Introduction
In a significant reaffirmation of a foundational contract law principle, the Supreme Court in Citicorp Finance (India) Ltd. v. Snehasis Nanda [2025 SCC OnLine SC 594] reiterated that a person who is not privy to a contract cannot claim to be a “consumer” under the Consumer Protection Act 1986 (“the 1986 Act”) and only direct contractual privity would enable a litigant to invoke the jurisdiction of a consumer court.
The ruling brings further clarity to the legal landscape for sellers, lenders, developers and service providers who routinely navigate tripartite and multi-party arrangements, particularly in the real estate and financial services sectors. It re-establishes doctrinal boundaries that are challenged in the face of expansive consumer claims.
Revisiting the Legal Framework
The 1986 Act defines a “consumer” as any person who buys goods or hires or avails of services for consideration. This definition encompasses users of goods or services only when such use is made with the approval of the original consumer. Crucially, consumer rights cannot be claimed by third parties who do not have a direct legal relationship, i.e., a contract – with the service provider.
Notably, the definition of “consumer” under the Consumer Protection Act 2019 remains materially identical to that under the 1986 Act. Thus, the requirement of a direct nexus, either through purchase, hiring or authorized use, continues to govern claims under the new regime as well.
While this definition is framed widely, the jurisprudence makes clear that its expanse is not limitless. The Supreme Court, in Lucknow Development Authority v. M.K. Gupta, (1994) 1 SCC 243, observed that the word “consumer' is a comprehensive expression extending from the purchaser of goods from a store or shop to users of private or public services. This expansive interpretation was reaffirmed in Chandigarh Housing Board v. Avtar Singh, (2010) 10 SCC 194 and Virender Jain v. Alaknanda Coop. Group Housing Society Ltd., (2013) 9 SCC 383, wherein the Court recognized that even beneficiaries who use goods or services with the approval of the original consumer fall within the protective ambit of the 1986 Act.
However, even these authorities presuppose some foundational legal relationship – an express or implied authorization or connection with the contracting party, without which consumer status cannot be claimed. Indian courts have consistently interpreted this to mean that contractual privity is essential.
The doctrine of privity of contract holds that only parties to a contract can sue or be sued on its terms [Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co Ltd., [1915] AC 847 (HL)]. This restricts the benefits available under consumer protection laws to actual contracting parties, thereby excluding incidental beneficiaries or third-party stakeholders.
This position was elaborated in Indian Oil Corporation v. Consumer Protection Council, Kerala [(1994) 1 SCC 397], where the Court held that a complainant must establish a direct contractual relationship with the service provider to succeed in a complaint for deficiency of service. The principle was further reiterated in Janpriya Buildestate Pvt Ltd v. Amit Soni, [2021 SCC OnLine SC 1269], where the Court again held that no consumer rights can arise without a clear contractual obligation between the complainant and the opposite party.
The Citicorp Finance Decision: Context and Clarification
The dispute in Citicorp Finance arose from a transaction for purchase of a residential property. Snehasis Nanda, the original property owner, agreed to sell his flat to a buyer, Mr Patel, who arranged financing through Citicorp. Citicorp disbursed a substantial portion of the sanctioned loan to Nanda's existing mortgagee (ICICI Bank) at the request of Mr Patel. The remaining amount was not disbursed due to Mr Patel's decision to close the loan account. Nanda, alleging non-payment of INR 13.2 lakhs, approached the National Consumer Disputes Redressal Commission (“NCDRC”), claiming that Citicorp was liable under a purported tripartite agreement amongst himself, Mr Patel and Citicorp.
Critically, the tripartite agreement produced by Nanda was neither signed nor validly stamped, and consequently there was no privity of contract between Nanda and Citicorp. The NCDRC, however, allowed the complaint, relying heavily on presumptions and partial documentation. Citicorp appealed before the Supreme Court from NCDRC's judgment.
Supreme Court's Ruling
On appeal, the Supreme Court set aside NCDRC judgment and observed that Nanda was not a party to the Home Loan Agreement between Citicorp and Mr Patel and that the alleged Tripartite Agreement was neither signed nor stamped, and its existence was not substantiated with credible evidence.
The Court came to a finding that there was no direct contractual relationship between Nanda and Citicorp. Consequently, the Court held that Nanda was not a “consumer” vis a vis Citicorp under the 1986 Act, as there was no privity of contract between him and Citicorp.
Broader Implications
Reinforcement of Contractual Boundaries
The judgment reiterates the necessity of a direct contractual relationship for invocation of consumer rights. It underscores that indirect or incidental arrangements, even if such arrangements are closely tied to the core transaction, cannot be brought under the ambit of consumer protection law.
For Financial Institutions: No Liability Absent Privity
By reiterating that consumer rights cannot be enforced by non-clients or non-customers, the judgment shields financial institutions from proceedings in a consumer court initiated by a party with whom there is no contractual nexus.
Financial institutions can take solace in the fact that, in the absence of privity, they cannot be held liable for claims by a third party in a consumer court.
Importance of Documentation
This decision reiterates that a consumer claim must be anchored in an enforceable contract. Assertions based on unsigned or partially executed agreements are unlikely to succeed unless supported by irrefutable documentary evidence and a clearly established statutory duty. This is critical not only from a litigation standpoint but also for regulatory and compliance considerations.
Parties should be especially cautious and ensure that complete and properly executed documentation is in place. Reliance on incomplete or draft documents to imply the existence of a binding contract, as was attempted in the present case by virtue of the tripartite agreement, may be legally insufficient and could undermine the claim entirely.
Procedural Compliance: Limitation and Necessary Parties
The Court also considered procedural lapses that further weakened Nanda's claim. The complaint was filed more than 10 years after the cause of action, and no sufficient cause for delay was established. Under Section 24A of the 1986 Act, the limitation period is two years from the date on which the cause of action arises.
Mr Patel who purchased the flat from Nanda, and who was central to the transaction, was not had a party to the proceedings before NCDRC violating basic rules of necessary party joinder.
Conclusion
The ruling reiterates that contractual privity is a substantive precondition to a consumer claim. It also underscores the criticality of procedural compliance and impleadment of proper parties while raising a claim before a consumer court.
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