EARLIER THIS MONTH, the Supreme Court in Sant Rohidas Leather Industries v. Vijaya Bank (2026) reiterated the dominant purpose and direct nexus test to determine ‘commercial purpose’ that excludes consumer fora adjudication under the Consumer Protection Act. In doing so, it endorsed its 2023 judgment in National Insurance Co. Ltd. v. Harsolia Motors.
However, this dominant purpose test, as upheld, remains nebulous. There is no bright line between what is and is not a commercial purpose in business-to-business transactions. Accordingly, any business-to-business transaction is capable of being classified as ‘commercial’ or not, based on subjective and often questionable interpretation.
Who is a Consumer?
In both the Consumer Protection Act, 1986 and its successor Consumer Protection Act, 2019 (either being referred to as ‘CPA’), a consumer is a person who buys any goods or hires any service for consideration, but does not include a person who obtains such goods or services for a ‘commercial purpose’. Commercial purpose does not include instances where a person buys goods to be used exclusively by him for the purpose of earning a livelihood by self-employment. The definitions can be found in Section 2(1)(d) and 2(7) of the CPA 1986 and CPA 2019, respectively.
There is no bright line between what is and is not a commercial purpose in business-to-business transactions.
The CPA allows only a ‘complainant’ to agitate complaints before the consumer fora. At the very definitional threshold—under Section 2(5) of the CPA 2019—only ‘consumers’ or their representatives (or a class or the government) are defined as complainants.
Therefore, proving a complainant’s ‘commercial purpose’ by the respondent would strip the complainant of its locus to agitate the consumer complaint under the CPA because such a complainant would cease to be a ‘consumer’ for the transaction.
Surprisingly, there is no prohibition in the CPA on companies being recognised as consumers. In Karnataka Power Transmission Corporation v. Ashok Iron Works Pvt. Ltd. (2009), the Supreme Court held that the definition of a ‘person’ is inclusive and would include body corporates such as companies as well.
As such, business-to-business (‘B2B’) transactions are not excluded from the ambit of adjudication of the causes of action delineated in the CPA such as deficiency in goods or services. Yet, ‘commercial purpose’ is not defined under the CPA.
Therefore, what amounts to a ‘commercial purpose’ under the CPA has led to a great deal of litigation, especially in B2B transactions. It is not uncommon for businesses to agitate what are essentially non-consumer disputes before consumer fora, driven in part by the prospect of relatively faster relief compared to civil courts.
The test to determine ‘Commercial Purpose’
Recent Supreme Court judgments have provided a consistent interpretation of ‘commercial purpose’. The direct nexus and dominant purpose test has been reiterated in the judgments of Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers (2019); Poly Medicure Ltd. v. Brillio Technologies (Pvt) Ltd. (2025); Harsolia Motors, (2023); and most recently Sant Rohidas Leather Industries, and crystallised as below:
(i) There can be no straitjacket formula to determine whether an activity or transaction is for commercial purpose. Whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case.
(ii) Ordinarily, “commercial purpose” is understood to include manufacturing/ industrial activity or B2B transactions between commercial entities. However, the identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a ‘commercial purpose’. A business or body corporate can be a consumer.
If determining whether a transaction amounts to a ‘commercial purpose’ requires a detailed examination of evidence and intent, it raises the threshold question of whether such disputes ought to be adjudicated before consumer fora at all.
(iii) The purchase of the goods or services should have a close and direct nexus with a profit-generating activity.
(iv) The dominant purpose of the transaction must be to facilitate some kind of profit generation for the purchaser and/or their beneficiary.
(v) The burden to prove that the goods purchased or services availed are for a ‘commercial purpose’ is on the respondent and not the complainant.
What did the Court rule in the Sant Rohidas decision?
In the Sant Rohidas decision delivered earlier this month, the Appellant had filed a consumer complaint against Vijaya Bank alleging deficiency in service after investing ₹ 9 crores in a fixed deposit, against which an overdraft facility of ₹8.10 crores was allegedly sanctioned without authorisation. Suspecting fraud, the Appellant approached the Economic Offences Wing with a criminal complaint and also sought reversal of the overdraft from the bank, which it refused. The bank subsequently adjusted the FDR maturity proceeds against the overdraft dues and remitted the balance amount.
The Supreme Court ultimately rejected the appeal. It reasoned that complicated questions of fact, such as fraud, could not be decided before consumer fora but only in civil or criminal court where evidence could be led. In the same vein, the Court refused to rule on the ‘commercial purpose’ of the Appellant, as it was not possible to determine it without first adjudicating issues of fraud and the validity of the pledge.
However, the Supreme Court did endorse the dominant purpose/direct nexus test. The Appellant claimed the deposit was a standalone, fixed-term investment unrelated to its business. The bank contended that it had been pledged to secure an overdraft for business use. The Court noted that, ordinarily, parking surplus funds with a bank—even by a corporate entity—does not constitute a ‘commercial purpose’ merely because interest is earned. Since the alleged pledge and loan arrangement remained disputed and could not be adjudicated without leading detailed evidence (something that is not allowed in consumer fora), it was not possible to determine ‘commercial purpose’ for the specific litigation.
However, there is an evident problem in the Court’s reasoning. If determining whether a transaction amounts to a ‘commercial purpose’ requires a detailed examination of evidence and intent, it raises the threshold question of whether such disputes ought to be adjudicated before consumer fora at all.
If merely raising a dispute as to intent is sufficient, a respondent in a B2B transaction could readily defeat maintainability by alleging a ‘commercial purpose’ and introducing complex factual issues that consumer fora are not meant to adjudicate under the CPA.
Further, one may ask at what stage a bank deposit, initially made for treasury purposes, assumes a ‘commercial’ character, particularly where it is subsequently used as collateral to raise finance? Further, can a depositor, in such circumstances, still maintain a complaint for deficiency in banking services?
A wishy-washy ‘commercial purpose’
In Harsolia Motors, in 2023, the Supreme Court had held that, even in the case of insurance contracts entered into by body corporates, the determinative inquiry is the dominant purpose test. An insurance contract, being one of indemnity intended to compensate for loss, does not ordinarily have a direct nexus and therefore does not constitute a ‘commercial purpose’.
However, when does insurance cross the line from pure indemnification to profit facilitation? In many cases, businesses are required to procure insurance pursuant to statute or as part of financing and contracts. In such situations, can the insurance truly be said to be aimed at indemnifying loss alone? Or is it equally directed at enabling commercial operations and compliance, both of which are integral to profit generation?
In Lilavati Kirtilal Mehta Medical Trust, the Supreme Court, applying the dominant purpose test, had held that the purchase of flats by a hospital trust did not have a direct nexus with its profit-generating activities. The flats were used to accommodate nurses without rent and were not part of any revenue-generating activity or commercial dealing in property. While the Court acknowledged that providing such accommodation could improve employee satisfaction and institutional reputation, it characterised these benefits as incidental or speculative and insufficient to establish a direct causal link with profit generation, and therefore not a ‘commercial purpose’.
However, whether such benefits are truly incidental or speculative is itself a matter of fact that requires evidence to be led. It is equally plausible that the provision of accommodation is integral to retaining nursing staff, without which the hospital could not function effectively. In that sense, the hospital does derive economic value from the labour of nurses to whom such accommodation is provided as part of their overall compensation. This suggests a closer nexus with its profit-generating activities than the Court was willing to acknowledge.
Is the Direct Nexus and Dominant Purpose test inherently flawed?
Is indemnifying loss through insurance not, in substance, a means of reducing costs and thereby preserving or enhancing profit? Is placing funds in a deposit not ultimately tied to business use? Is a hospital’s investment in staff accommodation not directed at improving labour efficiency and, in turn, profitability?
At a fundamental level, the direct nexus and dominant purpose test itself is flawed. It is difficult to conceive of a business entity entering into any transaction devoid of commercial objectives. Under basic principles of neoclassical economic theory, firms act as rational agents seeking to maximise profits. Therefore, virtually every transaction undertaken by a business bears some nexus to profit generation. If so, the search for a ‘dominant purpose’ divorced from this broader economic context is artificial and unworkable.
The ability of businesses to agitate consumer disputes through nebulous judicial instruments such as the direct nexus and dominant purpose test has enabled what can be described as a form of procedural opportunism.
A crisis plagues India’s consumer disputes redressal
The CPA 1986 was introduced in the wake of the United Nations Guidelines for Consumer Protection (1985), which stated that consumers must be able to obtain redress through formal or informal procedures that are expeditious, fair, inexpensive and accessible. The consumer fora were intended to provide consumers with effective redress outside of the civil courts system, which was beset with delays and institutional deficiencies. However, reportedly, there are over 5.8 lakh pending cases before all consumer fora in the country, and the cases filed exceeded the cases disposed in 2024 by over 15,000. India Justice Report’s 2026 Consumer Justice Report also highlights the inadequacies of the consumer fora—35 percent cases are pending for over three years. Consumer fora today are beset with the very shortcomings of civil courts that they were designed to overcome.
The ability of businesses to agitate consumer disputes through nebulous judicial instruments such as the direct nexus and dominant purpose test has enabled what can be described as a form of procedural opportunism. Businesses, faced with delays in civil courts, are incentivised to recharacterise commercial disputes as consumer claims, thereby straining an already burdened system.
With the CPA 2019, the Parliament was presented with an opportunity to clarify the scope of who a consumer is and address this anomaly. Yet nothing has changed. Excluding B2B disputes from the CPA’s ambit would be the first step to reduce systemic strain in the consumer fora.
More fundamentally, the broader issue lies in the inadequacy of civil court infrastructure. Rather than continued tribunalisation, a more durable solution would lie in strengthening civil courts through targeted allocation of judicial manpower and financial resources, ensuring that commercial disputes are resolved within the system designed to adjudicate them.
Absent such reform, the promise of effective consumer redress will continue to recede.
Until next time
Anirudh Gotety is a commercial disputes and international arbitration lawyer based in New Delhi. He is a columnist at The Leaflet. He can be reached at anirudh@gotety.com.
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