Research and Articles

Key Highlights:

• Insertion of ‘Product liability’ provision to deter manufacturers and service providers from delivering defective products or deficient services;
• E-commerce included within the ambit of Consumer Protection Act.
• Establishment of Central Consumer Protection Authority (CCPA);
• Simplified dispute resolution process with substantial increase in pecuniary jurisdiction of consumer protection commissions;
• Introduction of new additional grounds to file complaints and imposition of higher penalties to keep in check misleading advertisements and adulteration of products;

The Consumer Protection Act, 2019 (New Act) received the assent of the President of India and was published in the official gazette on 9 August 2019. The New Act will come into force on such date as the Central Government may so notify.

This hotline aims to provide an insight into newly introduced provisions, dissect the scope, reach and impact of newly introduced provisions and provide a comparative analysis of some of the key provisions of CPA 2019 vis-a-vis CPA 1986. Please click here to find our detailed analysis on the key provisions of CPA 2019.

• Broadening the definition of “consumer”

The definition of “consumer” has been expanded to include persons who engage in offline or online transactions through electronic means or by tele-shopping or direct selling or multi-level marketing.¹ In our transactions concluded in all media in any case covered by CPA 1986.

The definition now provides consumers with a remedy in case of multi-level marketing. Thus, the seller at each level of multi-level marketing can be exposed to liability under CPA 2019 and not restricted to only the manufacturer of the product but all entities involved at various stages of production and marketing.

When services are provided for free, the person availing the service will not be considered as a consumer. Whether or not the service being provided is free is a question of fact and will have to be evaluated on case to case basis.

• E-commerce

E-commerce has been defined as buying or selling of goods or services including digital products over digital or electronic network.² The central government has been authorized to take measures and make rules to prevent unfair trade practices in e-commerce.³ In case of products being sold through online platforms, without charging any fees separately amounts to providing services needs to be ascertained. It is not clear whether off-shore e-commerce would also get covered and eventual enforcement of CPA 2019 qua such entities.

• New grounds to file complaints

While the provisions of CPA 1986 prescribed six (6) major grounds to file complaints⁴, CPA 2019 has increased the count to seven (7)⁵, and also substantially modified one of the existing grounds to file complaints as provided under Section 2(c)(i) of CPA 1986. The two key changes are:

1. Introduction of Unfair Contracts & expansion of Unfair Trade Practices

In the previous legislation, a complaint could be filed only if an unfair trade practice or a restrictive trade practice was adopted by any trader or service provider.⁶ Now “unfair contract” has also been added which further broadens the ground to file complaints and allows consumers to challenge contracts which are unfair, unilateral and unreasonable.⁷ Unfair contract has been defined to include contracts between a manufacturer or trader or service provider on one hand, and a consumer on the other, having such terms which cause significant change in the rights of such consumer, including the following, namely:—

1. requiring manifestly excessive security deposits to be given by a consumer for the performance of contractual obligations; or
2. imposing any penalty on the consumer, for the breach of contract thereof which is wholly disproportionate to the loss occurred due to such breach to the other party to the contract; or
3. refusing to accept early repayment of debts on payment of applicable penalty; or entitling a party to the contract to terminate such contract unilaterally, without reasonable cause; or
4. permitting or has the effect of permitting one party to assign the contract to the detriment of the other party who is a consumer, without his consent; or
5. imposing on the consumer any unreasonable charge, obligation or condition which puts such consumer to disadvantage.

The above provisions would directly impact the financial institutions such as banks, as the apex court has already stated that the Banks also get covered under the Act.⁸ This would specifically take into account contracts entered with banks, e-commerce platforms where parties are not left with any option but to agree to the standard terms to avail the services. With such a broad subjective definition, it remains to be seen how courts would interpret in case of online contracts.

2. Expanding definition of “unfair trade practice”⁹

While CPA 1986 had listed six (6) types of unfair trade practices¹⁰, three (3) types of additional unfair trade practices have now been added to the list which are as follows:

1. failure or non-issuance of a bill or a cash memo;
2. refusal to take back or withdraw defective goods or withdrawal or discontinuance of deficient services or refusal to refund the consideration amount paid within the period as stipulated in the bill or cash memo or receipt or in the absence of such stipulation, refusal to withdraw or refund goods or services within thirty (30) days; and

Before ascertaining whether it amounts to unfair trade practice, it become relevant to determine whether the goods or deficient services have been provided. The section as drafted in its current form pre-determines existence of defective product or deficient service. Separately, even if withdrawn or discontinued, companies could still be held liable under ‘product liability’ or for ‘deficiency of services’.

iii. disclosure of consumer’s personal information to any other person unless such disclosure is made in accordance with the provisions of any law for the time being in force or in public interest.

The provision fails to give any clarity whether information can be shared if consent is taken from the consumers. The reliance will have to be placed on prevalent data protection law. The current data protection law in India does not require any specific compliance for data sharing in case the information is not in the nature of sensitive information i.e. relating to (i) passwords; (ii) financial information; (iii) physical, physiological and mental health conditions; (iv) sexual orientation; (v) medical records and history; (vi) biometric information; (vii) any detail relating to the above, as provided to a body corporate for providing services; and (viii) any of the information received under the above by a body corporate, for processing or storing data under lawful contract, or otherwise.

• Product Liability¹¹

There was no separate legislation governing ‘product liability’ in India, though it was addressed under CPA 1986, if parties were included within the ambit of ‘consumer’. Insertion of “Product Liability” as a separate chapter in CPA 2019 and a new ground for filing a complaint has been one of the most significant additions to the act

Section 2(35) of CPA 2019 allows a person to make a claim of product liability against such manufacturer, seller or service provider for such defective products. Product liability means the responsibility of a product manufacturer or product seller, of any product or service, related to the product to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services relating to the product.¹²

Who can be made liable:

CPA 2019 has gone a step forward and defined a product manufacturer¹³, product seller¹⁴ and product service provider¹⁵ to provide clarity on who can be made liable for an action under Chapter VI of CPA 2019.

Ingredients to initiate product liability action:

1. Product manufacturer will be liable if product contains a manufacturing defect, or defective in design; or there is a deviation from manufacturing specifications; or does not conform to the express warranty; or fails to contain adequate instructions of correct usage to prevent any harm or any warning regarding improper or incorrect usage. Absence of negligence or fraud in making express warranty of a product cannot be pleaded as a defence.¹⁶
2. Product seller who is not a product manufacturer may be held liable if (a) he has exercised substantial control over the designing, testing, manufacturing, packaging or labelling of a product that caused harm; or (b) he has altered or modified the product and such alteration or modification was the substantial factor in causing the harm; or (c) he has made an express warranty of a product independent of any express warranty made by a manufacturer and such product failed to conform to the express warranty made by the product seller which caused the harm; or (d) the product has been sold by him and the identity of product manufacturer of such product is not known, or if known, the service of notice or process or warrant cannot be effected on him or he is not subject to the law which is in force in India or the order, if any, passed or to be passed cannot be enforced against him; or (e) he failed to exercise reasonable care in assembling, inspecting or maintaining such product or he did not pass on the warnings or instructions of the product manufacturer regarding the dangers involved or proper usage of the product.¹⁷
3. Product service provider may be liable if (a) the service provided was faulty or imperfect or deficient or inadequate in quality, nature or manner of performance which is required to be provided by or under any law for the time being in force, or pursuant to any contract or otherwise; or (b) there was an act of omission or commission or negligence or conscious withholding any information which caused harm; or (c) the service provider did not issue adequate instructions or warnings to prevent any harm; or (d) the service did not conform to express warranty or the terms and conditions of the contract.¹⁸

CPA 2019 while defining a ‘product’¹⁹ has specifically excluded human tissues, blood, blood products and organs. CPA 2019 also lists down certain exceptions²⁰ to “product liability” action, in circumstances where the products have been misused, or if the product being purchased by the employer for use at the workplace did not adhere to installation warnings or instructions, or if the nature of the product is such that the user should have known the associated dangers, etc.

• Introduction of Central Consumer Protection Authority as the new regulator

Section 10 of CPA 2019 seeks to establish a central authority, the Central Consumer Protection Authority (“CCPA”) to promote, protect, and enforce the rights of consumers qua misleading advertisements and unfair trade practices as a class. One of the primary reasons for establishing CCPA is to fill an institutional void in the existing regulatory regime.²¹ An investigative wing is envisaged to be formed under the aegis of CCPA, which shall carry out inquiries and investigations in matters relating to consumer rights, unfair trade practices and misleading advertisements.²²

Under the provisions of CPA 2019, CCPA is mandated to carry out the following functions²³:

1. inquiring into violations of consumer rights, investigating and launching prosecution at the appropriate forum;
2. passing orders to recall goods or withdraw services that are hazardous, reimbursement of the price paid, and discontinuation of the unfair trade practices, as defined under the relevant provisions of CPA 2019;
3. issuance of directions to the concerned trader/ manufacturer/ endorser/ advertiser/ publisher to either discontinue a false or misleading advertisement, or modify it;
4. imposition of penalties, and;
5. issuance of safety notices to consumers against unsafe goods and services and guidelines to prevent unfair trade practices
6. spread and promote awareness and research on consumer rights and
7. recommend adoption of international covenants and best international practices on consumer rights to ensure effective enforcement of consumer rights

The district collectors have also been empowered to conduct such investigations that affect interests of consumer as a class under CPA 2019.²⁴ They can investigate or inquire at the instance of a complaint or on a reference made by CCPA. The district collectors have also been provided powers akin to CCPA’s but unlike CCPA they cannot initiate action suo moto. The establishment of a central authority and initiating action as a class comes as an additional mode of relief which can be exercised along with individual consumers filing complaints to address their grievances thereby having two parallel proceedings.

• False or misleading advertisements

CCPA has also been empowered to take actions against false or misleading advertisements. CCPA can impose a penalty of up to INR1 million, and up to INR 5 million for every subsequent violations. It is important to note that such penalty can be imposed on endorsers too, thereby bringing actors/actresses in the scope of penalty. However, the endorser would be exempted from any liability if s/he establishes that they undertook due diligence to verify the veracity of the claims before endorsing the same. Therefore, endorsers/actors/celebrities will also have to conduct a thorough due diligence/ research before signing up for any advertisements.

• Deletion of Healthcare from definition of services

The CPA 2019 in its current form does not explicitly specify healthcare in the list of services listed in the definition of ‘service’, even though the earlier version of the consumer protection bill as passed by the Lok Sabha had included it. An amendment was recently introduced in the Parliament to remove healthcare from the list of services (“Healthcare Amendment”) following stiff opposition from the medical fraternity which expressed apprehension that the CPA 2019 would be misused against them.

Due to the Healthcare Amendment, it is unclear whether healthcare as a service is included in the ambit of the CPA 2019. On the one hand, the Government has reportedly stated that the Healthcare Amendment will not exempt healthcare services from the purview of the CPA 2019.²⁵ On the other hand, if healthcare is not excluded from the list of services covered by the CPA 2019, there was no need to remove it from the definition of services. The Supreme Court in case of Indian Medical Association v. VP Shantha (“VP Shantha Case”),²⁶ had read healthcare into the definition of services under the CPA 1986. As a result, under the current consumer protection framework, a claim can be brought against doctors in case of deficiency of service.

However, it is unclear whether the VP Shantha Case will continue to apply once the CPA 2019 comes into force. The Parliament certainly has the power to overturn a judgement by passing a law that alters the basis of the judgment, as long as such law is applied with prospective effect.²⁷ Once such a law is passed, the judgement ceases to apply in all future cases. The confusion arises with respect to whether the CPA 2019 takes away the basis of the judgement in VP Shantha Case. The Supreme Court in the VP Shantha case held that patients are consumers as long as they are making some form of payment for the medical service rendered. The CPA 2019 does not contradict this finding of the Supreme Court, but has consciously excluded healthcare from the definition of services. Nonetheless, it is yet to be seen which way the courts will decide in the event they are asked to consider the question of whether a healthcare services are covered by the CPA 2019 and whether the intent of the Parliament in explicitly removing healthcare from the list of services under the CPA 2019 will have any bearing on their decision.

• Increase in the pecuniary jurisdiction of the commissions

The pecuniary jurisdiction of all three commissions have been raised under CPA 2019. The changes are reflected in the table below:

The increase in the pecuniary jurisdiction of all three commissions is an encouraging step as it should attract lesser number of claims in appellate commissions to an extent, thereby ensuring swifter disposal of cases,

• Mediation

The CPA 2019 now provides for settlement of disputes by way of mediation in case there is a possibility of settlement at the stage of admission of complaint or at any later stage, if acceptable to both parties. A mediation cell will be attached to each district, state and National Commission and its regional Benches for quick resolution.²⁸

• Penalties

The quantum of monetary penalty, in case of defiance of any order of commissions, have also been raised under the provisions of CPA 2019.²⁹ The commissions can now impose fines ranging from USD 350 to USD 1400, whereas earlier they could have only imposed fines in the range of USD 28- USD 140.³⁰

• Miscellaneous Provisions

Apart from the afore-mentioned changes, CPA 2019 has introduced ADR mechanisms to resolve the disputes. Mediation cells have been attached to all the three commissions.³¹ Matters shall be referred to mediation cells if the parties’ consent to it. In event of failure to settle the dispute, the respective commissions shall continue to adjudicate the dispute.³²

CPA 2019 now allows consumers to file complaints in the district commission where they reside or work for gain.³³ Consumers also have the option to file complaints electronically.³⁴ However, procedure of the same shall be notified by the government in future.³⁵ There was no embargo on proceedings against foreign parties under CPA 1986 and the position continues to be the same till date. Therefore, it remains to be seen whether offshore online platforms providing services could also be included within the ambit of CPA 2019, by virtue of e-commerce now being specifically included under the legislation.

A comparative chart of the substantive changes in the provisions of CPA 1986 and CPA 2019³⁶ are listed below:

As is evident, CPA 2019 has made several changes to the erstwhile CPA 1986. CPA 2019 has widened the reach of consumer protection regime in India. The changes made vide CPA 2019 seem to further empower consumers by leveraging responsibilities not only on their counterparts, i.e., the sellers, manufacturers, service providers, but also the endorsers of such products. It also attempts to address the issues that were not comprehensively touched upon by CPA 1986, such interests of consumers as a class, etc.

CPA 2019 has also attempted to ease and fasten the process of consumer disputes resolution by increasing the pecuniary jurisdiction of the commissions, attaching mediation cells, increasing the members of the commissions, imposing higher penalties etc.

The ramifications of CPA 2019 cannot be precisely gauged beforehand, as many new concepts have been introduced. However, what can definitely be said is that everyone involved in a transaction, other than the consumer, will have to be more careful, and cautious than ever before.