Introduction
In a recent landmark decision that was pronounced by the Supreme Court of India (SC) in the case of Citicorp Finance (India) Ltd. v. Snehasis Nanda 2025 INSC 371, the boundaries of consumer protection law in India have been clarified and reinforced.
This decision addresses critical legal issues such as the definition of 'consumer' under the Consumer Protection Act, 1986 (1986 Act), the necessity of privity of contract between the consumer and the service-provider, and the arbitrability of consumer disputes. This article analyzes this decision and explores its broader implication.
Factual background
- Snehasis Nanda (Nanda), was the owner of a flat in Navi Mumbai, which was mortgaged to ICICI Bank.
- In 2008 Nanda decided to sell the flat to Mubarak Vahid Patel (Patel) for INR 32,00,000 and Nanda and Patel entered into an Agreement for Sale
- Patel approached Citicorp Finance (India) Ltd. (Citicorp), the Appellant before the SC for a housing loan.
- Citicorp sanctioned INR 23,40,000.
- As per the Agreement of Sale, it was agreed that out of the sanctioned amount, Citicorp would pay INR 17,80,000 to ICICI Bank to foreclose Nanda's loan and release the mortgage, and pay the balance amount to Nanda.
- Payments Made:
- Citicorp paid INR 17,80,000 to ICICI Bank.
- Citicorp issued a cheque for INR 5,09,311 to Patel, which was never encashed.
- Nanda received only INR 17,80,000 from the Patel and the balance sale consideration remained unpaid.
- Nanda, therefore, filed a complaint in 2018 before the National Consumer Disputes Redressal Commission (NCDRC) for recovery of INR 13,20,000.
- Nanda claimed a Tripartite Agreement between himself, Citicorp, and Patel, making Citicorp liable for the balance payment.
- NCDRC declared Citicorp deficient in service and directed Citicorp to pay INR 13,20,000 with interest and litigation costs to Nanda.
- Citicorp approached the Supreme Court, aggrieved by the NCDRC's decision.
The case before the SC
Before the SC, Citicorp vehemently contended that Nanda was not a 'consumer' with the meaning of the said term under the 1986 Act. According to Citicorp, there was no privity of contract between itself and Nanda and there were no obligations that were due to Nanda from Citicorp. There was a contract between Citicorp and Patel as the Borrower of the loan from Citicorp, and there was a contract between Patel and Nanda, viz., the Agreement for Sale. However, there was no contract between Citicorp and Nanda.
Further, Citicorp argued that there was no Tripartite Agreement as contended by Nanda and the NCDRC, without any evidence, concluded that there was such an Agreement under which Citicorp became liable to pay the balance sale consideration to Nanda. Furthermore, Citicorp raised some more arguments, including that of limitation.
Nanda refuted the arguments of Citicorp and defended the NCDRC's decision. Nanda argued that the NCDRC rightly upheld the Tripartite Agreement and accordingly, directed Citicorp to pay the amount to Nanda.
The SC was, thus, primarily called upon to adjudicate the following questions:
- Whether the respondent qualifies as a "consumer" under Section 2(1)(d) of the 1986 Act; and
- Whether Citicorp had any liability to pay the balance sale consideration to Nanda in the absence of any contract with him.
The SC answered both the questions in the negative. The SC held that Nanda was not a 'consumer' under the Act, as there was no privity of contract between him and Citicorp. The loan agreement was between Citicorp and Patel, and no services were rendered by Citicorp to Nanda. The SC observed that even if the Agreement for Sale stipulated that Citicorp were to make payments directly to Nanda, it would still not take the fact away that the Agreement for Sale was something that was between Nanda and Patel alone, and Citicorp was never a party to the said Agreement.
The SC went on to hold that the NCDRC had erred in drawing an adverse inference against Citicorp merely because it did not file a specific affidavit denying the existence of the Tripartite Agreement. The SC held that the burden of proving the existence of the Tripartite Agreement was with Nanda and not with Citicorp. The SC found that even the purported Tripartite Agreement produced before the NCDRC was unsigned, unstamped, and incomplete. Thus, the SC took the view that the existence of the Tripartite Agreement was doubtful and that cannot be the basis for holding Citicorp liable.
In addition to the above, the SC also made some pertinent observations on arbitrability of consumer disputes in line with past precedent. However, it is to be noted that the SC decision does not record any argument as regards arbitrability being raised by any of the parties. The reason, therefore, why the SC, suo moto, gets into this issue appears to be that the purported Tripartite Agreement contained an arbitration clause. Therefore, while it may be argued that the observations on arbitrability may only be obiter, it still gives us some insight into the position of the SC on this issue.
The SC held that in a consumer dispute, if arbitration is provided for under an agreement or document, the same can be opted for or resorted to "at the exclusive choice of the 'consumer' alone". The consumer is given the option to either choose arbitration or go to the Consumer Forums. Merely because there is an arbitration agreement, a consumer cannot be forced to abandon his remedies under the consumer protection laws and arbitrate his dispute. However, in the present case, apart from stating the law on this point, the SC did not go further as there was no need for the same in view of the Tripartite Agreement being doubtful.
With respect to limitation, the SC found that the complaint was filed before the NCDRC after a delay of about 8 years and despite Citicorp raising this issue, there was no finding regarding the same in the NCDRC's decision. The SC found fault with the NCDRC for having allowed the complaint to proceed without having recorded any reasons for condoning the delay in filing the complaint.
Our thoughts
This decision of the SC is a welcome one as it provides clarity on the boundaries of consumer jurisdiction and the importance of contractual privity. This decision reinforces the principle that only parties who qualify as 'consumers' can invoke remedies before consumer forums. It attempts to check the misuse of consumer protection mechanisms by third parties who are not in a direct contractual relationship with service providers, thus providing a shield to such service providers from unnecessary and vexatious litigation under consumer protection law.
For consumers the takeaway is that they must, before invoking consumer protection law, be sure that they have a valid contract with the opposite party and that they are a 'consumer' as per consumer protection law. This is important so that consumers do not waste valuable time prosecuting cases before the wrong forums and exposing themselves to complicated issues related to limitation-law later when they approach the right forum.
Further, this ruling also clarifies that in case there is an arbitration clause, the choice of forum would lie exclusively with the consumer, and not with the service provider or any other party. While this is beneficial for consumers, it is onerous for service providers as they cannot be certain as to the forum where a case would be filed in case disputes arise with the consumer. While consumer protection law is a welfare legislation aimed at protecting genuine consumers who are wronged, aspects onerous to non-consumers must also be addressed and clarity must be provided even for them as to where cases would lie in case disputes arise. Therefore, service providers, in order to minimize the threat of consumer litigation, must, at all times, ensure that their services are not deficient and that they do not enter into any practice that is violative of consumer protection law.
It is to be noted that while this decision was rendered in the context of the 1986 Act, it is also applicable to the Consumer Protection Act, 2019. Similarly, while the opposite party in this case was a service provider and therefore, the decision focused on service providers, the decision would be equally applicable to someone who trades or sells goods.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
