COMMENTARY

Amending the Consumer

Protection Act, 1986
Akhileshwar Pathak

A proposed amendment to the

Consumer Protection Act, 1986,
gives the right to a consumer to
set aside an unfair contract, and
cancel, at will, a contract within
30 days of receiving the goods or
services. A proposed Consumer
Protection Authority will bring
about effective checks on unfair
advertising and trade practices.
The amendment introduces
product liability against
manufacturers and vendors. The
text of the amendment needs
reworking and fine-tuning.

Akhileshwar Pathak (akhil@iimahd.ernet.in)

teaches at the Indian Institute of Management,
Ahmedabad.
Economic & Political Weekly

EPW

OCTOBER 24, 2015

he political controversy over the

land acquisition ordinance, which
undoubtedly deserved centre
stage, has overshadowed other legislative initiatives. The Ministry of Consumer Affairs, Food and Public Distribution
has come up with a draft bill to amend
the Consumer Protection Act (CPA), 1986
(GoI 2014). A reference to consumer
conjures up the image of a small value
transaction, and thus, a subject of marginal importance and not business
reform. This would be a misleading perception for two reasons. One, the consumer transactions are of small value,
but numerous. Thus, the total value of
transactions is a staggering amount.
Second, the consumer transactions
being the end transaction, informs the
entire business chain. It decides the
quality of goods and services, and the
relationship within the entire chain.
Within the CPA, a consumer is a person
who contracts for goods or services. A
contracting party has rights and obligations under the Indian Contract Act, 1872
and other laws. The CPA did not confer
new rights on a consumer. It gave inexpensive and expeditious redressal of consumer
grievance by creating a three-tiered quasijudicial body of consumer forums. A consumer can approach a consumer forum for
a defect in goods purchased, deficiency in
service availed of, and unfair or restrictive
trade practices indulged in by a trader.
Enacted in the pre-liberalisation years,
the CPA is set in a qualitatively different
economy. Since, there has been expansion
of goods and services, diversification in
vol l no 43

the means of reaching the consumer,

proliferation of trade practices, coming
in of e-commerce, vigorous sales promotion, and aggressive advertising. The
persona of a consumer has undergone
transformation. A review and amendment of the CPA has been long overdue.
In this article, we will review some of
the main proposals for amendment. This
will include addressing the problem of
unfairness in contracts, unfair trade
practices, and e-commerce.
Unfair Contract Terms
We first take a seemingly minor amendment introducing unfair contracts. This
has major implications. This is new to
us. Our contract law is drawn from British common law and we could review
the question of unfair terms with reference to the developments there. Contracts are voluntarily formed between
the parties. The courts developed the
principle that it was for the contracting
parties to set the terms of the contracts.
The courts would be violating the freedom of contract if they interfered in it.
As corporations developed, they employed printed standard term contracts
in their dealings with the customers.
The standard term contracts exempted
the liability of the corporations and limited the rights of the customers. The
courts were in a dilemma. They could
not interfere in the contract, but could
not also be spectators to injustice being
inflicted on a contracting party.
In the 1970s, Lord Diplock thus expressed his anguish on standard term
contracts (Schroeder Music Publishing Co
Ltd vs Macaulay [1974]):
This [standard form of contract] is of comparatively modern origin. It is the result of
the concentration of particular kinds of business in comparatively few hands. The terms
... have not been the subject of negotiation
between the parties to it They have been
dictated by that party whose bargaining

27

COMMENTARY
power, either exercised alone or in conjunction with others providing similar goods or
services, enables him to say: If you want
these goods or services at all, these are the
only terms on which they are obtainable.
Take it or leave it.

Lord Denning added to the observations of Lord Diplock (Levison and

Another vs Patent Steam Carpet Cleaning
Co Ltd [1977]):
I would only add that the weaker party is
not even told: Take it or leave it. He is simply
presented with a form to sign, and told: Sign
here; and so he does. Then later on, when the
goods are lost or damaged, the form is produced, and the stronger party says: You have no
claim. Look at the conditions on the form. You
signed it and are bound by those conditions.

The British courts, employing the basic

doctrine of the voluntary nature of contracts, attempted to fashion remedies for
addressing the asymmetric relationship
between the parties. The courts reasoned that if the performance of the fundamental purpose of the contract itself
were exempted, the contract would become meaningless. This could never
have been the intention of the parties
and, therefore, such terms should not be
given effect to. This came to be called
the doctrine of fundamental breach.1
Similarly, the courts reasoned that it
could not have been the intention of the
parties to have unreasonable terms exempting a party of their liabilities.2 Spirited that these initiatives were, these
were inadequate. As the courts later conceded, these were all kinds of gymnastic contortions to get round them
(George Mitchell (Chesterhall) Ltd vs
Finney Lock Seedy Ltd [1983]).
The legislature had to step in to address the asymmetrical powers of the
contracting parties. The Unfair Contract
Terms Act, 1977 was enacted to address
unfair terms in standard form contracts
and consumer contracts. The Sale of
Goods Act of 1893 was re-enacted in
1979 as the Sale of Goods Act, 1979. The
law on sale of goods, as it had historically developed, had provisions on quality
of goods. As provision of services was of
a recent origin, the courts had not developed laws on quality of goods. The Supply
of Goods and Services Act, 1982 required
goods and services to be supplied with
reasonable skill and care. The British
government brought in the Unfair Terms
28

in Consumer Contracts Regulations,

1999 to give effect to European Union
Directives on consumer rights. The regulation is parallel to the Unfair Contract
Terms Act, 1977. Thus, through legislation, the problem of unfair terms in contracts has been addressed.
We have had no such reforms in our
commercial laws. We are continuing
with the older version of the British law
as in the Indian Contract Act, 1872 and
the Sale of Goods Act, 1930. The proposed amendment in the CPA allows a
consumer to file a complaint before a
consumer forum if the consumer has
suffered a loss due to an unfair contract
entered into by him (GoI 2014). As the
law on unfair contract terms has developed, an unfair contract is one which
has term(s) creating significant imbalance in the rights and obligations of the
parties to the detriment of the consumer. Unfairness can manifest itself
through any kind of a term, on any subject matter of the contract. The term
should, thus, be defined in an inclusive
manner. In the draft amendment bill,
however, it is defined as constituted by
one of the following five kinds of terms:
(1) Excessive security deposit charged by
the seller or service provider.
(2) A disproportionate penalty on the
customer compared to the loss caused to
the seller or service provider.
(3) Refusal to accept early payment on
payment of penalty.
(4) Power to terminate the contract
without any cause and consultation with
the customer.
(5) Power to assign contract to a third
party without the consent of the customer.
Thus, a contract otherwise unfair, for
example, a service provider completely
exempting itself from any liability for
not providing the service, will not be an
unfair contract. This will be because a
party exempting itself from its liability is
not included in the above list. As the
draft amendment bill gets revised, it
should get defined in an inclusive manner and the illustrative terms expanded.
Unfair Trade Practices
Unfair trade practices include false and
misleading advertising and other means
of promoting sale of goods and services.

By the 1980s, there was proliferation of

advertising and with it, of false advertising. Towards regulating it, in 1984, a
chapter on unfair trade practices was
added in the Monopolies and Restrictive
Trade Practices Act, 1969 (MRTP Act).
Under the MRTP Act, any person or
trader could approach the MRTP Commission against an unfair trade practice.
The MRTP Commission could order discontinuation of the practice and also
award damages.
The CPA, which was enacted in 1986,
copied the provisions on unfair trade
practices from the MRTP Act. Thus, two
parallel platforms emerged for a remedy
against unfair trade practices. The Competition Act, 2002 replaced the MRTP
Act. The High Level Committee on Competition Policy and Law (S V S Raghavan
Committee Report, 2000), entrusted
with the task of developing a new competition law for India, did not include
unfair trade practices in the Competition Act, 2002 as they did not want to
dilute the thrust of the act from anticompetition activities. It was reasoned
that the provisions on unfair trade practices under the CPA would be adequate
mechanism for redressal of grievances
on unfair trade practices. Thus, the protection against unfair trade practices is
now only in the CPA.
The CPA has had very limited protection against unfair trade practices. A
company is not a consumer under the
CPA and cannot approach a consumer
forum. In a competitive environment, an
institutional platform is needed for a
company to deter its rivals from indulging in unfair trade practices. Further, an
unfair trade practice may cause losses to
a company. For example, an advertisement disparaging products of another
company would cause losses to the company. Since the MRTP Act got repealed,
companies were left with no platform
against unfair trade practices. Under the
CPA, even a natural person cannot go to
a consumer forum on merely coming
across an advertisement. He would need
to be a consumer, which he can become
only by buying goods and services.
Effectively, it is only the consumer associations that can approach a consumer
forum against an unfair trade practice.

OCTOBER 24, 2015

vol l no 43

EPW

Economic & Political Weekly

COMMENTARY

specialised body on unfair trade practices.

In the existing draft bill, it is recognised
that the authority has an adjudicatory
function and it should follow natural
justice in making decisions. However,
the details of the process are left for the
rule-making powers of the central government. The authority will be dealing
with a very large number of cases and
varied cases. Also, several of the decisions will involve high value of investment in advertisement. The adjudication
process will invariably get challenged
before the courts on numerous grounds.
It is best to recognise that the authority
would be playing a significant adjudicatory role and provide for robust procedure for adjudication in the act itself.
With this, a body should get in place to
regulate unfair trade practices.

As the field has become completely

unregulated, business entities have
indulged in unfair trade practices without fetters.3
The draft amendment bill is proposing the creation of a Consumer Protection Authority. The authority will have
bureaus on unfair trade practices, safety
in goods and services, quality standards,
unfair contract terms, and enforcement
of consumer protection laws. The draft
bill declares the authority as an executive agency. Significantly, the authority
has adjudicatory functions in relation to
unfair trade practices. The authority can
inquire into any unfair trade practice on
its own knowledge or on receiving information from others. The authority can
order discontinuation of the trade practice or modification of the trade practice.
It can also order the party to make corrective advertising. If a party repeatedly indulges in an unfair trade practice,
the authority can also impose a fine.
Thus, a mechanism has been created for
any person to report to the authority
that a business entity is indulging in an
unfair trade practice. The person reporting to the authority need not be a consumer. It can be any person, including a
business organisation. Interestingly, for
other matters, like class action suits, the
authority will take the dispute to the National Consumer Disputes Redressal
Commission (NCDRC).
The proposal for creating an authority
has created institutional rivalry. The
NCDRC, the apex consumer forum, has
objected that the government is creating
a parallel jurisdiction by creating another body with judicial powers, which
may amount to being more government, less governance (Press Trust of
India 2015). But, the Ministry of Consumer Affairs, Food and Public Distribution has sidestepped this by highlighting
that ultimately class-action suits will be
taken up by NCDRC (Press Trust of India
2015). Looking at the sheer volume of
advertisements, a specialised body is
needed for addressing the concerns of
unfair trade practices. A case can be
made for a separate exclusive body, like
the Competition Commission, on trade
practices. It is best that the Consumer
Protection Authority emerges as a

Thus, every consumer, whether he

contracts through e-commerce or other
means, has a right to terminate the contract at will. He merely has to communicate his intention. This is a very powerful protection. This is justified in the
case of e-commerce.4 Even in face-toface contracts, the customer does not always get to examine the goods. In most
cases, once the goods are delivered, the
retailer insists that these are subject to
only a warranty by the manufacturer,

Economic & Political Weekly

vol l no 43

EPW

OCTOBER 24, 2015

E-commerce
In e-commerce, numerous problems
arise due to the buyer and seller being at
a distance. One of the problems is that
the buyer is not able to inspect or sample
the goods or services. He gets to see the
goods only when these are delivered.
Further, a seller may supply inferior or
defective goods and not take back the
goods and refund the price. As explained in the draft bill, to remedy this,
the bill gives the right to the consumer
to cancel any contract within 30 days of
the delivery of the goods or provision of
service. The draft bill has added the following as an unfair trade practice:
after selling such goods and rendering of
such services, refuses to take back or withdraw the goods or withdraw or discontinue
the service and refuses to refund the consideration thereof, if paid, within a period of
thirty days after the receipt of goods or
availing of services it is so requested by the
consumer (GoI 2014).

and not to a cancellation of the contract.

This happens even when the warranty
by the manufacturer is not incorporated
in the contract. In this context, the provision should take the doubt away by
specifying that the right given to the
consumer overrides all terms to the contrary in the contract.
The other significant right created by
the draft bill for the consumers is product liability. This makes manufacturers,
distributors, suppliers, retailers, and
others responsible for the injuries the
products cause. Product liability has
been known for some decades in the US
and Europe, falling under the field of
law of tort. The judgments on injury by
cigarette smoking and exposure to asbestos are the prominent faces of the
field. As the field is unfamiliar to us,
rightly so, the draft bill borrows from
other jurisdictions. The draft amendment is taking up long overdue reforms.
These would create a new context for
consumers and business relations.
Notes
1
2
3

The founding judgment for the principle is

Levison and Another vs Patent Steam Carpet
Cleaning Co Ltd (1977).
The founding case on this is Photo Production
Ltd vs Securicor Transport Ltd (1978).
This is evident in the complaints before and the
decisions of the Advertising Standards Council
of India, a voluntary body, working towards
self-compliance; See at: http://www.ascionline.org/index.php/asci-decisions.html
United Kingdom law has a similar provision
and gives 14 days to cancel a contract Under
the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations,
2013.

References
GoI (2014): Comparative Statement on Proposed
Amendments to the Consumer Protection Act,
1986, 5 November, viewed on 28 August 2015,
http://consumeraffairs.nic.in/consumer/writereaddata/Comp%20Statement%20CP.pdf
George Mitchell (Chesterhall) Ltd vs Finney Lock
Seedy Ltd (1983): 1 All ER 108.
Levison and Another vs Patent Steam Carpet Cleaning Co Ltd (1977): 3 All ER 498.
Photo Production Ltd vs Securicor Transport Ltd
(1978): 3 All ER 146.
Press Trust of India (2015): NCDRC Opposing Certain Consumer Protection Act Amendments;
Says It May Lead to Parallel Jurisdiction, Economic Times, 29 May, viewed on 28 August
2015, http://economictimes.indiatimes.com/
news/politics-and-nation/ncdrc-opposing-certain-consumer-protection-act-amendmentssays-it-may-lead-to-parallel-jurisdiction/articleshow/47469418.cms
Schroeder Music Publishing Co Ltd vs Macaulay
(1974): 1 All ER 174.

29