WORLD LAW GROUP

WORLD LAW GROUP

Product Liability Questionnaire

Please answer the following questions as concisely as possible and as far as possible in no more than 3 paragraphs or using only one or two examples.

1. Please summarize the three most common causes of action arising from product liability in your country.

Product liability in India is, essentially, governed by a) The Consumer Protection Act, 1986 b) The Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as the “MRTP Act”) c) The Sales of Goods Act, 1930 and d) The law of Torts. While the Consumer Protection Act and the Sales of Goods Act, cater to causes of action vis-a-vis consumers and buyers, the MRTP Act, on the other hand, has been designed to prevent concentration of economic power to common detriment as well as to control monopolies.

a) The Consumer Protection Act imposes strict liability on a manufacturer, in case of supply of defective goods by him, and a service provider, in case of deficiency in rendering services. The term “defect” and “deficiency”, as held in a catena of cases, are to be couched in the widest horizon of there being any kind of fault, imperfection or shortcoming. Furthermore, the standard, which is required to be maintained, in services or goods is not to be restricted to the statutory mandate but shall extend to that claimed by the trader, expressly or impliedly, in any manner whatsoever.

b) The Sale of Goods Act, interalia, confers, upon a buyer, the right to repudiate the contract and sue for damages in case of breach of a condition, whether relating to quantity, quality or description. Breach of warranty, on the other hand, entitles the buyer, to sue for damages but not repudiate the contract.

c) The MRTP Act, on the other hand, has been comprehensively drafted so as to empower the Commission to grant temporary injunctions and compensation, for loss and damage, as a result of monopolistic, restrictive and unfair trade practices. The MRTP Act, though, remains in force but the Competition Act, 2002 has been enacted to supersede the prevailing MRTP Act. The Competition Act, 2002 aims at curbing practices having appreciable adverse effect on competition, promoting and sustaining competition in markets, protecting the interest of consumers and ensuring freedom of trade. Disputes relating thereto, presently, are governed by the provisions of the MRTP Act, as the Competition Act has not been enforced. But, in near future, the disputes relating to unfair competition or practices shall be governed by the Competition Act, 2002 as soon as the same comes into force.

d) A claim under the product liability law shall also lie where the element of negligence, as enunciated in the Law of Torts, can be traced. For the Plaintiff to make a successful claim, it must be proved that:-

· Defendant owed a duty to take care

· A breach of such duty

· Plaintiff suffered loss or injury as a result of such breach

· Ergo, the plaintiff is entitled to damages.

Negligence, as an actionable claim, is not, as much, related to the inherent characteristics of a product as much to the reasonableness of the Defendant’s conduct. While a contractual claim restricts the number of Defendants who are liable to be impleaded in an action, negligence claim allows for inclusion of all those who may have breached distinct duties of care to the ultimate consumer. In India General Navigation & Railway Co. v. Eastern Assam Co. Ltd.[1], the Defendants, being common carriers, were required to carry goods for the Plaintiff. There were unmistakable signs of an approaching storm that the pilots negligently chose to ignore, resulting in grounding of the ship and, thereby, loss to the Plaintiff’s goods. The Court, recognizing, the negligence of the pilots laid down that when negligence has been established, liability shall follow for all consequences which are, in fact, direct and natural outcomes of it whether injury was a consequence that was foreseen or not. The law of torts, in India, however, is not codified and British precedents are being followed by Courts by altering doctrines to suit the Indian perspective.

2. What aspects of product liability law (only one or two examples) in your country do you think that foreign lawyers might find the most surprising?

Purchase of goods, by a person, for “commercial purpose” does not confer upon him the title of a “consumer”, as defined under Section 2 (1)(d) of the Consumer Protection Act, 1986. The words “for any commercial purpose”, as laid down in the definition clause, are intended to be wide enough to cover, within its ambit, all cases where goods are purchased for being used in any activity directly intended to generate profits. The exception, as appended to the Explanation Clause of Section 2(1)(d), however, excludes goods bought and services availed for the purposes of earning livelihood by means of self-employment. For example, an EPBAX system was purchased by the complainant company for better management of its business. Owing to certain inherent defects in the system, it stopped working properly. It was held that the complainant company does not fall within the purview of the exception to the definition of “commercial purpose”[2].

3. Please describe no more than two important current trends in product liability law in your country.

The laws relating to product liability, in India, have been constantly evolving, by way of judicial interpretations and amendments, to become one of the most important socio-economic legislations for the protection of consumers. The legislation, in respect of product liability in India, though was enacted to protect the interest of consumers but the same was, earlier, construed narrowly, thereby frustrating the object sought to be achieved. The trend, however, has changed in the recent times with the Courts adopting a pro-consumer approach. The Courts, in India, have now started awarding compensation and damages which are more punitive than compensatory in nature. In Wheels World Vs. Pradeep Kumar Khurana[3], the complainant, a doctor by profession, complained to the respondent about deficiency in service in not repairing, free of charge, a technical fault, which occurred during warranty period, in his new Montana car and then not delivering the same for a period of 4 years. A sum of Rs. Rs. 30, 000/- with interest @ 18% per annum from 2/7/1988 to 7/5/1992, was awarded as compensation, in favour of the complainant for his suffering, both professionally and otherwise, on account of non availability of car for a period of 4 years. Further interest, at the same rate for the same period, was also awarded on an amount of Rs. 82, 000/-, being the price of the car as well as an amount of Rs. 55, 00/- towards costs and, last but not the least, an amount of Rs. 50, 000/-, which was deposited by the Respondent on account of stay of imprisonment, was also awarded to the petitioner.

With cut throat competition rolling the market process, companies are adopting, what the MRTP Act seeks to curb, “unfair trade practices”. The Courts, in an effort to curb such practices, in a plethora of cases, have held against companies making false representations, in advertisements and otherwise, for the purposes of selling its goods. In Proctor and Gamble Home Products Ltd, Hindustan Lever Ltd[4], the Commission restrained the company from making false, exaggerated and misleading claims about its “New Ceramides Sunsilk extra Treatment Shampoo”. In a similar decision, in Hindustan Oil Co.[5] case, the claim of the company that its cooking gas units, by use of kerosene, saved 30 percent against the LPG system was held to be false and misleading and, therefore, advertisement to that effect was restrained by the Commission.

At present, the Indian Consumer Law, in compliance with international obligations, comprehensively, provides for liability for defective goods and/or services as also for unsafe, hazardous and unfair trade practices. The Courts, too, with a view to effectively implement the enacted legislations, are adopting a constructive approach so as to bring effective harmonization of the enacted legislations and, thereby, according protection to consumers.

4. Can you give a brief summary of one or two significant decisions that have been decided by the Courts in your jurisdiction?

The Supreme Court, in the case of M/s. Spring Meadows Hospital[6], according liberal construction to the term “consumer”, as defined under the Consumer Protection Act, held that a consumer means and includes a person who hires or avails any services, as also a beneficiary of such services. The Court drew an irresistible conclusion that, when a young child is taken to the hospital, by his parents, and treated by the doctors, the parents would also fall within the definition of “consumer” having hired the services and the child, under the inclusive definition being a beneficiary of such services, would also be a consumer and, thus, held that the Court is absolutely justified in awarding compensation, to both, for the injuries sustained by each one of them. The Court, rejecting the argument of the respondent that a humanitarian approach was taken on its behalf and services were extended to the child without charging any money, awarded compensation in favour of the minor taking into account the cost of equipments and recurring expenses which would be necessary for the child owing to his vegetative existence and separate compensation in favour of the parents for acute mental agony and life long care and attention which the parents will have to bestow on their child.

5. Can a company or an individual be subject to criminal liability for manufacturing or distributing a defective product in your country? If so, under what circumstances will such liability generally arise?

The product liability law, in India, apart from the civil liability, also imposes criminal liability in case of non-compliance with the provisions of each of the below mentioned Acts. The said Acts are in addition to and not in derogation of any other laws in force, which implies that an action imposing penal liability can be simultaneously initiated alongwith a claim under civil law.

Criminal remedy for supply of defective product arises under various statutes, namely:-

Ø The Foods Adulteration Act, 1954

Ø The Food Safety and Standards Act, 2006

Ø The Drug & Cosmetics Act, 1940

Ø The Indian Penal Code, 1860

Ø The Standards of Weights and Measure Act, 1976

Each of the aforesaid Acts provides for imposition of fine and/or imprisonment in case of supply of defective products or adulterated consumables.

The Food Safety and Standards Act, 2006 is the most recent legislation which comprehensively deals with food and safety standards which are to be complied with by manufacturers and producers, non-compliance of which imposes a liability, upon defaulters, of fine, extending upto Rs. Ten Lakhs and/or imprisonment.

The provisions of Indian Penal Code, on the other hand, in respect of product liability, are attracted when the element of cheating and fraud can be attributed to such defects. For example, in the case of Smt. Uma Deepak v. Maryti Udyog Ltd. & Ors.[7] the Complainant alleged that the car sold by the opposite party was not only accidental but the price, for the same, was also overcharged. The Court, in response to the allegations made by the complainant, directed arrest of the Directors as well as the manager of the dealers/agents who sold the said defective car to the complainant and remanded them to judicial custody. Subsequent thereto, the said officers of the opposite party were released on bail and were directed to replace the disputed car with a new car.

The provisions of The Standards of Weights and Measures Act, 1976 are attracted in case of any false packaging, weight or measure which does not conform to the standards established by or under the said Act.

Owing to the principle of “strict liability”, the element of mens rea is not to be considered, in determining criminal liability, under each of the aforesaid laws. The Supreme Court in the case of Sarjoo Prasad Vs State of Uttar Pradesh[8], pointed out that “mens rea” in same state of a guilty knowledge of adulteration of food is not necessary to be proved for an offence under the Food and Adulteration Act, 1954.

6. What actions can be taken in your country by authorities in respect of the marketing and sale of alleged defective products? What action can be taken directly by consumer associations?

The Consumer Dispute Redressal Forum and the MRTP Commission are the competent authorities for adjudicating and deciding matters pertaining to product liability. Since the Consumer Forum is vested with the power of awarding compensations and damages in cases of defects in products, the complainant can pray for replacement of defective product, as well as compensation and damages before the said authority. The said forum, however, does not have the jurisdiction to restrain or direct, by way of injunction or otherwise, any party from carrying on any activity in any manner. The power in respect thereof, however, is vested with the MRTP Commission. An aggrieved party can, for the purpose of restraining a practise which is unfair or monopolistic, take recourse to the MRTP Commission for a direction to that effect. The aforesaid actions, before the Consumer Forum and the MRTP Commission, are independent of each other and can be initiated simultaneously.

Last but not the least, a criminal action, simultaneously, can also be initiated against supply of defective product if a prima facie case is established to show elements of cheating and fraud. A criminal action under the Food and Adulteration Act and The Food Safety and Standards Act, 2006 shall lie if the consumable is adulterated or is, otherwise, not as per the standards laid thereto. The Drugs and Cosmetic Act, 1940 also provides for criminal liability for manufacturers and producers of medicinal products or cosmetics etc, which do not adhere to the prescribed standards.

A consumer association, on behalf of aggrieved consumers, where there are more than one, can directly approach the Consumer Forum for the redressal of disputes pertaining to supply or manufacturing of defective product and the MRTP, as well, for bringing to the notice of the Commission trade practices which are monopolistic or unfair.

7. Can persons who have been injured or suffered loss as a consequence of a defective product join together to bring a single claim in your country - eg through some class, representative or other collective action? Please provide brief details.

Section 12 of the Consumer Protection Act, 1986 expressly provides for filing of consumer complaints by consumer associations as well as a single complaint by one or more consumers. It states that:-

1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by-

a) …….

b) Any recognized consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not;

c) One or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested;

d) The Central or the State Government, as the case may be, either in its individual capacity or as a representative of interests of the consumers in general.

The Explanation, as appended to section 12, defines “recognised consumer association” as any voluntary consumer association registered under the Companies Act, 1956 or any other law for the time being in force.

The MRTP Act too, under Section 36-B, provides for filing of a complaint by any trade association or a consumer or a registered consumers association, irrespective of the consumer being a member of that consumers association.

8. Is there a requirement to notify your country’s authorities in respect of potential safety defects in consumer products generally (i.e. not in respect of a specific category of consumer products)?

The standardization law in India is governed by a) The Bureau of Indian Standards Act, 1986 (hereinafter referred to as “BIS”), b) Agmark Grading and Standardisation under Agricultural Produce (Grading & Marking) Act, 1937 (in respect of agricultural commodities) and The Food Safety and Standards Act, 2006. The mandatory requirement of notifying safety standards is with respect to food items under The Food Safety and Standards Act, 2006 only. There is, however, no mandatory requirement of such notification under the BIS and Agmark Grading and Standardisation under Agricultural Produce (Grading & Marking) Act, 1937, but, if a manufacturer/producer is desirous to grade their commodities under Agmark or BIS, they have to obtain Certificate of Authorisation or Certification Mark, respectively. Since the said certifications acknowledge the safety and health standards in a product, majority of manufacturers/producers, therefore, certify their products under the aforesaid Acts.

The Food Safety and Standards Act, 2006 makes it obligatory for the Food Authority to regulate and monitor the manufacture, processing, distribution, sale and import of food so as to ensure safe and wholesome food. The said Authority clearly sets out standards which are to be maintained with respect to food items and non-adherence of the same makes the defaulter liable to imprisonment and exorbitant fine. A similar legislation, namely the Fruit Products Order, 1955 enacted under the Essential Commodities Act, 1955, supplements the Food and Safety Act and, interalia, sets out quality standards, in relation to fruit products, sweetened aerated water etc., as also sanitary requirements of factory manufacturing fruit products.

The Agmark system, on the other hand, sets out quality standards for agricultural commodities, based on their intrinsic quality. Standards are harmonised with international standards keeping in view the WTO requirements. Certification of agricultural commodities is carried out for the benefit of producer/manufacturer as well as the consumer. While Certification of adulteration prone commodities viz. Butter, Ghee, Vegetable Oils, Ground-Spices, Honey, Wheat Atta etc. is very popular, blended edible vegetable oils and fat spread, on the other hand, are compulsorily required to be certified under Agmark.

Under the BIS Act, such specification which hints at the nature, quality, strength, purity, composition, quantity, dimensions, weight, grade, durability, origin, age, material, mode of manufacture, or other characteristic which distinguishes it from any other article or process, shall be applied to any substance, artificial or natural, or partly artificial or partly natural, whether raw or partly or wholly processed or manufactured. The BIS offers numerous certification schemes, like the Product Certification Scheme, whereby manufacturers of products interested in producing their products as per relevant Indian Standards are permitted to use the Standard Mark of the Bureau (the popular ISI mark) on their products after obtaining a licence from the Bureau. The pre-requisites for obtaining a licence require the manufacturer to possess the necessary manufacturing and testing facilities for the product as also follow the quality assurance scheme of the Bureau, in addition to payment of necessary fees as stipulated. The scheme, though, is voluntary in nature but, the government has made ISI marking compulsory for about 136 products which affect the health and safety of consumers or are products of mass consumption like LPG Cylinders, Food Colours and Additives, Cement, Packaged Drinking Water, etc.. Yet another scheme is the Certification for Indian Importers, wherein, the Government has stipulated compulsory approval, form BIS, for certain category of products before they are imported into India.

The Agmark, on one hand, aims at promotion of Grading and Standardisation of agricultural and allied commodities, and whereas, the BIS provides for standardisation, marking and quality certification of goods, in general. Both the Acts, however, empower the authorities to search and seize goods which, inspite of obtaining certification, do not confirm to the prescribed standards, as well as those for which certification has not been obtained and such marks, as to quality and standard, have been falsely applied. The Acts also provide for imprisonment and/or fine for non-adherence of any of the provisions contained therein.

9. Describe one or two illustrative product recalls which have taken place in your country that have attracted publicity or highlight a particular feature of product liability law in your country?

There was a public outrage when an independent NGO, by the name of Centre for Science and Environment (CSE), alleged against cola giants “Pepsi’' and “Coca-Cola” that their soft drinks contained pesticide residues and were, thus, hazardous and not safe. It was a case which blew the lid off the matter when it released a report on pesticide residues in 12 major cold drink brands sold in and around Delhi. CSE pointed out that regulations for pesticide levels in soft drinks are weak in the country. Neither the Prevention of Food Adulteration Act, 1954, nor the Fruit Products Order explicitly deals with the subject. The study also highlighted the fact that India has no standards to define “clean” or “potable” water, and asked the Union government to put in place legally enforceable water quality norms. The expose sent Coca-Cola and Pepsi-Co, whose products were found to be contaminated, into a tizzy. The two archrivals even addressed an unprecedented joint press conference, rejecting CSE’s findings.

On August 22, 2003, the Union Government tabled a motion in the Lok Sabha for the constitution of the committee. Significantly, it was the first ever Joint Parliamentary Committee (JPC) to have been constituted on a public health issue in post-independence India.

The committee’s terms of reference required it to ascertain the veracity of CSE’s study, and suggested criteria for evolving suitable standards for soft drinks and other beverages. After almost six months of deliberation, during which parties-including CSE and the cola companies-were heard out, the panel presented its report in parliament on February 4, 2004. It lauded the organisation’s effort to draw attention to issues concerning public health, concluding that ..”CSE stands corroborated on its finding pesticide residue in the carbonated water”. In view of the finding of the Committee, the State Government, in some States, directed the said brands to withdraw their entire stock of aerated drinks from various schools in certain parts of the country.

In the case of Cadbury India Ltd v. L. Niranjan[9]. the complainant purchased a Cadbury chocolate for presenting it as a birthday gift. Unfortunately, when the said chocolate was opened, it was found that chocolate was infested with worms and fungus. As it was a birthday party, the situation became unpleasant. He, therefore, approached the District Forum, Bangalore for compensation.

The District Forum, on basis of the application filed by the complainant, sent the product to the Public Health Institute analysis and the report was obtained. As per the report, it was infested with worms.

Pursuant to the finding of the Public Health Institute, Cadbury was directed to take all precautions that unauthorized persons do not carry out the business of selling such perishable articles which may become hazardous for the health, if not properly preserved. In compliance of the directions of the Court, Cadbury withdrew all its stock from the market and also supplied refrigerators to all its retailers so that the chocolate can be preserved for a longer time and does not become unfit for human consumption after a certain period. The Court further held that, not only the Local Authority should take action and verify such chocolates but also it is the duty of the manufacturer that such things do not occur.

10. If a manufacturer or supplier does not have premises or employees based in your country, but its products are sold there, is it still at risk of facing civil claims there? In what circumstances?

The jurisdiction of a Court, under Section 11 of the Consumer Protection Act, is decided

a) where the opposite party, actually and voluntarily, resides or carries on business or has a branch office or personally works for gain, or

b) …………

c) cause of action, wholly or in part, arises.

If a manufacturer or supplies does not have a branch office in India, but its products are being sold in India, then, in accordance with clause a) and c), as aforementioned, such manufacturer or supplier will be liable under the applicable law.

Yet another enabling provision which would, inspite of the manufacturer/supplier not having a branch office in India, vest jurisdiction in a Court in India is Section 14 of the MRTP Act, which states, as under

Section 14: Orders where party concerned does not carry on business in India

Where any practice substantially falls within monopolistic, restrictive, or unfair, trade practice relating to production, storage, supply, distribution or control of goods of any description or the provisions of any services and any party to such practice does not carry on business in India, an order may be made under this Act with respect to that part of the practices which is carried on in India.

In Jugaldas Damoder Mody Co.[10], Bombay the Commission held that “The mere fact that contract was executed in Muscat and Sultan of Oman was a party to that agreement did not preclude the Commission form exercising its jurisdiction with respect to that part of the practice which is carried on India. The definition of “restrictive trade practice” clearly goes to show that it is an effect oriented or result based definition. If any of these effects is visible in India, the trade practice must be taken to be carried on in India…….”

Vijay Pal Dalmia, Advocate vpdalmia@vaishlaw.com

Vaish Associates Advocates,

New Delhi , India

[2] State of Rajasthan v. M/s. Tinkle Bells Enterprises 1995(3)CPR 578 Jaipur

[10] In the matter of, 1984 Tax. L.R 2095 at pp. 2098, 2099