New Consumer Protection Regime in Force

The recently notified Consumer Protection Act, 2019 increases liability for product manufacturers, product service providers and sellers of defective products. It also expands the scope of what constitutes ‘unfair trade practices’ and ‘unfair contracts’.

Certain Amendments Brought into Force

The Ministry of Consumer Affairs, Food and Public Distribution has introduced certain key provisions of the Consumer Protection Act, 2019 (‘Consumer Protection Act’) from July 20, 2020 onwards. The new framework amends the erstwhile Consumer Protection Act, 1986 and provides for stronger protection of consumer rights, easier processes for consumers to file complaints, mediation of disputes and stricter provisions for product liability.

Various provisions of the Consumer Protection Act, including those relating to e-commerce, direct selling, penalties for misleading advertisements, celebrity endorsements and the appointment of a Central ‘Consumer Protection Authority’ are yet to be notified. This Client Alert only covers the provisions that have been notified. 

Highlights 

Dispute Resolution:

•     Sweeping Changes: The Consumer Protection Act brings in sweeping changes to the dispute resolution framework and mechanism.

•    Complaint Filing: Consumers can now also file a complaint in the jurisdiction where they reside and work, making it easier to approach a consumer commission. This is an important change given the increase in e-commerce activity, where sellers may be located anywhere in the country. The Consumer Protection Act also provides for parties in dispute to participate in hearings through video conferencing facility.

•     Mediation: Unlike the erstwhile framework, all parties to a dispute now have the option to approach an established consumer mediation cell to resolve their disputes.

Product Liability

•    Compensation by Manufacturers and Sellers: Under the provisions relating to ‘product liability’ (i.e. Sections 82 to 87) manufacturers, service providers and sellers may now need to compensate consumers for any harm caused by a defective product, which was manufactured, serviced or sold by them. Further, a manufacturer may be held liable even if he proves that he was not negligent or fraudulent in making an express warranty.

•    Scope of Types of Defects Expanded: Defects under the Consumer Protection Act include a manufacturing defect, defect in design, deviation from manufacturing specifications, non-conformity with an express warranty and inadequacy of usage instructions.

•    Penalties for Adulterated and Spurious Goods: Manufacturers, distributors, sellers, importers and even storage providers can now be held liable and be punished for dealing in products containing adulterants or spurious goods (i.e. goods which are falsely claimed as genuine), with imprisonment for a period from 6 months to 7 years, and a fine of upto Rs 10 lakh (approx. US$13,300), depending on the seriousness of the consequences (i.e. hurt, grievous hurt, or death). An offence resulting in grievous hurt or death to a consumer is cognizable (i.e. police can arrest without a warrant) and non-bailable.

Unfair Trade Practices now Cover a Gamut of Activities

•   Definition of Unfair Trade Practices: The definition of ‘unfair trade practices’ under the Consumer Protection Act includes, among other things, disclosing of personal information given by the consumer in confidence and refusal, after sale of goods or services, to take back or withdraw defective goods or to withdraw or discontinue deficient services and to refund the consideration, if paid, within the stipulated period or in the absence of such stipulation, within a period of 30 days.

•    Unfair Contracts: The National and State Commission can declare any of the terms of a contract, which is unfair to any consumer, to be null and void. An ‘unfair contract’ is defined under the Consumer Protection Act as a contract between a manufacturer / trader / service provider on one hand and a consumer on the other, having terms which cause a significant change in the rights of such consumer. This is an inclusive definition which sets out certain types of onerous terms in contracts such as manifestly excessive security deposits, imposition of disproportionate penalties, unreasonable charges, obligations or conditions on consumers, or unilateral termination of contract without reasonable cause.

Way Forward

All actors in a trade channel from manufacturers to retailers will now need to be vigilant while dealing in their products and be deliberate about preventing potential harm to consumers, by taking appropriate precautions, instead of merely being reactive. This will include communicating risks clearly, providing objective warranties, ensuring that they have undertaken sufficient due diligence and steps to prevent harm. It will also be important to ensure that the language of the contracts, warnings, user instructions and warranties is especially clear and capable of being easily understood by consumers, and that the terms are not unreasonably onerous.

Companies must, however, prepare for the fact that despite their due diligence, if a consumer is harmed, the ‘absence of negligence’ will no longer be a valid defence to deny compensation. Therefore, devising more stringent checks for prevention of harm to customers will be useful for companies to mitigate liabilities under the Consumer Protection Act in the long term.

Date: August 10, 2020