Insights
September 27, 2019 5:56 pm

IMPORTANT CHANGES TO INDIA’S PRODUCT LIABILITY AND CONSUMER LAWS

Last month, the Indian government enacted: (i) the Consumer Protection Act, 2019 (the “CP Act 2019”), which, when notified, will replace the Consumer Protection Act, 1986 (the “CP Act 1986”); and (ii) the Motor Vehicles (Amendment) Act, 2019 (the “MV Amendment Act”), which will amend the Motor Vehicles Act, 1988 (the “MV Act”).  The CP Act 2019 has introduced detailed provisions on product liability matters and for the speedy resolution of consumer disputes.  The MV Amendment Act has amended provisions relating to manufacturer’s liabilities.

In a nutshell, under the CP Act 2019:

  • all persons who are, directly or indirectly, involved in the process of manufacture or sale of a product have been made liable, including e-commerce entities and endorsers of products;
  • professional service providers have been excluded from the definition of product sellers;
  • disclosure of a consumer’s personal information has been classified as an unfair trade practice; and
  • consumers will be able to make claims even in respect of unfair contracts.

The key takeaway under the MV Amendment Act is that the Central Government can direct manufacturers of motor vehicles to recall motor vehicles and either reimburse the buyer or replace the motor vehicle.

Product liability under the CP Act 2019

While the CP Act 1986 enabled a person to seek redress for any harm caused on account of defective goods, there were no comprehensive provisions relating to product liability.  The CP Act 2019 has brought in the following new concepts:

Product” means any article, goods, substance or raw material, or any extended cycle of such product in gaseous, liquid or solid state, possessing intrinsic value, being capable of delivery either in a wholly assembled form or as a component part, and is produced for trade or commerce.  A product does not include human tissue, blood, blood products and organs.

Product liability” has been defined to mean the responsibility of a product manufacturer or product seller to compensate for any harm caused to the consumer by the defective product or by any services provided in respect of the product.  An aggrieved consumer can claim compensation under the CP Act 2019 for the harm caused, including damage to any property other than the product itself, personal injury, illness or death, or mental agony or emotional distress caused due to damage to property.

Product manufacturer,” which is wider than the definition of “manufacturer” (being any person who makes any goods, or assembles any goods or parts of goods made by others, or puts or causes to put his mark on any goods made by any other person), includes a person who: (i) is involved only in placing the product for commercial purpose (i.e., a retailer); (ii) designs, fabricates, re-manufactures any product before sale (i.e., an intermediary or value add manufacturer); or (iii) is a product seller who also manufactures such product.

Product seller” means a person who imports, sells, distributes, leases, installs, prepares, packages, labels, markets, repairs, maintains or otherwise is involved in placing a product for commercial purpose, and includes a manufacturer who is a seller of its products and a service provider.  Importantly, a professional services provider who furnishes a skill, opinion or services (which is the essence of the transaction) is not regarded as a product seller.

Product service provider” means a person who provides any service in respect of product, and includes an “electronic service provider” (who is a person providing technologies or processes to enable a product seller to engage in advertising or selling goods or services to a consumer and includes any online marketplace or auction site).  As a result, e-commerce platforms and online marketplaces will also come within the purview of the the CP Act 2019 and can be held liable under the CP Act 2019.

Types of liabilities

Depending on the type of defect, the product manufacturer, the product seller or the product service provider can be charged with product liability due to harm caused by a defective product:

Product manufacturer: The product manufacturer is liable for: (i) manufacturing defects; (ii) defective design; (iii) deviations from manufacturing specifications; (iv) not conforming with an express warranty; or (v) failure to provide adequate instructions for usage.  The product manufacturer is liable even if he proves he was not negligent or fraudulent in making the express warranty of the product.  This puts a higher degree of liability on the product manufacturer, who can no longer take the defense that the warranty was made in good faith and without any negligence or fraud.

Product seller:  The product seller is liable for: (i) exercise of substantial control over the manufacturing, designing, modification or packaging of the product that caused the harm; (ii) product alterations; (iii) not conforming with any express warranty made by him over and above the manufacturer’s express warranty; (iv) a product sold by him of an unknown manufacturer or of a manufacturer on whom notice cannot be served or an order cannot be enforced, or who is not subject to the laws of India; and (v) failure to exercise reasonable care in assembling, inspecting or maintaining the product, or failure to provide adequate warnings or instructions of the product manufacturer.

Product service provider:  The product service provider is liable for: (i) faulty, imperfect or inadequate service; (ii) acts of omission, commission, negligence or conscious withholding of information; (iii) failure to provide adequate warnings or instructions; or (iv) not conforming with an express warranty.

Exceptions to liability

  • A product liability action cannot be brought against a product seller if the product is misused, modified or altered by the user.
  • With respect to claims based on failure to provide adequate warnings, the product manufacturer will not be liable for: (i) products purchased by an employer for use by employees at the workplace and the product manufacturer has provided warnings or instructions to the employer; (ii) products forming a component of an end product where harm is caused by the use of the end product and the product manufacturer has provided warnings or instructions to the purchaser of the component; (iii) products meant to be used by experts and the product manufacturer has provided warnings or instructions to the experts; (iv) product used under the influence of alcohol or unprescribed drug.
  • The product manufacturer will not be liable for failure to provide a warning of danger, which is obvious or commonly known.

Other key changes in the CP Act 2019

Endorsers of products liable

The CP Act 2019 provides for penalties against false or misleading advertisements not just against manufacturers, traders, advertisers and publishers, but also against endorsers of the products.  The CCPA can impose a fine of INR1,000,000 (approx. US$14,050) for the first instance of violation and a fine extending up to INR5,000,000 (approx. US$70,200) for every subsequent contravention.  Further, the CCPA can ban an endorser from endorsing any products or services for a period extending up to one (1) year for the first instance and period extending up to three (3) year for every subsequent contravention.  However, the endorser will not be penalized if he/she can prove that he/she exercised due diligence to verify the veracity of the claims made in the advertisement of the product.  If the endorser fails to comply with the directions of the CCPA, he/she can be penalized with imprisonment for a term extending up to six (6) months and/or fine extending up to INR2,000,000 (approx. US$28,100).

Unfair contracts

The CP Act 2019 introduces the concept of unfair contracts and enables consumers to raise claims in this regard.An “unfair contract” is defined as a contract between a consumer and a manufacturer, trader or service provider containing terms which significantly change the rights of the consumers.Examples include: (i) requiring an excessive security deposit for the performance of a contract; (ii) imposing a disproportionate penalty for breach of contract; (iii) refusing to accept early repayment of debts; (iv) unilaterally terminating a contract without reasonable cause; (v) transferring a contract to a third party to the detriment of the consumer without the consumer’s consent; or (vi) imposing unreasonable charges or obligations which put the consumer at a disadvantage.

Unfair trade practices

In addition to the unfair trade practices under the CP Act 1986, the CP Act 2019 lists three (3) extra practices as unfair trade practices.These are: (i) the failure to issue a bill or receipt; (ii) the refusal to accept goods returned within thirty (30) days; and (iii) the disclosure of a consumer’s personal information given in confidence (unless required by law or in public interest).The requirement of protecting a consumer’s personal information is in line with the data protection requirements under the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, under which personal information of an individual cannot be disclosed without prior consent, except if required by law.

B2C e-commerce to be regulated

The CP Act 2019 gives powers to the Central Government to frame guidelines to prevent unfair trade practices in e-commerce.  In this regard, draft guidelines have been issued seeking public comments.  The guidelines when enacted will apply to business-to-consumer (B2C) e-commerce and cover both, marketplace and inventory-based models of e-commerce.  The guidelines list the general conditions to carry on e-commerce business, liabilities of the e-commerce entity, and liabilities of the seller.

Ease of dispute resolution

Under the CP Act 1986, complaints can only be filed in the jurisdiction where the opposite party resides or works, or where the cause of action arises.In addition to the foregoing, the CP Act 2019 enables complainants to file complaints in the jurisdiction where the complainant resides or works.Further, the CP Act 2019 provides an option to complainants to file the complaints in writing or electronically.The CP Act 2019 also provides for alternate dispute resolution through mediation, which was absent in the CP Act 1986.

Pecuniary jurisdiction

The CP Act 2019 has maintained the three (3) tier structure of the consumer dispute redressal agencies under the CP Act 1986.However, the pecuniary limits for determining jurisdiction have been enhanced as follows:

Authority CP Act 1986 CP Act 2019
District Commission Up to INR2,000,000 (approx. US$28,100) Up to INR10,000,000 (approx. US$140,500)
State Commission Between INR2,000,000 (approx. US$28,100) and INR10,000,000 (approx. US$140,500) Between INR10,000,000 (approx. US$140,500) and INR100,000,000 (approx. US$1,405,000)
National Commission Above INR10,000,000 (approx. US$140,500) Above INR100,000,000 (approx. US$1,405,000)

 

Under the CP Act 1986, the value of goods and services and the compensation sought was considered to calculate the limit.However, under the CP Act 2019, only the consideration paid for the goods and services will be considered to calculate the limit.This means that in case of products where payments are made in installments, if a claim arises, only the amount actually paid by the complainant will be considered.

Central Consumer Protection Authority

The CP Act 2019 contemplates the establishment of a Central Consumer Protection Authority (the “CCPA”) by the Central Government.  The CCPA will regulate matters relating to the violation of consumer rights, unfair trade practices, false or misleading advertisements which are prejudicial to the interests of the public and consumers, and to promote, protect and enforce the rights of consumers as a class.  The CCPA has been given extensive powers to conduct suo motu inquiries and investigations (through an investigation wing), irrespective of whether there is a consumer complaint.  The CCPA can also: (i) file complaints before the authorities under the CP Act 2019 (i.e., the District Commissions, the State Commissions and the National Commission); (ii) intervene in any proceedings under the CP Act 2019; (iii) review matters relating to the protection of consumers under any other law in force and recommend remedial measures; (iv) order the recall of dangerous goods and services; and (v) order reimbursement of prices of the recalled goods and services.

Product Liability under the MV Amendment Act

The MV Amendment Act has introduced the provision of recall of motor vehicles upon the direction of the Central Government if any defects are found in the vehicle or a component of the vehicle, which are harmful to the environment, driver or occupant or road users or defects which are reported to the Central Government.  In this case, the manufacturer will also have to reimburse the buyers for the full cost of the motor vehicle or replace the defective motor vehicle and pay the applicable fines.  However, the manufacturer will not be liable to pay any fines if he notices the defect on his own and initiates recall proceedings.

Further, the Central Government can direct a motor vehicle manufacturer to alter or retrofit safety equipment or any other equipment in accordance with relevant standards and specifications.  The MV Amendment Act also contemplates the establishment of National Road Safety Board by the Central Government, which can, inter alia, advice the Central Government or the State Governments regarding standards and specifications for manufacturing motor vehicles and safety equipment.  Both these provisions have come into force, although the other foregoing provisions are yet to be notified.

Lastly, the penalties for offences relating to construction, maintenance, sale and alteration of motor vehicles and components have been enhanced from the previous penalty of INR5,000 (approx. US$70).  Now, a manufacturer will be punishable with a fine of INR1,000,000 (approx. US$14,050) or imprisonment for a term extending up to one (1) year if he manufactures a motor vehicle in contravention of the Motor Vehicles Act, 1988.  Further, a manufacturer, importer or dealer of motor vehicles will be punishable with a fine of INR100,000 (approx. US$1,400) per motor vehicle or imprisonment for a term extending up to one (1) year if he sells, delivers, alters or offers to sell, deliver or alter a motor vehicle in contravention of the MV Act.

Our Comments

The CP Act 2019 eases the mechanism for filing complaints by consumers through the introduction of e-filing facilities and allowing complaints to be filed in the jurisdiction where the complainant resides or works for gain.  The establishment of the CCPA will expand the scope of consumer protection law in India from being a mere enabler of consumer complaints to an enabling legislation for the substantive protection of consumer rights.  The addition of unauthorized disclosure of personal information as an unfair trade practice will safeguard the privacy of the consumers.  The inclusion of penalties for endorsers will have a major impact on the advertisement industry, as celebrity endorsers will now need to verify the authenticity of the advertisements in order to escape penalties.

While the CP Act 2019 is a welcome change for consumers, it may pose compliance difficulties for product manufacturers, product sellers and product service providers.  These definitions are now much wider and impose liability on any person involved in any manner in the sale or re-sale of the product, including importers, marketers and repairers.  The inclusion of electronic service providers as product sellers clarifies that e-commerce aggregators are responsible for the products sold on their online marketplaces.  Similar to the CP Act 1986, the CP Act 2019 also provides for grant of punitive damages.  In addition, consumers can claim compensation for indirect damages on account of mental trauma and damage to any other property caused by the product.

Further, the provisions of the CP Act 2019 are in addition to the provisions of any other law in force.  This means that a complainant under the CP Act 2019 can also seek remedies under the Sale of Goods Act, 1930, which provides for remedies for breach of warranties.  Manufacturers, traders and sellers should revisit their customer contracts to ensure that the contract terms are not unfair to the customer, as this can be a breach of the CP Act 2019.

With the introduction of previously absent provisions on recall of motor vehicles, manufacturers of motor vehicles under the MV Act will have to be more vigilant and adhere to industry standards in the manufacture and maintenance of motor vehicles.  A recall order by the Central Government for defective motor vehicles and the enhanced penalties can have major business implications.

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