Farmer entering into buyback transaction with seed company is a ‘Consumer’: Supreme Court

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The Supreme Court has held that a farm is a ‘consumer’ for the purpose of filing complaints under Consumer Protection Act even when he has entered into a buyback transaction.

Facts of the case

The complainant is a small landholder who responded to the advertisements issued by the Appellant, a seed company, in 2003, regarding buyback of safedmusli, a medicinal crop, at attractive prices. She entered into a tripartite agreement dated 15.01.2004 with the Appellant and its franchisee. As per the agreement, the Respondent purchased 750 kgs of wet musli for sowing from the Appellant, at the rate of Rs. 400/- per kg, and cultivated the same in her land. The Appellant was to buy back the produce at a minimum price of Rs. 1,000/- per kg from the Respondent. The Respondent lodged a consumer complaint alleging negligence and breach of contract on the part of the Appellant on the ground that the Appellant failed to buy back her produce, leading to the destruction of the greater part of the crop. The District Forum dismissed the complaint, and held that the same was not maintainable since the Respondent was not a “consumer” within the meaning of the Consumer Protection Act, 1986. On appeal by the Respondent, the State Commission set aside the order passed by the District Forum, holding that the Respondent was a “consumer” under the 1986 Act, and remanded the matter to the District Forum for disposal on merits. It is this order which was impugned before the National Commission by way of a revision petition filed by the Appellant. The National Commission upheld the finding of the State Commission, holding that the covenants entered into between the parties were in the nature of both sale of product and rendering of service, since the Appellant had agreed to provide wet musli for growing to the Respondent, supplemented by technical support and guidance from its franchisee, and had further agreed to insure the crop at additional cost. Additionally, noting that the Respondent was a small landholder owning about 1-1.5 acres of land, who had started cultivation of musli for eking out a livelihood for herself, the National Commission held that it could not be said that the agreement was entered into for the commercial purpose of the Respondent. The Revision Petition was dismissed with a cost of Rs. 2,500/- imposed on the appellant, payable to the Respondent.

Arguments advanced by the parties

Learned Counsel for the Appellant, Mr. Raghenth Basant, argued that the Respondent was not a “consumer” as defined under Section 2(d) of the 1986 Act. Firstly, it was argued that the tripartite agreement envisaged buyback of musli by the Respondent from the Appellant, which amounted to resale, which is excluded from the purview of Section 2(d). Secondly, it was argued that the cultivation and sale of musli by the Respondent was for a commercial purpose and not for the purpose of earning livelihood, and hence excluded from the purview of Section 2(d).

 Learned Counsel for the Respondent, Mr. Santosh Paul, on the other hand, argued that the cultivation of musli was not being done on a commercial level, but was purely on a self-employed basis done by a poor agriculturist for eking out a livelihood, and hence such cultivation did not fall within the meaning of “commercial purpose” under the Explanation to Section 2(d) of the 1986 Act.

Definition of consumer under the act

“Consumer” under Section 2(d) under the 1986 Act: “(d) “consumer” means any person who:-

  • buys any goods, for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised or under any system of deferred payment when such use is made with the approval of such person but does not include a person who obtains such goods for resale or for any commercial purpose; or
  • hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any 5 system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the service for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purposes;

Explanation. — for the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment” (emphasis supplied)

The Appellant has referred to Synco Textiles (supra), a case decided before the 1993 amendment, where the National Commission opined that large scale commercial activities would be excluded from the purview of the definition of “consumer”. It was held that a person purchasing a generator used for generating electricity, to be used in an industrial concern producing oil on a large scale, would not amount to a “consumer”, since the generator was being used  for an activity directly intended to generate profit. This view was upheld in Laxmi Engineering (supra) by this Court, and we see no reason to depart from the same. At the same time, the said decision cannot come to the rescue of the Appellant as the facts in Synco clearly indicated that the generator purchased was employed for production that was geared for a commercial purpose, and had nothing to do with the agricultural sector and the status of a farmer as a “consumer”.

The National Commission, following the view taken in Fruit and Vegetable Project, New Delhi v. N. Sankar Reddy, III (1994) CPJ 163 (NC) that a seller could not take the benefit of the 1986 Act, held that the farmer was not a “consumer” since he was selling his produce to the opposite party. It was also held that in any case, the issue of specific performance emanating from a contract between the parties could not be the subject matter of a consumer dispute. Most Indian farmers own only small landholdings, which require expensive inputs such as irrigation, electricity, seeds, fertilizer, and pesticide, but do not generate sufficient output to cover the costs of the same. Though the sway of seed companies over small farmers in India is, as of now, minimal, when agriculturists with such small landholdings do enter into agreements to grow crops on terms dictated by seed companies, it is in the hope of earning some profit that would offset the cost of their inputs and generate some income for the household. Often, the crops require the intensive usage of labour and mechanization. Therefore, agreements such as the one in the instant case often guarantee technical and financial assistance to the farmer in order to be able to discharge his end of the deal. Needless to say, the success or failure of the crop would make or break the income of the farmer for the entire season. This can result in situations where small and medium scale farmers find themselves trapped in contracts where they buy expensive seeds which turn out to be defective, resulting in a failed season and severe financial hardship. The problem of indebtedness further worsens the plight of the farmer, and, all too often, manifests in the tragedy of suicide. Farmer suicides are indeed a systemic issue that has persisted, and perhaps worsened, over the last few decades. The summary redressal available to the farmer under the 1986 Act may go a small but crucial way to provide instant relief in a sector which is already facing stress on several counts. Undoubtedly, farmers faced with grievances against seed companies, may, in suitable cases, opt for other remedies such as a civil suit, relief under the Seeds Act, 1966 (the reform of which has been under process for some time), and so on. But excluding such farmers from the purview of the 1986 Act would be a complete mockery of the object and purpose of the statute. National Commission affirming that the Respondent is a “consumer” within the meaning of the 1986 Act, and dismiss the instant Appeal. The concerned District Forum shall hear and decide the complaints within a period of three months from the date of receipt of this judgment. Costs are imposed on the Appellant to the tune of Rs. 25,000/- payable to the Respondent.


………………………J. (R. SUBHASH REDDY)  

New Delhi; March 06, 2020

Edited by Pragash Boopal

Approved & Published – Sakshi Raje