INTRODUCTION
‘Product Liability’ has been defined for the first time under the Consumer Protection Act, 2019 (“2019 Act”). As per the 2019 Act, product liability means the responsibility of a product manufacturer or product seller, or product service provider, to compensate for any harm caused to a consumer by a defective product manufactured or sold or by deficiency in services in relation to the product.[1]
The 2019 Act replaced the erstwhile Consumer Protection Act, 1986 (“Erstwhile Act”), after receiving presidential assent and being notified in the Official Gazette of India on August 09, 2019. While the law was enacted in 2019, most of its provisions, including the chapter on product liability came into effect on July 20, 2020. With an aim to provide stricter and more enhanced protection to consumers, the 2019 Act made significant amendments to the Erstwhile Act, along with addition of new provisions. The introduction of product liability under the 2019 Act marked an end of the buyer beware doctrine and the introduction of seller beware as the new doctrine governing the Consumer Protection Act.
PRODUCT LIABILITY UNDER THE CONSUMER PROTETCTION ACT, 2019
The 2019 Act introduced the legal regime on product liability and dedicated an entire chapter (Chapter VI) to enumerate the situations where a claim for compensation under a product liability action would be available for ‘harm’ caused by a ‘defective’ product manufactured by a product manufacturer or serviced by a product service provider or sold by a product seller.[2]
‘Harm’, in relation to a product liability inter alia includes — (i) damage to any property other than the product itself; (ii) personal injury, illness or death; (iii) mental agony or emotional distress, etc. It may be noted that this does not include any harm caused to a product itself or any damage to the property on account of breach of warranty conditions or any commercial or economic loss including any direct, incidental or consequential loss relating thereto.[3] Further, the Act defines ‘defect’ to mean any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard, which is required to be maintained by or under any law or contract, express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods or product.[4]
As is evident from the above, to bring about a product liability action, it is important for a consumer to establish that ‘harm’ was caused due to a ‘defective’ product.
The 2019 Act distinguishes between the roles of a product manufacturer, product seller and service provider and accordingly envisages individual criteria for attracting product liability actions against each of them. The same has been discussed below:
I. Liability of a Product Manufacturer
The 2019 Act, under Section 2(36), contains a wide definition of ‘product manufacturer’, to include every party connected with the sale process within the scope of the definition. Under the 2019 Act, a ‘product manufacturer’ has been defined to mean a person who: (a) makes any product or parts thereof; or (b) assembles parts thereof made by others; or (c) puts or causes to be put his own mark on any product made by any other person; or (d) makes a product and sells, distributes, leases, installs, prepares, packages, labels, markets, repairs, maintains such product or is otherwise involved in placing such product for commercial purpose; or (e) designs, produces, fabricates, constructs or re-manufactures any product before its sale; or (f) being a product seller of a product, is also a manufacturer of such product.
Section 84 of the Act enumerates the situations where a product manufacturer shall be liable in a claim for compensation under a product liability action for a harm caused by a defective product manufactured by the product manufacturer. The situations are as under:
(a) The product contains a manufacturing defect;
(b) The product is defective in design;
(c) The product does not conform to the manufacturing specifications;
(d) A claim for compensation against a product manufacturer would also lie when the product does not conform to an express warranty. It is pertinent to note that under the 2019 Act, if the product does not conform to an express warranty, a product liability action would lie against the product manufacturer regardless of the product manufacturer not being negligent or fraudulent in making the express warranty of the product;
(e) Similarly, a product liability action will lie against the manufacturer if the manufactured product fails to contain adequate instructions on correct usage to prevent any harm or any warning regarding improper or incorrect usage.
II. Liability of a Product Service Provider
A product service provider under the 2019 Act is defined to mean a person who provides a service in respect of any product.[5] The definition of a product service provider has been specifically added to the 2019 Act so as to cover services such as maintenance or repair where the service and the product are inherently related, and the service has a direct bearing upon the performance of the product.
Section 85 of the Act enumerates the instances under which a product service provider shall be liable in a product liability action for a harm caused by a defective product serviced by the product service provider. The instances are as under:
(a) If the service provided by it was faulty, imperfect, deficient or inadequate in quality, nature or manner of performance. The same must be judged based on the requirement by or under any law for the time being in force, or pursuant to any contract.
(b) A product service provider shall also be liable if there was an act of omission or commission or negligence or conscious withholding of any information, which caused the harm.
(c) Liability will also be fastened on the product service provider if it does not issue adequate instructions or warnings to prevent any harm.
(d) Similarly, a product service provider shall be liable in a product liability action if the service did not conform to express warranty or the terms and conditions of the contract.
III. Liability of a Product Seller
A product seller under the 2019 Act is defined to mean any person who, in the course of business, imports, sells, distributes, leases, installs, prepares, packages, labels, markets, repairs, maintains, or otherwise is involved in placing such product for commercial purpose and includes (a) a manufacturer who is also a product seller; or (b) a service provider. The section specifically excludes certain people from the definition of a product seller who are as under.
- A seller of an immovable property shall not be a product seller unless such a person is engaged in the sale of constructed house or in the construction of homes of flats.
- Similarly, a provider of professional services, where the skill or service is the essence of the transaction and the sale or use of the product is only incidental to it, shall not be included in the definition of a product seller.
- Lastly, a person will not fall within the definition of a product seller is he/ she (a) acts only in a financial capacity with respect to the sale of the product or (b) is not a manufacturer, wholesaler, distributor, retailer, direct seller or an electronic service provider or (c) leases a product without having a reasonable opportunity to inspect and discover defects in the product, under a lease agreement in which the selection, possession, maintenance, and operation of the product are controlled by a person other than the lessor.[6]
Section 86 of the Act lists the instances under which a product seller (who is not a product manufacturer) shall be liable in a product liability action for a harm caused by a defective product sold by the product seller. They are:
(a) if the product seller had exercised substantial control over the designing, testing, manufacturing, packaging or labelling of a product that caused harm.
(b) if product seller alters or modifies the product and such alteration or modification becomes the substantial factor in causing the harm.
(c) if product seller 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.
(d) if a product has been sold by the product seller and the identity of the product manufacturer of such product is not known, or if known, the service of notice or process or warrant cannot be effected on the product manufacturer or the product manufacturer 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 the product manufacturer.
(e) if the product seller fails to exercise reasonable care in assembling, inspecting or maintaining such product or if it does not pass on the warnings or instructions of the product manufacturer regarding the dangers involved or proper usage of the product while selling such product and such failure was the proximate cause of the harm.
IV. Penalties that may be imposed
If the consumer forum arrives at the finding that the product is defective or any of the allegations of the complainant with respect to service, unfair trade practice or claim for product liability is proved, the consumer forum may inter alia direct one or more of the following: removal of defect, replacement of the product, return of the price paid by consumer along with interest, compensation to consumer, including punitive damages for negligence, discontinuation of unfair trade practices, withdrawal of hazardous or unsafe goods, direction to cease to manufacture hazardous goods or cease to offer for sale hazardous services, compensation for product liability action, cease and desist from issuing misleading advertisement or direction to issue corrective advertisement. Since The 2019 Act aims to provide enhanced protection to consumers, it accordingly provides for more stringent punishments compared to the Erstwhile Act.
The 2019 Act has also defined ‘unfair contracts’[7], which means a contract between a manufacturer or trader or service provider on one hand, and a consumer on the other, having such terms which cause significant changes in the rights of such consumer; including (a) requiring excess security deposits from consumers; (b) imposing disproportionate penalty upon the consumer for breach of contract; (c) refusing to accept early repayment of debt; (d) entitling unilateral termination; (e) permitting assignment of contract to the detriment of customer without his/ her consent; (f) imposing on the consumer any unreasonable charge, obligation or condition, which puts such consumer at a disadvantage. Both State Commission[8] and National Commission[9] have the power to declare such contracts null and void.
The 2019 Act has also established a Central Consumer Protection Authority (“CCPA”). The CCPA is a regulatory authority under the Act with powers of investigation, inquiry and injunctive actions. The primary objective of the CCPA is to regulate matters pertaining to violation of rights of consumers, unfair trade practices and false or misleading advertisements that are prejudicial to the interests of public and consumers.[10]
CCPA has the power to direct recall of goods or withdrawal of services that are dangerous, hazardous or unsafe.[11] The CCPA can also direct reimbursement of the prices of goods or services so recalled to the purchasers.[12] Additionally, the CCPA has also been empowered to direct discontinuation of practices that are unfair and prejudicial to consumers’ interest.[13]
Further, the 2019 Act also heavily addresses the issue of misleading advertisements. Both the Consumer fora and CCPA have the power to issue directions and penalties against false or misleading advertisements. Any manufacturer or service provider who causes a false or misleading advertisement to be made, which is prejudicial to the consumers’ interests is punishable with imprisonment extending up to two years and with a fine extending up to ten lakh rupees and in case of subsequent offence with imprisonment extending upto five years and with fine extending upto fifty lakh rupees.
The CCPA has also been empowered to direct the concerned party — be it a trader, manufacturer, endorser, advertiser or publisher — to discontinue a misleading advertisement or modify the same.[14] Additionally, the CCPA has been empowered to impose a penalty on the manufacturer, or the endorser to the tune of ten lakh rupees, which may extend to fifty lakh rupees in cases of subsequent contravention.[15] Similarly, a publisher or a person who is party to such publication may also be penalised for an amount upto rupees ten lakhs.[16] In addition to the above penalties, the 2019 Act also empowers the CCPA to prohibit the endorser of a false or misleading advertisement from making endorsement of any product or service for a period which may extend to one year and in case of subsequent contravention to three years.[17] However, the Act also provides safe harbour for endorsers and publishers in certain cases. An endorser is exempted from penalty under Section 21 of the 2019 Act if he/ she exercised due diligence to verify the veracity of the claims made in the advertisement regarding the product or service being endorsed.[18] Similarly, a person will not be liable if he/ she published or arranged for the publication of the false or misleading advertisement in the ordinary course of business. However, this defence would not be available if the person had previous knowledge of an order passed by CCPA, regarding withdrawal or modification of the advertisement.[19]
In order to ensure compliance with the order of the CCPA, Section 88 of the 2019 Act criminalises failure to comply with the directions of CCPA and makes it punishable with imprisonment for a period up to 6 months or with fine which may extend to twenty lakh rupees or with both.[20]
Furthermore, the 2019 Act also provides for punishment, including imprisonment or fine or both, for manufacturing for sale or storing, selling or distributing or importing products containing adulterant or spurious goods.[21]
V. Possible Defences to a Product Liability Action
A perusal of the definition of ‘product liability’ reveals that in order to establish a claim of product liability, the complainant must establish ‘harm’ caused by a ‘defective’ product. Therefore, the product not being ‘defective’ and the absence of any ‘harm’ caused to the consumer by use of the product are certainly valid defences to a product liability action. In addition to the above, Section 87 of the Act envisages the below mentioned defences to a product liability action:
(a) In case of a claim against a product seller, it would be a valid defence that at the time of the alleged harm, the product was misused, altered, or modified.
(b) In case of a claim against a product manufacturer for failure to provide adequate warnings or instructions, the following would be valid defences:
(i) the product was purchased by an employer for use at the workplace and the product manufacturer had provided warnings or instructions to such employer;
(ii) the product was sold as a component or material to be used in another product and necessary warnings or instructions were given by the product manufacturer to the purchaser of such component or material, but the harm was caused to the complainant by use of the end product in which such component or material was
used;
(iii) the product was one which was legally meant to be used or dispensed only by or under the supervision of an expert or a class of experts and the product manufacturer had employed reasonable means to give the warnings or instructions for usage of such product to such expert or class of experts; or
(iv) the complainant, while using such product, was under the influence of alcohol or any prescription drug which had not been prescribed by a medical practitioner.
(c) Also, a product manufacturer shall not be liable for failure to instruct or warn about a danger, which is obvious or commonly known to the user or consumer of such product or which, such user or consumer, ought to have known, taking into account the characteristics of such product.
Any product liability claim requires swift action, starting with internal investigation, expert analysis, followed by appropriate preventive steps, requiring adequate disclosures and recalls if needed.
CONCLUSION
The 2019 Act addresses the issue of ‘Product Liability’ comprehensively and has certainly enhanced the nature of compliance, not only for product manufacturers, sellers and service providers, but also on the parties connected with the sale process, including endorsers, importers, marketers and repairers.
The changes in the Consumer Protection Act enhancing the liability for defective products is not standalone. Recently, there has been an amendment in the Motor Vehicles Act, 1988 (“MV Act”), which has introduced statutory framework for recall of defective motor vehicles. The MV Act also provides for punishment of the manufacturer, importer or dealer of motor vehicles for vehicles, which are in contravention of the norms provided for construction, maintenance, sale and alteration of motor vehicles, which may include imprisonment or fine or both.
With the continued establishment of product liability regime under various statutes, it becomes all the more necessary for product manufacturers, service providers, etc., to be extra cautious about the regulatory compliances under sector-specific rules and regulations under the general statutes such as the Consumer Protection Act, 2019, and provide for adequate disclosures and warnings and swiftly take preventive and precautionary steps as and when needed. There is also a need for product manufacturers, traders, service providers to revisit the contracts in order to ensure that they are not covered under the definition of ‘unfair contracts’.
For further information, please contact:
Bishwajit Dubey, Partner, Cyril Amarchand Mangaldas
bishwajit.dubey@cyrilshroff.com
[1] Section 2(34), Consumer Protection Act, 2019.
[2] Section 82, Consumer Protection Act, 2019.
[3] Section 2(22), Consumer Protection Act, 2019
[4] Section 2(10), Consumer protection Act, 2019
[5]Section 2(38), Consumer Protection Act, 2019.
[6] Section 2(37), Consumer Protection Act, 2019.
[7] Section 2(46), Consumer Protection Act, 2019
[8] Section 49(2), Consumer Protection Act, 2019
[9] Section 59(2), Consumer Protection Act, 2019
[10] Section 10(1), Consumer Protection Act, 2019.
[11] Section 20(a), Consumer Protection Act, 2019.
[12] Section 20(b), Consumer Protection Act, 2019.
[13] Section 20(c), Consumer Protection Act, 2019.
[14] Section 21(1), Consumer Protection Act, 2019.
[15] Section 21(2), Consumer Protection Act, 2019.
[16] Section 21(4), Consumer Protection Act, 2019.
[17] Section 21(3), Consumer Protection Act, 2019.
[18] Section 21(5), Consumer Protection Act, 2019.
[19] Section 21(6), Consumer Protection Act, 2019.
[20] Section 88, Consumer Protection Act, 2019.
[21] Section 90 and 91, Consumer Protection Act, 2019
