — would not bear it. That candour is worth citing: the limit is textual, not moral.

Why did Joshi fail, then? Because the machine was a Rs 21 lakh CNC installation in a unit financed by a Rs 22 lakh term loan and feeding a supply contract with a car manufacturer. The Explanation asks whether the buyer works the machine himself for his living, and that was not this picture. Note what the Court did not hold: not that a small-scale industry can never be a consumer, and not that price decides the question — it said in terms that value is not the test.

Raveendran J. applies the same method to a document. He assembles the legal meaning of "joint venture" from New Horizons Ltd v Union of India, American Jurisprudence, Corpus Juris Secundum and Black's Law Dictionary — the recurring elements being shared control, shared management and sharing of profits and losses — and then tests the Kailash Colony agreement clause by clause, finding every element missing: clause 24 excludes partnership, clause 15 bars the owner from interfering, clause 16 gives the builder exclusive choice of architects and contractors, clauses 7 and 13 let it sell its floors without reference to the owner, clause 12 puts deviation penalties on it alone.

He then re-describes the transaction in the plainest terms, and this is the passage to quote:

"The appellant is the owner of the land. He wants a new house, but is not able to construct a new house for himself either on account of paucity of funds or lack of expertise or resources. He, therefore, enters into an agreement with the builder. He asks the builder to construct a house and give it to him."

Everything else — undivided shares, power of attorney, the Rs 8 lakh adjustment — is machinery for paying for that construction. Once described that way, Lucknow Development Authority v M.K. Gupta supplies the rest: housing construction is "service", and defective or non-compliant construction is deficiency in it.

The second holding matters as much in practice. A builder who has built in violation of the sanctioned plan cannot say he has performed by handing over the keys: if the certificate is refused because of his deviations, "it is his duty to rectify those deviations or bring the deviations within permissible limits and secure a completion certificate", failing which "he will be liable to compensate the complainant for all loss/damage".

Lilavati Kirtilal Mehta Medical Trust v Unique Shanti Developers (2020) 2 SCC 265 is the modern restatement. A hospital trust bought flats to house its nurses; the builder called this a commercial purchase. The Supreme Court held the trust was a consumer, and laid down that the question is always fact-specific, "commercial purpose" being aimed at manufacturing, industrial and business-to-business activity; that the purchase must have a close and direct nexus with a profit-generating activity; that the identity of the purchaser and the value of the transaction are not decisive, what matters being the dominant intention or dominant purpose; and that if the dominant purpose was not linked to commercial activity there is no need to go on to the self-employment exception. Housing nurses was incidental to the hospital's work, not directly connected with generating its profits.

Read Lilavati as the bridge: Laxmi Engineering gives the exception (self-employment); Lilavati gives the test for the exclusion itself. Many complainants who would fail the narrow self-employment test now succeed at the earlier stage.

Re-enactment: s. 2(7) of the Consumer Protection Act 2019. The definition survives with three changes worth marks.

1. The "commercial purpose" exclusion now appears in both limbs — goods in sub-clause (i) and services in sub-clause (ii) ("but does not include a person who avails of such service for any commercial purpose"). When Faqir Chand's complaint was filed in 1994, the services limb carried no such exclusion at all.
2. Explanation (a) preserves Laxmi Engineering in substance: "the expression 'commercial purpose' does not include use by a person of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment". Everything said about "by him", "exclusively" and "self-employment" remains directly applicable.
3. Explanation (b) is new — the e-commerce clause: the expressions "buys any goods" and "hires or avails any services" include "offline or online transactions through electronic means or by teleshopping or direct selling or multi-level marketing". A person who buys on an app is squarely a consumer; the point no longer needs argument.

For builder disputes, the Real Estate (Regulation and Development) Act 2016 now runs alongside. In Imperia Structures Ltd v Anil Patni (2020) the Supreme Court held RERA does not oust the consumer remedy. Faqir Chand therefore remains live law, especially for collaboration agreements that fall outside a registered real-estate project.