Consumer Protection Bill Places Buyers’ Rights At The Forefront

The government has proposed the Consumer Protection Bill, 2019, which it said, will facilitate appropriate and swift intervention to protect consumers’ interests.

The Bill, which was passed in the Lok Sabha earlier this week, will replace the existing consumer protection law, passed in 1986.

Here are the key changes that the Bill proposes:

Product Liability

India has multiple laws that enable consumers to act against, and seek relief, from faulty products or services. Aggrieved consumers can initiate action under the Indian Contract Act. The Bill centralises remedies and protection available to consumers.

The 2019 bill strengthens consumers’ rights by providing them right to claim relief against harm arising from a product or service. Harm refers to product liability, which as per the bill is the “responsibility of a manufacturer or seller of a product/service to compensate a consumer for any harm caused due to a defective product or service”.

A consumer, consumer association, group or government can initiate product liability action against a manufacturer, service provider or product seller on the following grounds:

• Damage to property.
• Personal injury, illness or death.
• Mental agony or emotional distress caused to consumer.

Substantial value addition in a product is made by intermediaries as well a seller in modern trade and digital economy. Considering this, the bill allows consumers to file product liability action against manufacturers, sellers or service providers depending on their role in the factor causing harm.

“The draft bill imposes liability deferentially on manufacturers, sellers and service providers,” L Badri Narayanan, partner at the law firm Lakshmikumaran & Sridharan, told BloombergQuint. “Manufacturers are likely to be most impacted due to the application of strict liability rules.”

Action will be taken against them for the following reasons:

• Product Manufacturer: If the product has a manufacturing or design defect or it deviates from any specification or written guarantee.
• Product Seller: If any alteration or modification in a product by a seller is the substantial factor that causes harm or if the seller fails to exercise reasonable care.
• Product Service Provider: The service provided is faulty or isn’t as per the quality required by any law or a contract.

By introducing product liability as a statutory relief, the Bill seeks to address the shortcomings of the earlier act. “The erstwhile Act did not have provisions on product liability which is fairly common in other jurisdictions,” said Delano Furtado, partner at the law firm Trilegal. Manufacturers and service providers had no inherent statutorily liability in relation to manufacturing defects or service level deficiencies, he said.

“The provisions in the bill are more nuanced in addressing customer complexities in comparison to the old Act and attaches certain responsibilities onto the manufacturers and service providers in conducting themselves, failure of which, would attract liability,” he said.

“E-commerce players like Flipkart or Amazon may fall under the definition of ‘product seller’ under the bill,” Tishampati Sen, advocate at Delhi High Court, told BloombergQuint. “In normal parlance, e-commerce players refer to themselves as aggregators and have often successfully deflected liability,” he said. “The definition of product seller in the context of the provisions of product liability makes reference to a person who is otherwise involved in placing such product for commercial purpose.”

This may bring them within the purview of e-commerce players, he said. The introduction of definition of “electronic service provider” seems specifically intended in this regard, he said.

Unfair Contracts

Any agreement made for a lawful object and consideration with free consent of the parties is a contract under the Indian Contract Act. A contract becomes invalid if a party is compelled to sign it due to any threat, coercion or force. In context of consumer protection, a contract will be unfair when a dominant party exerts its influence through contractual terms and affects the statutory rights guaranteed to a consumer.

Currently, India does not have a substantial law that deals with unfair contracts. The Law Commission of India had recommended drafting a law to prevent unfair contractual terms in its 199th report. While the 1986 act briefly dealt with unfair contracts, the 2019 bill provides a broader protection to a consumer against such terms.

The bill uses the economical and positional criteria to determine the fairness of a contract. The bill states that a contract between a consumer and manufacturer or trader or seller will be considered unfair if it causes a significant change in the rights of a consumer on the following grounds:

Economical: Terms requiring excessive security deposit for fulfillment of contract or terms that impose excessive penalty compared with the loss from breach of a contract.

Positional: Which provide a dominant position to a party by allowing it to terminate a contract unilaterally or allow it to assign such contract without the consent of other party.

Homebuyers in India have suffered on account of unfair contracts, with courts striking down unfair terms in them.

Recently, in the Pioneer Urban Land case, the Supreme Court struck down the terms of an agreement between a homebuyer and a builder because such terms were one-sided and unfair to the consumer.

The agreement allowed the builder to terminate an agreement on failure of consumers to rectify a default but prevented a consumer from terminating the agreement beyond a certain time. This aspect, according to the court, was arbitrary.

Forfeiture and interest clauses in housing projects, jurisdiction and dispute resolution clauses are extremely one-sided in contracts for banking facilities, Sen said. Unilateral clauses that confer advantage to a dominant party are replete in the standard terms and conditions in contracts in the airline industry and online marketplaces, he said.

While courts have in the past struck down unfair clauses, there are precedents to the opposite as well, he said. “In such a case having a statutory recognition of this issue is a good step forward.”

“The draft bill seeks to protect consumer interest by trying to strike a balance in situations where consumers do not have bargaining or negotiating powers,” Narayanan said. “However, in doing so the bill goes two steps further indicating practices such as forfeiture penalties imposed by banks to be unfair.”

E-Commerce

Even as e-commerce has grown rapidly in India, the laws governing them have failed to keep pace.

The Department of Industrial Policy and Promotion released a draft national e-commerce policy in February, recognising the special nature of electronic commerce transactions and made the following points on liability in such platforms:

• Counterfeit goods: Post-sale services, delivery of goods to customer and customer satisfaction will be responsibility of seller in marketplace.
• Liability of content: Liability of marketplace will be determined by law.

The 2019 bill defines electronic commerce as “buying or selling of goods or services, including digital products, over digital or electronic network”.

On the other hand, an electronic service provider is a person who provides a process or technology to enable a seller to engage in advertising or selling goods or services to a consumer. The bill provides that the government will lay down regulations to regulate e-commerce and prevent unfair trade practices in it.

“The bill has a catch-all clause directed at the e-commerce segment the scope of which is not lucidly set out,” Narayanan said. “The central government retains expansive rule-making powers to bring in delegated legislation later to regulate the sector—leaving ripe issues of possible regulatory conflict in regulating e-commerce.”

Some unfair trade practices mentioned in the bill:

• Making statements that give false representation about standard, quality, grade etc. of a good or a service.
• Misrepresenting the need, usefulness or characteristics of a service or falsely representing old or used goods as new goods.
• Giving guarantee or warranty on a product without proper or adequate test.

The government is yet to notify the regulations for the e-commerce sector and will do so after the passage of the act.