Establishing Consumer Status Requires Privity of Contract: A New Clarification under Consumer Protection Law

1. Introduction

This comprehensive commentary examines the recent Supreme Court of India decision in the matter of M/S Citicorp Finance (India) Limited v. Snehasis Nanda, reported as (2025 INSC 371). The Judgment, authored by Justice Ahsanuddin Amanullah (with Justice Sudhanshu Dhulia concurring), clarifies important legal principles under consumer law, particularly focusing on whether a party can invoke the jurisdiction of the Consumer Forums in the absence of a direct contractual relationship.

In this dispute, the respondent (original complainant) had sold a flat, which was mortgaged with ICICI Bank. A prospective buyer then approached the appellant (Citicorp Finance) for a home loan. When a portion of the purchase consideration was allegedly unpaid, the respondent moved the National Consumer Disputes Redressal Commission (NCDRC) claiming deficiency of service by Citicorp Finance. The NCDRC allowed the complaint and directed Citicorp Finance to pay a substantial amount with interest and litigation costs. Aggrieved, Citicorp Finance appealed to the Supreme Court. Ultimately, the Supreme Court reversed the NCDRC’s decision, holding that the respondent was not a “consumer” under the Consumer Protection Act, 1986, due to lack of privity of contract with the appellant.

Key issues before the Court included: (a) whether the respondent was a “consumer” having availed services from the appellant, and (b) whether there existed any enforceable “Tripartite Agreement” obligating the appellant to pay the entire sale consideration to the respondent. The Judgment also considers the legal question of limitation under the Consumer Protection Act and the necessity of joining the purchaser-borrower as a party.

2. Summary of the Judgment

The Supreme Court set aside the NCDRC’s order, revealing several core reasons:

No Privity of Contract: The Court found no direct contractual relationship between the respondent and the appellant. The only valid loan agreement existed between the appellant (lender) and the purchaser-borrower. Under these circumstances, the respondent could not be deemed a “consumer” under Section 2(1)(d) of the Consumer Protection Act.
Unproven Tripartite Agreement: The Court found that an unsigned, unstamped, incomplete document offered by the respondent did not establish a binding Tripartite Agreement. Importantly, the burden of proving such an agreement lay on the person alleging it, i.e., the respondent.
Limitation and Non-joinder of Parties: The Supreme Court noted that the complaint was filed almost ten years after the alleged cause of action, with no sufficient explanation or properly recorded reason for condoning the delay. Further, the borrower (the party who actually transacted with the appellant) was neither made a party nor heard, constituting a significant procedural omission.
Setting Aside the NCDRC’s Order: Given the lack of consumer status, incomplete proof of a Tripartite Agreement, and non-joinder of a necessary party, the Supreme Court dismissed the respondent’s claim and quashed the NCDRC’s direction to pay monetary relief.

3. Analysis

3.1 Precedents Cited

The Supreme Court cited multiple precedents to underscore its conclusions:

Indian Oil Corporation v. Consumer Protection Council, Kerala, (1994) 1 SCC 397: The Court relied on the principle that, absent privity of contract, there can be no deficiency of service under consumer law.
Janpriya Buildestate Pvt. Ltd. v. Amit Soni, 2021 SCC OnLine SC 1269: Reiterated that a consumer must establish a direct contractual obligation or duty owed by the service provider. If no such relationship or privity exists, a consumer complaint must fail.
Tata Motors Limited v. Antonio Paulo Vaz, (2021) 18 SCC 545: Emphasized that liability against a manufacturer or service provider cannot be presumed unless there is specific evidence of privity or wrongdoing on the part of that entity.
Udit Narain Singh Malpaharia v. Additional Member Board of Revenue, Bihar, 1963 Supp (1) SCR 676: Clarified the principle of necessary and proper parties, underscoring why failure to join an essential party (the borrower, in this case) could be fatal.
M. Hemalatha Devi v. B. Udayasri, (2024) 4 SCC 255: Cited regarding arbitration clauses and consumer disputes, holding that a party not qualifying as a “consumer” cannot insist on consumer forum jurisdiction, and that arbitration is an option available primarily to a genuine consumer.

3.2 Legal Reasoning

The Court’s reasoning hinges on two central points:

Definition of “Consumer” Under the Consumer Protection Act:
Section 2(1)(d) of the Act requires a person to either buy goods or hire/avail of services for consideration. The Supreme Court clarified that no direct service was provided by the appellant-lender to the respondent-seller. The respondent merely had his mortgage with ICICI Bank foreclosed using funds disbursed by the appellant to the borrower. This did not translate to the respondent being a direct “consumer” of the appellant, because the respondent did not hire or pay for the appellant’s loan services.
Absence of a Proven Tripartite Agreement:
The respondent alleged a “Tripartite Agreement” imposing obligations on the appellant to pay the remaining sale consideration. However, the Court held that the burden of proving the existence and terms of such an agreement was on the respondent. No signed and properly stamped agreement was ever produced. An unsigned, partially blank document was insufficient. Consequently, the Court attributed no liability to the appellant in the absence of a valid contract directly involving the respondent and the lender.

3.3 Impact

This Judgment significantly clarifies and reinforces the principle that:

Consumer Complaints Require Privity of Contract: A complainant must show that the alleged service provider owed specific duties or obligations directly to them. Absent this privity, consumer proceedings cannot be sustained.
Strict Burden of Proof for Alleged Agreements: If a claimant asserts the existence of a particular contract (like a Tripartite Agreement) that is central to the dispute, the claimant must produce clear evidence of such an agreement. Otherwise, courts will not presume or infer liability.
Implicating Necessary Parties: Where a third party is integral to the transaction (the borrower here), failing to join that party may be fatal to the proceedings. The Court strongly reiterated the importance of adding all directly affected entities to ensure a conclusive and fair adjudication.

By holding that a person lacking a direct contractual relationship with a lending institution does not qualify as a consumer under the Consumer Protection Act, the Supreme Court has tightened the threshold required to bring financial disputes before the Consumer Forums.

4. Complex Concepts Simplified

Several legal concepts in the judgment benefit from additional explanation:

Privity of Contract: This doctrine means that only parties to a contract owe obligations or can claim its benefits. Where an agreement is strictly between a lender and a borrower, a third person (the seller of the property) generally lacks the legal standing to sue the lender for alleged deficiencies under consumer law.
Consumer Protection Act, 1986 and its Scope: The Act safeguards buyers of goods or services for consideration. It is designed for a consumer who pays for or uses a service. A person who has no direct agreement for service with the alleged provider cannot seek relief under the Act.
Tripartite Agreement: Typically, a document binding three distinct parties. In mortgage financing, one might see a tripartite arrangement between a developer/builder, buyer, and lender, clarifying each party’s obligations. However, unless executed and authenticated by all three, it has no legal force.
Limitation under Consumer Law: The law requires filing a complaint within two years of cause of action. If filed later, the complainant must seek and justify delay condonation. The Supreme Court underscored that the NCDRC must record specific reasons for any delay condonation.

5. Conclusion

In M/S Citicorp Finance (India) Limited v. Snehasis Nanda, the Supreme Court provides a clear, authoritative confirmation that a person cannot claim relief as a “consumer” in the absence of a direct contractual relationship with the service provider. It further holds that:

The respondent was not a “consumer,” as the loan in question was disbursed only to the borrower, and the lender had no service obligations to the respondent.
The alleged Tripartite Agreement was never properly evidenced. Since it was the respondent’s burden to prove its existence, failing to produce a valid document undermined his claim.
Non-joinder of the borrower was fatal, because that borrower was a necessary party to determine the precise nature of the purchase and loan transactions.

This Judgment thus reinforces fundamental principles of contract law and consumer law, emphasizing the sharp distinction between genuine consumers and third parties with only indirect involvement in a transaction. It will undoubtedly serve as guiding precedent in future disputes where consumer status is contested, especially in real estate and financing contexts.

End of Commentary