Product Liability under the Consumer Protection Act, 2019: An Overview

The Consumer Protection Act, 2019 (“2019 Act”) defined “product liability” for the first time. According to this Act, the term 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.

This 2019 Act replaced the 1986, Consumer Protection Act (“Erstwhile Act”), after receiving presidential assent and being published in the Official Gazette of India on August 9th, 2019. Even though the law was enacted in 2019, the chapter on product liability along with most of its provisions came into effect on July 20th, 2020. Concerned with an aim to provide more enhanced and stricter protection to consumers, the 2019 Act made considerable amendments to the (“Erstwhile Act”), along with the addition of new provisions as well. 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 Act of 2019 instituted legal regime on product liability and committed an entire chapter (Ch. VI) to set out the situations where a claim for repayment under a product liability action would be available for ‘harm’ caused by a ‘defective’ product manufactured by a manufacturer or serviced by a service provider or sold by a seller.

‘Harm’, in relation to a product liability, among other things, includes — 

  1. emotional distress or mental agony, etc. 
  2. damage to a property leaving the product itself. 
  3. personal injury, death, or illness.

It may be pointed out that this does not include any harm to a product itself or damages to the property on the basis of breach of warranty conditions or any economic or commercial loss including any direct, consequential, or incidental loss relating thereto.  Further, the Act defines ‘defect’ as 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.

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 Act of 2019 differentiates between the roles of a product seller, service provider, and product manufacturer and accordingly foresees individual criteria for attracting product liability actions against each of them. It has been discussed below:

I. Liability of a Product Manufacturer

The Act of 2019, present in Section 2(36), consists of 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 itemizes the situations where a product manufacturer shall be responsible 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; or

(b) The product is defective in design; or

(c) The product does not conform to the manufacturing specifications; or

(d) the product does not conform to the express warranty; or

(e) the product fails to contain adequate instructions of 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 Act of 2019 is defined as a person who provides a service in respect of any product. This definition’s been added to the Act f 2019 so as to cover services like repairs and maintenance where the product and the service are inherently related, and the service has a direct influence on the performance of the product.

Section 85 of the Act of 2019 itemizes the situations under which a product service provider shall be responsible in a product liability action for a harm caused by a defective product serviced by the product service provider. The situations are as under:

(a) the service provided by him 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.

III. Liability of a Product Seller

A product seller under the Act of 2019 is defined as 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:

  1.  a manufacturer who is also a product seller; or
  2. a service provider. 

The section mainly excludes some people from the definition of a product seller such as:

  1. a seller of immovable property unless such person is engaged in the sale of constructed house or in the construction of homes or flats.
  2. a provider of professional services in any transaction in which, the sale or use of a product is only incidental thereto, but furnishing of opinion, skill or services being the essence of such transaction.
  3. a person who—
    1. acts only in a financial capacity with respect to the sale of the product.
    2. is not a manufacturer, wholesaler, distributor, retailer, direct seller or an electronic service provider.
    3. leases a product, without having a reasonable opportunity to inspect and discover defects in the product, under a lease arrangement in which the selection, possession, maintenance, and operation of the product are controlled by a person other than the lessor.

IV. Penalties that may be imposed

If the consumer forum finds that the product is defective or the allegations of the complainant with respect to service, unfair trade practice or claim for product liability is proved, the consumer forum may direct one or more of the following: the elimination of defect, substitution of the product, refund to the consumer along with interest, compensation to consumer, including small damages for negligence, discontinuation of unfair trade practices, withdrawal of unsafe or hazardous goods, direction to cease to offer for sale hazardous services or cease to manufacture hazardous goods or, reimbursement for product liability action, cease and desist from issuing misleading advertisement or direction to issue corrective advertisement. Since The Act of 2019 directs to provide enhanced protection to consumers, it accordingly provides for stricter punishments compared to the Erstwhile Act.

The Act of 2019 has also defined ‘unfair contracts’, contract 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
  4. entitling a party to the contract to terminate such contract unilaterally, without reasonable cause; or
  5. 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
  6. imposing on the consumer any unreasonable charge, obligation or condition which puts such consumer to disadvantage;

The Act of 2019 has established a Central Consumer Protection Authority (“CCPA”). It is a regulatory authority under the Act with powers of inquiry, investigation, and injunctive actions. Its primary objective is to regulate matters concerning violation of rights of consumers, unfair trade practices and false or misleading advertisements that are prejudicial to the interests of public and consumers.

It has the power to direct recall of goods or withdrawal of services that are dangerous. It can also direct compensation of the prices of goods or services so recalled to the purchasers. Additionally, it has also been empowered to lead discontinuation of practices that are prejudicial and unfair to consumers’ interest. 

Further, the Act of 2019 heavily addresses the issue of misleading advertisements. Both the CCPA and the Consumer fora have the authority to issue penalties and directions against misleading advertisements. Any service provider or manufacturer who causes a 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 up to five years and with fine extending up to fifty lakh rupees.

It has also been authorised to direct the concerned party — be it a manufacturer, trader, endorser, publisher, or advertiser— to discontinue a misleading advertisement or modify it. Moreover, it has been authorised 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. Similarly, a person or a publisher party to such publication may also be penalised for an amount up to rupees ten lakhs. In addition to the above penalties, the Act of 2019 authorises the CCPA to prohibit the endorser of a misleading or false advertisement from making endorsement of any service or product for a period which may extend to one year and in case of subsequent contravention to three years. Moreover, this Act also provides safe harbour for publishers and endorsers in some cases. An endorser is exempted from penalty under Section 21 of the Act of 2019 if he/ she exercised due diligence to verify the veracity of the claims made in the advertisement regarding the product or service being endorsed. 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. 

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.

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. 

V. Possible Defences to a Product Liability Action

A thorough reading of the definition of ‘product liability’ shows that 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 the use of the product is certainly valid defences against 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) A product liability action cannot be brought against the product seller if, at the time of harm, the product was misused, altered, or modified. 

(b) In any product liability action based on the failure to provide adequate warnings or instructions, the product manufacturer shall not be liable, if— 

(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 the 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) 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. 

CONCLUSION

The Act of 2019 talks about the issue of ‘Product Liability’ completely and has definitely intensifies the nature of compliance, not just for the product manufacturers, sellers and service providers, but also on the parties connected with the sale process, including endorsers, importers, marketers and repairers.

With the continued establishment of product liability regime under various statutes, it makes product manufacturers, service providers, etc., to be extra cautious about the regulatory compliances under Consumer Protection Act, 2019, provides for required disclosures and warnings and swiftly takes precautionary and preventive steps as and when needed. There is also a need for product manufacturers, traders, and service providers to revisit the contracts in order to ensure that they are not covered under the definition of ‘unfair contracts’.

By Anoushka Amar

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