NBFCs Under Scrutiny: Court Allows Debenture Holder To Sue Under Consumer Law

INTRODUCTION

In a significant ruling that strengthens rights of the individual investors under consumer law, the Kerala High Court in Mathew K. Cherian v. State Consumer Disputes Redressal Commission & Ors. (2025:KER:80559) held that an individual who invests in Non-Convertible Debentures (NCDs) of a financial company is a "consumer" under the Consumer Protection Act, 2019 (the "Act") so long as the investment is in personal capacity and not for any business or commercial purpose.

BACKGROUND OF THE CASE

The Petitioner, is Managing Director of Kosamattam Finance Ltd. A consumer complaint was filed against the Complaint by Liji Philip being individual investor, alleging deficiency in service by the Petitioner. The complaint related to the Complainant's purchase of NCDs issued by the company. Contrary to the agreed terms, the company failed to disburse the interest payable.

The Petitioner has challenged the maintainability of the complaint contending that the Complainant is not 'Consumer' as per the provisions of the Act. The District Consumer Disputes Redressal Commission had found the transaction of the complaint as 'service' and rejected the plea of Petitioner. Revision filed by the Petitioner was also dismissed by the State Consumer Disputes Redressal Commission. Therefore, the Petitioner has approached Hon'ble High Court assailing the aforesaid orders.

ARGUMENTS OF THE PETITIONER

The Petitioner has argued that the Complainant cannot be treated as a 'consumer' as defined under the Act. Further argued that the transaction of the complaint pertains to the purchase of NCDs, which cannot be treated as 'goods'. Even if the said transaction is treated as service, even then the District Commission would no jurisdiction, as the investment in NCDs would still be of a commercial nature, as the same was made for making profits. The Petitioner has heavily relied upon the rulings of Hon'ble Supreme Court in Annapurna B. Uppin and Ors. Vs. Malsiddappa and Another [AIR 2024 SC 2015] and The Chief Manager, Central Bank of India and Ors. vs. AD Bureau Advertising Pvt. Ltd. and Ors. [MANU/SC/0288/2025].

COURT'S ANALYSIS

Scope of 'Service' under Section 2 (42) of the Act

With the supports from ruling of Hon'ble Supreme Court in Standard Chartered Bank Ltd. v. Dr. B.N. Raman [(2006)5 SCC 727] and Vodafone Idea Cellular Ltd. v. Ajay Kumar Agarwal, [(2022) 6 SCC 496], the Hon'ble High Court has drawn interpretation that when the expression 'service', is specifically defined under Section 2 (42) of the Act, by including the facilities in connection with Banking and financing, the same has to be given effect to, by extending a wider meaning possible, so as to include all possible transactions forming part of the instances referred to in the said provision. It was not disputed that the service in case at hand was not a free service and Court held that it fell squarely within the ambit of the Act.

Commercial Purpose: Understanding Section 2(7) Explanation

The Hon'ble Court has discussed second issue of Commercial nature of transaction in detail. The Court taken into consideration of ruling of Hon'ble Supreme Court relied upon by the Petitioner but have distinguished them on the aspect that the investments made in those cases were by commercial entities or those were the investments made by an individual on behalf of an entity engaged in business activities. However, in the case at hand the investment was in his individual capacity.

The Hon'ble Court gone through the explanation to Section 2(7) of the Act, where expression 'commercial purpose' has been explained and it is specifically provided that, the goods used by him exclusively for the purpose of earning of his livelihood by means of self-employment, has to be excluded and it would not come under the commercial purpose. The Court held that earning for livelihood not limited to the bread and butter, home, cloths or maintenance of the same but also includes additional income for better living standards also. Court further said that so long as such investments are not for the purpose of making a profit in a commercial nature, when it comes to the case of individuals, it has to be treated as for livelihood, where, the 'livelihood' would take in, the investment made for proper returns to ensure a better standard of living or to secure financial stability in future.

Applicability of Supreme Court Precedents

Relying on principles from Laxmi Engineering Works vs P.S.G. Industrial Institute [(1995) 3 SCC 583], Lilavati Kirtilal Mehta Medical Trust vs M/s Unique Shanti Developers [(2020) 2 SCC 262] and Daimler Chrysler (India) (P) Ltd. vs Control & Switchgear Co. Ltd. [(2025) 1 SCC 534], the Court held when an individual is making investments in his individual capacity for better profits to make his life better, under no circumstances, that could be treated as a commercial purpose, as explained in the explanation to Section 2(7) of the Act. It is also to be noted in this regard that, the purpose of the enactment of the Act, is to ensure the welfare of the consumers and a wider interpretation has to be adopted for the term 'consumer", when it comes to the transactions in individual capacity, so as to include all eligible persons, and exclusions should be exceptions where, transactions clearly indicate the commercial element therein. The entire Act revolves around the consumer and is designed to protect his interest. The interpretation that has to be made, should be by adopting a policy to include the person concerned, and only if exceptional circumstances are made out, the exclusion should be made.

DECISION OF THE COURT

The Kerla High Court held that there is no requirement of interference in the orders passed by the District Commission as well as the State Commission. The Complainant is consumer and the complainant is maintainable before District Commission. Consequently, the Writ Petition was dismissed.

ANHAD LAW PERSPECTIVE

Impact And Implications

The ruling reinforces that small investors using financial instruments like NCDs are protected consumers and not commercial entities. NBFCs cannot avoid consumer liability by arguing that their instruments are securities transactions exempt from consumer law.

Any financial service involving investment, interest, repayment, or fund management may fall under the Act. An individual investing personal funds even to earn returns is not automatically considered engaged in a commercial activity.

In a time, when financial markets are increasingly retail-investor and any individual can invest even through Mobile Application, this decision strengthened accountability of financial companies and reinforced the consumer-centric approach at the heart of the Act. This ruling helps maintain a crucial balance between financial innovation and consumer rights.

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