Bank’s Wrongful Reporting to CIBIL: Supreme Court Rules Borrowers Under Project Loans Are Not Consumers

The case of The Chief Manager, Central Bank of India & Ors. vs. M/s AD Bureau Advertising Pvt. Ltd. & Anr. is a significant ruling where the Supreme Court clarified that a borrower of a project loan does not qualify as a ‘consumer’ under the Consumer Protection Act, 1986. This judgment has far-reaching implications for disputes between financial institutions and borrowers over service deficiencies.

The appeal arose from an order passed by the National Consumer Disputes Redressal Commission (NCDRC), which directed the Central Bank of India to pay Rs. 75,00,000/- in compensation to M/s AD Bureau Advertising Pvt. Ltd. for allegedly wrongfully classifying it as a defaulter and reporting it to the Credit Information Bureau of India Limited (CIBIL). The Supreme Court overturned the NCDRC’s decision, ruling that the complaint was not maintainable under the Consumer Protection Act.

Background of the Case

The dispute began with a project loan of Rs. 10 crores sanctioned by the Central Bank of India to M/s AD Bureau Advertising Pvt. Ltd. on April 28, 2014. The loan was obtained for financing the post-production of a movie. A property belonging to the Chairman of the borrowing company was pledged as collateral. However, the borrower defaulted, and the account was classified as a Non-Performing Asset (NPA) on February 4, 2015.

Key developments in the case:

May 21, 2015: The bank issued a possession notice under the SARFAESI Act.
October 9, 2015: The bank filed a debt recovery application before the Debts Recovery Tribunal (DRT), Chennai, for Rs. 4.65 crores.
December 5, 2016: The DRT ruled in favor of the bank.
2017: The borrower settled the dues through a One-Time Settlement (OTS) of Rs. 3.56 crores and paid an additional Rs. 14.43 lakhs in delayed interest.
March 20, 2017: The bank issued a ‘No Dues Certificate’ and filed a satisfaction memo with the DRT.
March 2017 to June 2020: Despite the settlement, the bank allegedly continued to report the borrower as a defaulter to CIBIL.

Complaint Before NCDRC

Aggrieved by the wrongful reporting, M/s AD Bureau Advertising Pvt. Ltd. filed a consumer complaint before the NCDRC, arguing that the incorrect classification led to:

Loss of business opportunities.
Rejection of a bank guarantee by HDFC Bank, resulting in the cancellation of an exclusive advertising contract with the Airports Authority of India.
Damage to reputation.

The NCDRC ruled in favor of the borrower, holding that:

The bank was negligent in its services.
The wrongful reporting amounted to an unfair trade practice.
The bank must compensate the borrower with Rs. 75,00,000/- and issue a corrective certificate stating that the loan was fully settled.

Arguments Before the Supreme Court

Bank’s (Appellant’s) Arguments

The bank, represented by its counsel, contended:

A borrower of a project loan does not qualify as a ‘consumer’ under Section 2(1)(d)(ii) of the Consumer Protection Act.
The loan was purely a commercial transaction and not for self-employment or livelihood purposes.
RBI’s Master Circular on Wilful Defaulters mandates banks to report NPAs to CIBIL.
The NCDRC lacked jurisdiction to entertain a commercial loan dispute.

Borrower’s (Respondent’s) Arguments

The borrower, appearing as a party-in-person, countered:

The loan was taken for brand-building purposes, not for direct profit generation.
The wrongful reporting to CIBIL led to financial losses and business setbacks.
The bank acted negligently by failing to update CIBIL after the OTS.

Supreme Court’s Observations and Ruling

The Supreme Court ruled that the NCDRC’s order was without jurisdiction and made the following key observations:

“A borrower availing a project loan for commercial purposes cannot be considered a ‘consumer’ under the Consumer Protection Act. The transaction was purely a business-to-business relationship.”

The Court referred to past rulings:

Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers: A transaction for profit generation falls outside the definition of ‘consumer’.
National Insurance Co. Ltd. vs. Harsolia Motors: Business transactions meant for revenue generation do not qualify as consumer disputes.
Shrikant G. Mantri vs. Punjab National Bank: Overdraft facilities used for stock market trading do not fall under the Consumer Protection Act.

Final Judgment

The Supreme Court held:

The NCDRC lacked jurisdiction to entertain the complaint.
The compensation of Rs. 75,00,000/- was set aside.
The borrower is free to seek other remedies, such as civil or banking regulatory proceedings.

Key Takeaways

Project Loans Not Covered: Borrowers of commercial loans cannot seek relief under consumer protection laws.
Jurisdiction Matters: Disputes regarding loan misreporting should be resolved through banking regulators or civil courts.
Bank’s Reporting Duty: Financial institutions must ensure accurate credit reporting post-loan settlements.
Branding vs. Profit Generation: Merely branding a business does not make a transaction non-commercial.

Conclusion

The Supreme Court’s ruling clarifies the scope of consumer protection laws and reinforces that business-to-business transactions do not fall under the Consumer Protection Act. This judgment ensures that financial institutions are not unfairly penalized under consumer law for disputes that belong in the banking regulatory framework.

Petitioner Name: The Chief Manager, Central Bank of India & Ors..
Respondent Name: M/s AD Bureau Advertising Pvt. Ltd. & Anr..
Judgment By: Justice Sudhanshu Dhulia, Justice Prashant Kumar Mishra.
Place Of Incident: Chennai, Tamil Nadu.
Judgment Date: 27-02-2025.

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