Borrower cannot Enforce Consumer Rights Without Privity of Contract: Supreme Court Grants Relief to Citicorp Finance (India) Limited [Read Order]

The Supreme Court of India recently ruled in favor of Citicorp Finance (India) Limited, holding that a borrower cannot claim consumer protection rights without privity of contract with the lender.

The dispute arose from a property transaction dating back to 2008, involving a flat in Navi Mumbai owned by Snehasis Nanda. At the time, the flat was mortgaged with ICICI Bank and had an outstanding loan balance of ₹17,80,000. Nanda decided to sell the flat to Mubarak Vahid Patel for ₹32,00,000, and Patel sought a home loan of ₹23,40,000 from Citicorp Finance (India) Limited to finance the purchase.

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Upon approval of the loan, Patel instructed Citicorp Finance to directly disburse ₹17,80,000 to ICICI Bank for foreclosure of the existing loan, ensuring that the property could be sold free of encumbrances. The remaining ₹5,09,311 was issued as a cheque to Patel, but Patel never encashed the amount, and the sale did not materialize.

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In 2018, the Respondent approached the National Consumer Disputes Redressal Commission (NCDRC), claiming that Citicorp Finance had a contractual obligation to ensure full payment of ₹13,20,000, the remaining balance of the agreed sale price.

It was alleged that Citicorp Finance was part of a Tripartite Agreement involving the Respondent, Patel, and Citicorp, under which Citicorp was responsible for ensuring that the full transaction amount was paid. The NCDRC accepted the arguments and directed Citicorp Finance to pay ₹13,20,000 along with interest and litigation costs..

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Aggrieved, Citicorp challenged the ruling before the Supreme Court, represented by Senior Advocate Ritin Rai. It was contended that the impugned order had numerous infirmities and that the NCDRC failed to consider that the Respondent does not qualify as a ‘consumer’ of the Citicorp as per Section 2(1)(d) of the Consumer Protection Act, 1986.

Respondent Snehasis Nanda who appeared in-person submitted that the Citicorp had approved the home loan on the basis of the alleged Tripartite agreement and sought to uphold the impugned decision of the NCDRC. He further asserted that the lender was aware of the entire transaction and, therefore, liable for ensuring complete payment.

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A Bench of Justice Ahsanuddin Amanullah and Justice Sudhanshu Dhulia observed that the alleged tripartite agreement was never adduced and hence the respondent had no privity of contract with the appellant. Consequently, the respondent cannot be termed a ‘consumer’ under the Act.

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The Supreme Court made it unequivocally clear that without privity of contract, a borrower cannot claim consumer rights against a lender. It ruled that Citicorp Finance’s role was strictly limited to loan disbursement and foreclosure payments, and it could not be made liable for obligations outside the Home Loan Agreement.

Emphasizing that Citicorp Finance’s liability under the Agreement for Sale was limited to settling the dues of the complainant, with ICICI Bank, which was quantified at ₹17,87,763, the Apex Court held that in no scenario could this liability exceed the total loan amount of ₹23,40,000 sanctioned to Patel.

Accordingly, the Appeal was allowed and the impugned order was set aside.

To Read the full text of the Order CLICK HERE

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