Beneficiaries of public welfare schemes are consumers

By Karthik Somasundram and Shreya Gupta, Bharucha & Partners

To improve the conditions of building and construction workers, the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (1996 act) was enacted. Under the 1996 act the Rajasthan Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Rules, 2009, were promulgated. A workers’ welfare board oversees schemes for beneficiaries. The issue before the Supreme Court in the recent case of the Joint Labour Commissioner and Registering Officer and Anr v Kesar Lal was whether a beneficiary of the schemes is a consumer, entitled to demand accountability for deficient service under the Consumer Protection Act, 1986 (CPA).

Karthik Somasundram
Bharucha & Partners

The welfare board set up a scheme for financial assistance of ₹51,000 (US$673) to a worker in the event of their daughter’s marriage. Kesar Lal was registered with the welfare board and made an application under the scheme. Due to technical defects, the application was rejected. The District Consumer Disputes Redressal Forum rejected Kesar Lal’s complaint, ruling that he was not a consumer within the meaning of the CPA. The State and then the National Consumer Disputes Redressal Commissions set aside this ruling and awarded compensation in addition to the assistance amount. The welfare board appealed to the Supreme Court, although it agreed to pay the amounts awarded.

The welfare board argued that the CPA provides a redressal mechanism for resolving disputes involving commercial or business transactions. Remedies under the CPA are not applicable to free or subsidized welfare functions provided by the state. Welfare schemes are financed through budgetary allocations, cesses [taxes for particular purposes] and taxes, and not through minimal subscriptions paid by workers at the time of enrolment. Therefore, workers are not consumers under the CPA. The court disagreed.

Shreya Gupta
Managing associate
Bharucha & Partners

The court considered the implementation of the 1996 Act as analysed in its earlier judgment in National Campaign Committee for Central Legislation on Construction Labour v Union of India. The court in that case had observed that despite building up adequate funds, they had largely not been disbursed to the workers in breach of the legislation.

In the earlier case of Lucknow Development Authority v MK Gupta, the court had ruled that the CPA was not only available for persons who had hired or used services. Even the beneficiaries to whom services had been rendered are consumers. Following that case, the court in the case of Shiv Kumar Joshi ruled that employees who were the beneficiaries of a provident fund were consumers for the purposes of the CPA, although the commissioners’ services had been engaged by the government and not by the employees. In an insurance contract dispute, the court in Canara Bank v United India Insurance Company Limited had ruled that the beneficiary of a policy, who was not a party to the contract, was a consumer under the CPA.

In Haryana Urban Development Authority v Sunita Rikhi, the court had ruled that the definition of service under the CPA was inclusive and should be interpreted liberally to reflect legislative intent. All services apart from those rendered gratuitously or in the nature of personal services fell within the ambit of the CPA. Even statutory functions or services not in the discharge of core sovereign functions, unless exempted by statute, are covered by the CPA. If services by statutory authorities are rendered in return for payment of fees, cesses or taxes, they are within the jurisdiction of consumer forums.

The court considered that the 1996 act identified workers as beneficiaries and entitled to benefits from the fund managed by the welfare board. The fund included contributions from the workers in addition to grants from the government. Services provided by the welfare board were not free of charge and therefore met the conditions under the CPA. The functions of the welfare board under the 1996 act were services for the purposes of the CPA. The court rejected the argument that as the contributions by beneficiaries were not adequate to defray the entire cost of expenditure of the fund, the CPA was not applicable. As the services were not free, any deficiency in service was subject to the jurisdiction of a consumer court. Under the CPA, the adequacy of the cost of providing a service is not material as beneficiaries who do not directly contract with service providers are also recognised as consumers.

The court held that the CPA is to be interpreted purposively. Public authorities entrusted with the duty to provide welfare services not of a sovereign nature and rendered at a cost are accountable for their actions and are subject to the jurisdiction of the consumer courts.

Karthik Somasundram is a partner and Shreya Gupta is a managing associate at Bharucha & Partners.

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