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3 Jan

Explanation To Section 2(1)(d), Which Excludes Self-Employment Activities From “Commercial Purpose” Cannot Be Extended to Corporate Entities Purchasing Goods or Services to Streamline or Automate Business Operations

In the matter of M/s Poly Medicure Ltd. vs. M/s Brillio Technologies Pvt. Ltd., [Civil Appeal No. 6349 of 2024arising out SLP (C) No. 14306 of 2020], the division bench of Hon’ble Supreme Court consisting of Justice J. B. Pardiwala and Justice Manoj Misra has recently held that although it stands settled that an incorporated company is not per se excluded from the ambit of a “consumer” and may fall within the meaning of Section 2(1)(d) read with Section 2(1)(m) of the Consumer Protection Act, 1986 (“the Act”), the explanation to Section 2(1)(d), which excludes self-employment activities from “commercial purpose”, cannot be extended to corporate entities purchasing goods or services to streamline or automate business operations.

Facts:

The Appellant, a company registered under the Companies Act, 1956, filed a complaint before SCDRC claiming that it is engaged in the business of import and export of medical devices and equipment. To install and implement an export–import documentation system for its manufacturing facility, the Appellant purchased a software licence for “Brillio Opti Suite” from the Respondent and paid consideration towards licence fees and additional development costs. The Appellant alleged that the software did not function as promised and that there was deficiency in service, the Appellant filed a consumer complaint before the State Consumer Disputes Redressal Commission (SCDRC), Delhi seeking refund along with interest.

The SCDRC dismissed the complaint holding it to be not maintainable on the ground that the appellant was not a “Consumer” within the meaning of Section 2(1)(d) of the Act, as the software had been purchased for a commercial purpose. The said order was upheld by the National Consumer Disputes Redressal Commission (NCDRC) as well. Aggrieved by the order of NCDRC, the appellant approached the Supreme Court for relief.

Central Issue involved in the matter:

The question before the Court was whether in respect software which was utilised for internal business processes can be said to be for commercial purpose and whether the appellant would qualify as a “consumer” as defined in Section 2(1)(d) of the 1986 Act.

Submissions by the Parties:

The Appellant contended that the software was purchased for self-use as an end user, without any intention of resale or transfer for profit. The software was utilised for internal business processes and does not amount to a commercial purpose. It was also argued that since the software was not directly linked to generation of profit, the transaction cannot be considered as one for a commercial purpose so as to disqualify the appellant from being a “consumer”. Reliance was placed on Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers to argue that the dominant purpose test must be applied and that identity of the purchaser or value of the transaction is not determinative. It was further argued, relying on Sunil Kohli v. Purearth Infrastructure Ltd., that goods or services used for self-utilisation to earn a livelihood should fall within the definition of “consumer”. Therefore, the view taken by the SCDRC followed by the NCDRC is contrary against the law and liable to be set aside.

The Respondent contested that the software was specifically designed to support and automate the Appellant’s core business activities, including export documentation, duty drawback, forex management, and regulatory compliance and arguing that the software had a direct nexus with profit-generating activities of the Appellant. The Act contemplates business-to-consumer disputes, not business-to-business commercial transactions. Reliance was placed on Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Ors and National Insurance Co. Ltd. v. Harsolia Motors.

Analysis and finding:

The Court, relying upon the Judgment of Supreme Court in the matter of Karnataka Power Transmission Corp. and Anr v. Ashok Iron Works Private Ltd., observed that the definition of “person” in Section 2(1)(m) of the Act is inclusive and not exhaustive. Accordingly, it stands settled that an incorporated company is not per se excluded from the ambit of a “consumer” and may fall within the meaning of Section 2(1)(d) read with Section 2(1)(m) of the Act. However, the decisive factor is whether the goods purchased or services availed are for a commercial purpose.

The Court relied extensively on Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Ors, wherein the Court has observed that there is no straight forward formula to determine a “commercial purpose” and that the dominant intention or dominant purpose test must be applied. Ordinarily, business-to-business transactions having a close and direct nexus with profit generation constitute a commercial purpose. The Court drew a clear distinction between a self-employed individual purchasing goods/services to earn livelihood, and an established commercial entitiy purchasing goods/services to enhance efficiency, reduce costs, or maximise profits. Court observed that the explanation to Section 2(1)(d), which excludes self-employment activities from “commercial purpose”, cannot be extended to corporate entities purchasing goods or services to streamline or automate business operations. The Court further clarified that decisions in Harsolia Motors are related to insurance being indemnificatory and not profit-generating, and cannot be applied to cases where the transaction directly facilitates commercial operations.

The Court found that the software was purchased to automate export–import processes integral to the Appellant’s business. Automation of such processes is inherently aimed at cost efficiency and profit maximisation. Consequently, the transaction bore a direct nexus with commercial activity and profit generation. The Court held that the Appellant had purchased the software licence for a commercial purpose, and therefore did not qualify as a “consumer” under Section 2(1)(d) of the Consumer Protection Act, 1986 and the orders passed by the SCDRC and NCDRC were affirmed. The appeal was accordingly dismissed.

1 Jan

An Arbitral Tribunal’s Power to Grant Pendente Lite Interest Can Be Curtailed Only by an Express or Necessary Implied Prohibition in the Contract

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Arbitration

In the matter of Oil and Natural Gas Corporation Ltd. vs. G & T Beckfield Drilling Services Pvt. Ltd. [2025 INSC 1066], the Hon’ble Apex Court held that post-award interest, being statutorily provided under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“1996 Act“), cannot be contracted out of by the parties and further even if there is a clause excluding interest, simpliciter, on delayed or disputed payments, it does not, by itself, bar the arbitral tribunal from awarding pendente lite interest. The statutory power of arbitral tribunal to grant pendente lite interest can be curtailed only by an express necessary implied prohibition in the contract.

When the disputes were referred to arbitration, a three-member arbitral tribunal passed an award in favour of the respondent, directing ONGC to pay, inter alia, the principal amount along with interest at 12% per annum from 12^th December 1998 i.e. from the date of filing of the statement of claim till recovery. Aggrieved, ONGC filed an objection under Section 34 of the Act before the Ld. District Judge, Sivasagar, seeking to set aside the award inter alia on the grounds that the arbitral tribunal had not properly addressed its jurisdictional objection under Section 16(2) of the Act. The District Judge set aside the award. The respondent preferred an appeal under Section 37 before the Hon’ble Gauhati High Court, where the arbitral award was restored. ONGC challenged this decision before the Supreme Court. The limited ground of challenge was whether the arbitral tribunal was justified in awarding interest at 12% per annum despite clause 18.1 of the agreement prohibiting interest on delayed or disputed payments.

The Supreme Court confined its analysis to the question of interest and the scope of Section 31(7) of the 1996 Act. It observed by the Court that Section 31(7) empowers the arbitral tribunal to award interest for separately for pre-reference, pendente lite, and post-award period. While the power to grant pre-reference and pendente lite interest is subject to the agreement between the parties, the post-award interest is statutory and cannot be contracted out of.

The Supreme Court noted that in the instant case, the tribunal had awarded interest at 12% per annum not from the date of the cause of action but from the date of affirmation of the statement of claim before the tribunal, and thus the 12% interest amounted to pendente lite interest.

Clause 18.1 stated that “no interest shall be payable by ONGC on any delayed payment/disputed claim.” The Supreme Court interpreted this clause in light of established precedents in Irrigation Deptt. vs. G.C. Roy [(1992) 1 SCC 508], Union of India vs. Ambica Construction[(2016) 6 SCC 36], Reliance Cellulose Products Ltd. vs. ONGC [(2018) 9 SCC 266], Sayeed Ahmed & Co. vs. State of U.P. [(2009) 12 SCC 26], and THDC vs. Jaiprakash Associates Ltd.[(2012) 12 SCC 10] wherein it has been held that only an express or necessarily implied bar can restrict the arbitrator’s power to grant pendente lite interest. Such a restriction must be an absolute prohibition like those in Sayeed Ahmed & Co. or THDC, where interest was explicitly barred in the contract by using the expression “in any respect whatsoever“. Clause 18.1, in the present case on the other hand, merely provided that ONGC would not pay interest on delayed or disputed payments. Therefore, clause 18.1 could not be construed as barring the arbitral tribunal’s authority to award pendente lite interest. The Supreme Court further found the rate of 12% awarded as reasonable, being lower than the statutory post-award rate of 18% prescribed under Section 31(7)(b) at the time.

Accordingly, the SLP was dismissed.

31 Dec

WRIT PETITION UNDER ARTICLE 226 OF THE CONSTITUTION IS MAINTAINABLE AGAINST AN ORDER OF MSME FACILITATION COUNCIL

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Arbitration

The Hon’ble Supreme Court, in a recent judgment in Tamil Nadu Cements Corporation vs. Micro and Small Enterprises Facilitation Council [(2025) 4 SCC 1], held that writ petition under Article 226 of the Constitution is maintainable against an order of the Micro and Small Enterprises Facilitation Council (hereinafter referred to as “MSEFC“) passed under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act“), where such order is passed contrary to the statutory procedure, or amounts to a nullity and is therefore, without jurisdiction. It was further held that the remedy under section 34 to challenge the award under the MSMED does not bar the exercise of writ jurisdiction in exceptional cases.

The appellant, Tamil Nadu Cements Corporation Limited (“Appellant“), invited tenders for the design, supply, erection, and commissioning of Electrostatic Precipitators for Cement Works. The contract was awarded to M/s Unicon Engineers. However, M/s Unicon Engineers failed to complete the project within time. Appellant issued several warning letters about poor performance and substandard work. M/s Unicon Engineers filed a petition under Section 18 of the MSMED before the MSEFC, claiming Rs. 2.66 crores with interest. MSEFC, on hearing the parties, held that conciliation had failed and while placing reliance on Sections 15 and 16 of the MSMED Act, directed the Appellant to pay Rs. 39.66 lakhs as balance retention money and Rs. 1.57 crores towards additional expenditures with interest.

The Appellant challenged the order before the High Court of Madras under Section 33 and Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act“), and also filed a writ petition challenging the vires of Sections 16 to 19 of the MSMED Act. The High Court dismissed the petition od Appellant for two reasons, firstly, for being time-barred and secondly, for not complying the statutory requirement of the mandatory 75% pre-deposit under Section 19 of the MSMED Act. The petition under section 37 of the 1996 Act and writ petitions filed by Appellant were also dismissed on the ground that the Appellant had exhausted all remedies. Appellant approached the Hon’ble Supreme Court challenging the dismissal of writ petitions against MSEFC orders.

The issue was whether a writ petition under Article 226 is maintainable against orders of the MSEFC passed under Section 18 of the MSMED Act, and if so, under what circumstances.

The Hon’ble Supreme Court placed its reliance on Jharkhand Urja Vikas Nigam Ltd. vs. State of Rajasthan [(2021) 19 SCC 206]. In Jharkhand Urja Vikas Nigam Ltd. , it was held that conciliation and arbitration under Section 18(2) and (3) are distinct stages. In the event conciliation fails, the MSEFC must formally initiate arbitration under the 1996 Act. If an order passed without following due process, a writ petition is maintainable even bypassing Section 34 proceedings.

The Court also referred the judgments in Gujarat State Civil Supplies Corporation Ltd. vs. Mahakali Foods Pvt. Ltd. [(2023) 6 SCC 401] and India Glycols Ltd. vs. MSEFC [2023 SCC OnLine SC 1852], wherein it was held that the MSMED Act, being a special statute with overriding non-obstante clauses, prevailed over the 1996 Act and the MSEFC could therefore act as arbitrator after failed conciliation, and its orders could be challenged only under Section 34 of the 1996 Act and that writ petitions are not maintainable against MSEFC orders due to existence of a statutory remedy under Section 34. The Supreme Court observed that there is a direct conflict between Jharkhand Urja and Gujarat State Civil Supplies, and expressed reservations about India Glycols, which excludes the writ remedy even where the MSEFC’s order is passed without jurisdiction or contrary to the statutory procedure. The Court noted that Section 18 of the MSMED Act contemplates mandatory conciliation and thereafter arbitration “as if” an arbitration agreement existed, but it does not empower the MSEFC to collapse the two processes or issue directions akin to an award without proper arbitral proceedings. The Supreme Court held that writ jurisdiction under Article 226 may still be invoked where the MSEFC acts in excess of jurisdiction, in violation of natural justice, or where the order is a nullity.

28 Sep

UnderstandingJudgment in Rohan Builders (India) Private Limited Vs. Berger Paints India Limited

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Uncategorized

The case originates from SLP under the Arbitration and Conciliation Act, 1996. The main issue in the matter is-

Whether an application for an extension of time under Section 29A of the Arbitration and Conciliation Act could be filed after the period for making the arbitral award had expired?

The Calcutta High Court has held in Rohan Builders (India) Pvt. Ltd. v. Berger Paints India Ltd. that such an application under Sections 29A (4) and 29A (5) could only be entertained if filed before the expiry of the tribunal’s mandate, the Patna High Court also gave similar Judgment in South Bihar Power Distribution Company Limited v. Bhagalpur Electricity Distribution Company Pvt. Ltd. Opposite interpretations were given by various other High Courts of Delhi, Bombay, Madras, Kerala, Jammu & Kashmir which held that an extension could be granted even after the expiry of the period specified.

The court gave a clarity on the interpretation of Section 29A, specifically whether the court had the power to extend time after the arbitral tribunal’s mandate had technically expired.

Judgment of the Court:

The Supreme Court, through this Judgment has overturned these interpretations given by the Calcutta and Patna High Courts. The Court held that-

– An application for the extension of time for making an arbitral award under Section 29A (4) of the A&C Act is maintainable even after the expiry of the initial 12 months or the additional 6-month extension as provided by Section 29A (3).

– The court highlights that the word “terminate” in Section 29A (4) should not be understood as an absolute end of the arbitral tribunal’s mandate, since there is no full stop after the word “Terminate”. The word “terminate” is followed by the connecting word “unless,” which qualifies the first part with the subsequent limb of the section, i.e. “unlessthe court has, either prior to or after the expiry of the period so specified, extended the period. The section should be read in context, where the court can extend the period for making the award either before or after the expiry of the prescribed period.

The Court disagreed with the literal interpretation of “terminate” given by the Calcutta High Court, stating that such an approach would lead to absurd or unjust outcomes, such as forcing parties to rush to the court even before the expiration of the 12-month period, disregarding the possibility of a consensual 6-month extension. The Court emphasized flexibility in the arbitral process, allowing courts to extend the period for sufficient cause under Section 29A (5), with the discretion to impose conditions and costs as necessary. It stated that a rigid interpretation would defeat the purpose of arbitration by potentially causing further delay, inconvenience, and additional costs for the parties.

12 Mar

SUPREME COURT: ESSENTIALS OF ORDER VIII RULES 3 AND 5 CPC

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Civil Procedure Code

A factual question arose before the Hon’ble Supreme Court recently in the matter of Thangam & Anr v. Navamani Ammal [Civil Appeal No. 8935 of 2011 decided on 04.03.2024],when the question that arose for consideration was whether the will in question was surrounded by suspicious circumstances whereby the testator had not mentioned the names of his widow and daughter in the will and had bequeathed a part of his property to the daughter of his brother. The appellants were the wife and the minor daughter. When the Court looked into and examined the evidence it was found that the witnessed from the prosecution and the defendant’s side have stated that the testator was suffering from cough but otherwise he was not in a condition when it can be said that he was no in good senses and that he was unable to understand his welfare and take correct decision. Hence, the Will could not held to be suspicious on the ground of alleged ill-health of the testator at time of execution of will. Similarly, based on the other evidence, the Court concluded that the there was no discrepancy in the will. Additionally, the Court also observed that the case of appellants was weak since in the written statements filed by the Appellants, there was no specific denial to the claims made by the plaintiff. No para-wise reply was given. On this aspect, the Court observed that Order VIII Rules 3 and 5 CPC clearly provides for specific admission and denial of the pleadings in the plaint. The Court further charted the essentials of provision in three points – (i) A general or evasive denial is not treated as sufficient. Proviso to Order VIII Rule 5 CPC provides that even the admitted facts may not be treated to be admitted, still in its discretion the Court may require those facts to be proved. This is an exception to the general rule. General rule is that the facts admitted, are not required to be proved; (ii) The requirement of Order VIII Rules 3 and 5 CPC are specific admission and denial of the pleadings in the plaint. The same would necessarily mean dealing with the allegations in the plaint para-wise. In the absence thereof, the respondent can always try to read one line from one paragraph and another from different paragraph in the written statement to make out his case of denial of the allegations in the plaint resulting in utter confusion; (iii) In case, the defendant/respondent wishes to take any preliminary objections, the same can be taken in a separate set of paragraphs specifically so as to enable the plaintiff/petitioner to respond to the same in the replication/rejoinder, if need be. The additional pleadings can also be raised in the written statement, if required. These facts specifically stated in a set of paragraphs will always give an opportunity to the plaintiff/petitioner to respond to the same. This in turn will enable the Court to properly comprehend the pleadings of the parties instead of digging the facts from the various paragraphs of the plaint and the written statement.

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