Consumer Protection
Consumer Protection
Consumer Protection
PAPER – III
UNIT-I
Q.1 Why the Consumer Protection Act, 1986 was enacted? What are the objects of the Act?
OR
Examine critically Consumer Protection Act, 1986 and how far has this Act been
successful in its objects? Explain.
Ans. The Consumer Protection Act, 1986 (hereinafter to be referred to as the ‘Act’) is one of the
benevolent social legislation intended to protect the large body of consumers from exploitation.
The Act has come as a panacea (remedy) for consumers all over the country and has assumed the
shape of practically the most important legislation enacted in the country during the last few
years. It has become the vehicle for enabling people to secure speedy and inexpensive redressal
of their grievances. With the enactment of this law, consumers now feel that they are in a
position to declare “sellers be aware” whereas previously the consumers were at the receiving
end and generally gold “buyers be aware”.
The Act postulates establishment of Central Consumer Protection Council and the State
Consumer Protection Councils for the purpose of spreading consumer awareness. Central
Council is headed by Minister in charge of the Consumer Affairs in the Central Government and
in the State it is the Minister in charge of the Consumer Affairs in the State Government who
heads State Council.
To provide cheap, speedy and simple redressal to consumer disputes, quasi-judicial machinery is
set-up at each District, State and National levels called District Forums, State Consumer
Disputes Redressal Commission and National Redressal Commission respectively. At present,
there are approximately 614 District Forums, 35 State Commissions with apex body as a
National Consumer Disputes Redressed Commission, (NCDRC) having its office at Upbhokta
Nyay Bhawan, 'F' Block, GPO Complex, INA, New Delhi- 110 023. The District Forums are
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headed by the person who is or has been or is eligible to be appointed as a District Judge and
State Commissions are headed by a person who is or has been a Judge of High Court.
National Commission was constituted in the year, 1988. It is headed by a sitting or retired
Judge of the Supreme Court of India. National Commission is presently headed by Hon'ble
Justice Mr. D. K. Jain (Term of Office: October 5, 2013 to January 24, 2018) former Judge of the
Supreme Court of India as President and having 8 members.
The provisions of this Act cover ‘Products’ as well as ‘Services’. The products are those which
are manufactured or produced and sold to consumers through wholesalers and retailers. The
services are of the nature of transport, telephones, electricity, constructions, banking, insurance,
medical treatment, etc. The service, by and large, include those provided by professionals such
as Doctors, Engineers, Architects, Lawyers, etc.
The Consumer Protection Act is an alternative and cheapest remedy already available to the
aggrieved person/ consumers by way of civil suit. Proceedings are summary in nature and
endeavor is made to grant relief to the parties in the quickest possible time keeping in mind the
spirit of the Act which provides for disposal of the cases within possible time schedule
prescribed under the Act.
In order to attain the objectives of the Consumer Protection Act, the National Commission has
been conferred with the powers of administrative control over all the State Commission by
calling for periodical returns regarding the institution, disposal and pendency of cases. National
Commission is empowered to issue instructions regarding, (1) adoption of uniform procedure in
the hearing of the matters; (2) prior service of copies of documents produced by one party to the
opposite parties; (3) speedy grant of copies of documents; and (4) generally over-seeing the
functioning of the State Commissions or the District Forums to ensure that the objects and
purposes of the Act are best served without in any way interfering with their quasi-judicial
freedom.
Consumer Movement and Its Object – The Modern Consumer Movement is said to be launched
in the decade of 70s by the US President, J.F. Kennedy. But Ralph Nadu of U.S.A. is known as
the then father of consumer monarch. It was coined that consumer is a king and has the rights to
be informed and to be heard. This movement directed to protect the consumers without any
barrier or border. Besides the movement, the Laws on Consumer have been framed to educate
and create awareness amongst the general public, to define the legal rights and to provide the
legal remedies against the violation of Consumer Rights. World over, on 15th March every year,
World Consumer Rights Day is observed, because on this day in the year 1962, President
Kennedy declared four Consumer Rights viz., Right to safety, Right to be informed, Right to
choose and Right to be heard. This list was enhanced by adding three more consumers Rights
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declared by the International Organisation of Consumers Union (IOCU), known as Right to
Redress, Right to a Healthy Environment and Right to Consumer Education.
Aims, Objects and Reasons of the Consumer Protection Act - The Consumer Protection Act
(CPA), 1986 was enacted by the Parliament in the Thirty Seventh Year of the Republic of India,
in the year 1986, and assented to by the President of India on 24th of December, 1986. This Act
has been divided into four Chapters – Preliminary, Consumer Protection Councils, and
Consumer Disputes Redressal Agencies and Miscellaneous provisions. This Act has been aimed
at to provide for better protection of the interest of Consumers and for that purpose to make
provision for the establishment of Consumer Councils and other authorities for the settlement of
Consumer’s disputes and for matters connected therewith.
The object of the Act is to promote and protect the rights of consumers such as:
1. The right to be protected against marketing of goods which are hazardous to life and
property;
2. The right to be informed about the quality, potency, purity, standard and price of goods to
protect the consumer against unfair trade practices;
4. The right to be heard and to be assured that consumers’ interests will receive due
consideration at appropriate forums;
5. The right to seek redressal against unfair trade practice or unscrupulous exploitation of
consumer; and
7. To create suitable administrative and legal mechanisms this would be within the easy
reach of consumers.
These objects are sought to be promoted and protected by the Consumer Protection Council to be
established at the Central and State level.
The Consumer Protection (Amendment) Act, 1993– The original Act was once amended in
the year 1991, but was further amended in the year 1993 to remove the inadequacies of the
Consumer Law; to plug the loopholes as has been experienced during 1986 and 1993, and also to
enlarge the scope of areas covered earlier. By this amendment more powers have been entrusted
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to redressal agencies established under the Act. Therefore, the Act now provides the additional
aims and objectives as follows:
(1) To enlarge the scope of the Act also as to enable the consumers to file class action complaints
where such consumers have a common interest and to file complaints relating to restrictive trade
practices adopted by a trader;
(2) To enable the consumers who are self-employed to file complaints before the redressal
agencies where goods bought by them exclusively for earning their livelihood, suffer from any
defect;
(4) To provide for the constitution of Selection Committees for the selection of non-judicial
members of various redressal agencies;
(6) To confer additional powers on the redressal agencies by way of awarding costs to the parties
for ordering removal of defects or deficiency from the services, and for empowering to recall of
goods likely to endanger the safety of the public, etc.;
(7) To impose punishment on the complainant in case of frivolous of vexatious complaints, and
(8) To provide for the limitation period of two years for filing complaints.
(9)Therefore, the amended provision of the Act has been designed for the better protection of the
interests of the Consumers. It has also provided for the establishment of consumer councils
redressal authorities and agencies to resolve the Consumer related problems. Simple procedure
and speedy redressal is the main object of this Act. For this purpose, quasi-judicial bodies have
been set-up at the District/Provincial/National levels. This machinery has been empowered to
give reliefs and award the appropriate compensation to the aggrieved consumers, as the case may
be. Penalty provisions have been laid down for the frivolous or vexatious complaints and for the
non – compliance of the orders of the redressal agencies.
(10) Preamble of any Act is treated to be the face of any law provided for any specific purpose. It
develops through the interpretation and rule lay down by the Courts. In one important case of
Lucknow Development Authority v. M. K. Gupta , the Supreme Court of India has considered
the question of Law as to whether the statutory authorities constituted under the Acts of State to
fulfill the object like as the Housing Development to carry on planned city development are
amendable to the Consumer Protection Act for any act or omissions or defective and/or faulty
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constructions; delayed possession of houses to the allotted. The Apex Court held that the
Government bodies would be held liable under the Act for any deficiency in services provided
for consideration caused to the purchasers and in charge personnel would be held liable in
person. Therefore, according to the Supreme Court, the ‘housing’ would be a ‘Service’ within
the meaning of Section 2 (1) (o) of the Act.
(11) Extending the scope of the Act, the Apex Court Spring Meadows Hospital v. Harjot
Ahluwalia , has held that being a beneficial legislation, the Act should receive a liberal
construction. Therefore, this Act has been covered within the ambit of the rule of the beneficial
construction. In this judgment the Supreme Court has discussed the resolution of April, 1985 and
guidelines framed by the United Nations.
(12) In India Photographic Co. Ltd. v. H.D. Shorie, the Supreme Court has held that due to the
advancement in the technology of manufacturing and production processes and the introduction
of new products in the global market for the use of consumers, the object of interpreting the
Consumer Protection Act shall be in a rational, manner and not a technical approach should be
applied. In Oriental Insurance Co. Ltd. v. J.P. Vohra Industries, It has been held that where two
interpretations are possible to understand any words used in the document, the view favoring the
Consumer is to be adopted for achieving the object of the Consumer Protection Act
Q. 2 what are the special features of the Consumer Protection Act, 1986?
Ans. Salient Features of Consumer Protection Act – The C.P. Act has come as manna
(spiritual food or a purgative medicine) from our Parliament, though it is not the only redressal
law available to the consumers. Thus the Act provides, vide Section 3 that provisions of this Act
shall be in addition to and not in derogation of the provisions of any other law or for the time
being in force. These salient features of this Act are:
(5) To provide reliefs against the malpractices of the business community with regard to
services rendered and defects in the quality of goods.
(6) To provide the improvement in enforcement of the Consumer Law through the Consumer
Protection Councils.
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(7) In terms of power vested with the Civil Courts have been extended to the Consumer Forums.
(8) Consumer Forums have been empowered to impose penalty in terms of imprisonment and
fine as well to the defaulters of non-compliance of the orders passed by them.
(9) Doctrines of ‘Privity of Contract’ and ‘Caveat emptor’ have not been covered under the Act.
(10) Construing provisions of the C.P. Act in favour of consumers as has been held by the
Supreme Court of India, in decision in Lucknow Development Authority v. M.K. Gupta.
The Act was passed in Lok Sabha on 9th Dec, 1986 and Rajya Sabha on 10th Dec, 1986 and
asserted by the president of India, on 24th Dec, 1986, and was published in gazettes of India on
26th Dec, 1986.
Q3 Write an essay on the general introduction of the Consumer Protection Act, 1986.
Section 2 seeks to define words and expressions used in the Act. Some important terms as
originally defined in the Act are given below:
Complainant - The word ‘complainant’ has been defined under Section 2 (1) (b) of the C.P. Act.
In definition clause the sub-clause 2 (i) (b) (IV) has been added in the year 1993. The original
provisions regarding word ‘complainant’ are as under:
“Complainant” means –
(i) A consumer; or
(ii) Any voluntary consumer association registered under The Companies Act, 1956 (1 of 1956)
or under any other law for the time being in force; or
(iii) The Central Government or any State Government, who or which makes a complaint;
(iv) One or more consumers, where there are numerous consumers having the same interest.
(v) In case of death of a consumer, his legal heir or representative, who or which makes a
complaint (inserted by Act 50 of 2000)
Complainant means – Complainant means a consumer as defined in Section 2 (1) (d) and, in
short consumer means a person who is a buyer or use of goods and hirer or beneficiary of
services for consideration. Apart from the ‘consumer’ the word ‘complainant’ includes the
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registered voluntary consumer association and the Central or any State Government. The joint
consumers for the common interest have also been covered under the purview of the word
‘complainant’ since 18th June, 1993.
Legal representative – in case of death of the actual consumer, the legal representative can file
the complaints and during the pendency or the litigation the legal representative can become the
complainant.
Writ petition – If a complainant filed a writ petition under Article 226 of the Constitution before
the High Court and was dismissed as not maintainable, the aggrieved person can still file a
complaint before the Consumer Forum.
Tax payer not to be a complainant – A tax payer to the Municipal Corporation cannot file a
complaint for the low pressure water supply against the Municipal Corporation.
Association is Consumer – A registered society under the Societies Registration Act, 1860, can
file a complaint through its President to protect the interest and welfare of the members
(Consumers) and has the locus standi.
State is complainant – The Central and any State Government, as the case may be, can also file
the complaint as a ‘complainant’ under Clause 2 (1) (b) (iii) of the C.P. Act.
Inactive firms – An inactive firm cannot to be a ‘complainant’ and a complaint filed thus is not
maintainable.
Insurance Company – The Insurance Company cannot be a complainant under Section 2 (1) (b)
of the C.P. Act.
According to Oxford Dictionary, “the complainant is one who enters a legal complaint against
another”.
The Rajasthan High Court in Municipal Council, Jaipur v Prabhu Narayan, the court
explained that the word “complainant” means one who makes an allegation or an accusation on a
charge in order to prosecute a person is a complainant.
The word ‘complaint’ has been defined under Section 2 (i) (c) of the Act. In the year1993 a new
sub-clause 2(1) (c) (v) was inserted and sub-clause 2 (1) (c) (i) was substituted. The original
provisions regarding the word ‘complaint’ are reproduced below:
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“Complaint” means any allegation in writing made by a complainant that:
[(i) an unfair trade practice or a restrictive trade practice has been adopted by [any trader or
service provider];
(ii) The goods bought by him or agreed to be bought by him suffer from one or more defects;
(iii) The services hired or availed of or agreed to be hired or availed of by him suffer from
deficiency in any respect;
(iv) A trader or service provider, as the case may be, has charged for the goods or for the
service mentioned in the complaint a price in excess of the price –
(a) Fixed by or under any law for the time being in force
(c) Displayed on the price list exhibited by him by or under any law for the time being in force;
(v) Goods which will be hazardous to life and safety when used or being offered for sale to the
public,--
(B) if the trader could have known with due diligence that the goods so offered are unsafe to
the public;
(vi) services which are hazardous or likely to be hazardous to life and safety of the public
when used, are being offered by the service provider which such person could have known with
due diligence to be injurious to life and safety.”
The term ‘complaint’ means an allegation which has been made by the ‘complainant’ in writing
with a view to obtaining any relief covered under the Consumer Protection Act laid down under
clauses (i) to (v) of sub-section 2 (i) (c).
The ‘complaint’ is maintainable if filed by the flat owners’ association registered under the
Societies Registration Act, 1860.
Essentials of Complaint – The Complaint can be entertained by the District Consumer Forum,
State or National Commission as per the jurisdictions provided under Sections, 11, 17 and 21
respectively, if the complaint is filed for the causes of:
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(a) An unfair or a restrictive trade practice of any trader.
(d) The price charged in excess of the price fixed by any trader;
(e) The goods hazardous to life and safety are being offered for sale.
Q.4 Explain the provisions regarding protection of Consumers under law of Torts.
Many a time violation of a consumer’s rights may arise out of a contract between two parties.
For example, if I may be the buyer of a car, or a T.V. set which proves defective, or I give a
garment to a dry-cleaner and he either loses that, or causes a damage to the same, or I deliver
some goods to a carrier and he fails to deliver them at the destination or the consignment is
damaged by him during transit, or I purchase a pressure cooker which happens to have some
manufacturing defect and it bursts causing damage to persons and property, or a gas stove
purchased by me being defective makes the gas to leak resulting in fire, personal injuries to
persons and damages to the property.
In any of the above situations, I have a choice of bringing an action in a Civil Court or a
Consumer Forum, I am a consumer and my case is covered by the Consumer Protection Act. One
will always prefer to file a complaint under the C.P.A., as one can get a cheaper and much
quicker relief through that forum.
Generally, when a person purchases an article there is a ‘Guarantee Card’ accompanying the
article. Through a Guarantee Card appears to protect the buyer’s interest but that invariably
limits or excludes the manufacturer’s liability, which an innocent buyer is not able to appreciate.
For example, the guarantee card accompanying a gas stove or a pressure cooker may stipulate
that “the manufacturer shall be responsible only for repairing the product in case of a
manufacturing defect.”
It implies that if, for instance, the defective stove bursts and causes damage to some persons or
property, the manufacturer could not be liable as per the guarantee card. Similarly, on the back of
the receipt issued by a dry-cleaner, may be a printed term limiting the dry-cleaner’s liability, say,
upto 8 times the dry-cleaning charges. If the dry-clearer loses or damages a saree costing Rs.
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6,000/- and if the cleaning charges are Rs. 30/- his liability in such a case works out to be Rs.
240/-.
Generally, a question arises as to how far the pre-drafted terms of the contract, known as
Standard Form Contracts, are binding. It has been held in various cases that if the Standard Form
Contracts contain unreasonable terms the same may not be binding. Moreover, when one of the
parties having a greater bargaining power has taken an undue advantage of the weaker position
of the other party, the contract maybe said to have been made under undue influence as defined
under Section 16 of the Indian Contract Act and the contract maybe voidable under Sec. 19-A of
that Act at the option of the weaker party.
When a Chinese carpet worth (pound) 900 was given for cleaning and the same was lost.
According to the formula printed on the receipt the compensation worked out to be only (Pound)
40. The term of the contract was held to be unreasonable and a compensation of (pound) 900 was
allowed to the plaintiff, i.e., the owner of the carpet.
Similarly, the dry-cleaners lost a new saree given for dry cleaning by a customer. The saree was
priced at Rs. 220/- but the defendants officered to pay 50 % of the price, as printed on the receipt
Limiting liability to 50% of the price was held to be unreasonable and the dry-cleaners were
required to pay full compensation of Rs. 220/- to the customer.
The Sale of Goods Act, 1930 grants protection to a buyer, who could be the consumer of goods,
purchased by him. Section 14 to 17 of that Act contain various implied conditions, i.e.
stipulations essential to the main purpose of the contract, and also implied warranties, i.e.,
stipulations collateral to the main purpose of the contract. Even if the parties are silent in their
contract, there are following implied conditions.
Implied Conditions
(1) There is an implied condition that the seller has a right to sell the goods, i.e. the goods are
not stolen ones and the goods do not infringe the trade-mark of someone. If the seller sells me a
stolen car I can reject the same and claim back the price paid. Supposing the stolen car is taken
away from me by the police or the true owner, I can still claim back the price form the seller.
Similarly, if I purchase a second hand type-writer and spend on its repair, I can claim the price
and the repair charges from the seller, if the machine has to be surrendered to its turn owner.
(2) In a sale by description there is an implied condition that the good shall correspond to the
description. If the contract requires sale of a “red” saree, “black” one should not be supplied
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instead. If I order shoes of size 8, supplying shoes of size 10 will be contrary to the description.
Similarly, when “mustard” oil is ordered, “kerosene” oil cannot be supplied in its place. If the
description requires supply of 3000 tons of canned fruit in boxes, each box to contain 30 tins,
supply of the goods in boxes containing 24 tons each amounts to breach of implied condition.
(3) When the goods are sold by sample as well as by description, it is not sufficient that the
bulk of the goods correspond with the sample, if the goods do not also correspond with the
description. Sometimes there may be a difference between the sample and the description of the
goods. In such a case the fact that the goods supplied conform to the sample but do not agree
with the description entitle the buyer to reject the goods because the fundamental condition in
every contract is that the goods should correspond to the description.
If there was a contract of sale by sample of seed described as “English sainfoin”, but the “seller
giving no warranty, express or implied, as to growth, description, or any other matter”. The seed
was sown and when the crop was ready, it was discovered the seed supplied and the sample
shown were not of “English sain-foin” seed but of “giant sain-foin” seed. It was held that there
was a breach of condition and the buyer was entitled to recover damages.
In Nichol v. Godts, there was sale of “foreign refined rape oil, warranted only equal to
samples”. The oil supplied though corresponded with sample, was adulterated with hemp oil.
The jury found that the admixture was not commercially known as “foreign refined rape oil” and
there-fore, it was held that since the oil supplied was not in accordance with the description, the
buyer was entitled to reject the same.
(4) There is also an implied condition that the goods are suitable for the purpose for which
the buyer wants them.
If the buyer tells the seller the purposes of which the goods are required by him and reliance is
placed on the skill and judgment of the seller and it becomes the seller’s duty to supply the goods
suitable of the purpose mentioned by the buyer. Thus, if in the case of Andrew Yule & Co., the
buyer had informed the seller that he needed the hessian cloth for packing purposes, he could
reject the cloth if he found that the same was unsuitable for that purpose.
The purpose may be made known to the seller expressly or impliedly. When the goods can be
used only for one purpose, the purpose need not be told to the seller as he is deemed to know the
same.
In Raghava Menon v. Kuttappan Nair, the plaintiff purchases a wrist watch from the
defendant. The watch did not give satisfactory service in spite of the fact that the seller tried to
set it right a number of times. The buyer sued the seller for the replacement of the watch or the
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refund of the price. It was held that that the seller was bound to replace the watch or, in the
alternative, to pay back its price.
In Priest v. Last, the plaintiff went to the defendant, a chemist, and asked for a hot-water bottle.
The defendant sold him an American rubber bottle, saying that it would stand hot not boiling
water. The plaintiff had purchased the bottle for his wife and while she was using it, burst and
injured her. Since the bottle was not fit for being used as a hot – water bottle, the ‘particular
purpose’ for which the buyer had purchased it, the defendant was held liable to pay
compensation for the breach of the implied condition.
In Chaproniere v. Mason, the buyer purchased a bun from a bakery, and tried to bite it, his
teeth struck on a stone in the bun as a consequence of which one of his teeth was broken and an
abscess formed in the jaw. Such a bun was held to be unsuitable of the purpose of eating, i.e. the
purpose for which the buyer had purchased the same. Moreover, the fact that the buyer had
purchased the bun from a particular bakery was sufficient to show that the buyer had relied on
the seller’s skill and judgment.
In Frost v. Aylesbury Dairy Co., the plaintiff purchased milk from a milk dealer for his
family’s use. The milk contained typhoid germs, the plaintiff‘s wife was infected by it and died.
Here the purpose for which the milk was to be used was, the implication, made known to the
seller. Since the milk was unfit for human consumption, there was a breach of implied condition
for which the defendant was held liable.
In Grant v. Australian Knitting Mills Ltd., the underwear’s contained certain chemicals which
could cause skin disease to a person wearing them next to skin; it was held that because of such
defect underwears were not of merchantable quality.
Even when the goods are purchased by their trade name and the implied condition as to their
quality or fitness is not there, another implied condition as to merchantable quality could still be
invoked, in Wilson v. Rickett Cockerell & Co. Ltd., the plaintiff ordered a consignment of
“Coalite” from the defendant. The Coalite supplied contained some explosive substance, and
when used in the plaintiff‘s fire-place, it resulted in an explosion and caused damage to the
plaintiff’s property. It was held that since the goods were purchased under a trade name the
implied condition as to quality or fitness was not there, but there was breach of implied condition
as to merchantable quality and defendant was liable for the same.
When the seller makes a breach of such an implied condition, he is liable for all the natural
consequences of its breach. In Jackson v. Watson, the plaintiff purchased a tin of salmon from
the defendant. The contents of the tin being poisonous and unfit for human consumption, the
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plaintiff’s wife died by consuming a part of the contents of that tin. It was held that the defendant
was liable to compensate the plaintiff for loss of service of his wife due to her death.
Implied Warranties
In a contract of sale unless the circumstances of the case show a different intention, there is an
implied warranty that the buyer shall have and enjoy quiet possession of the goods. It means that
the buyer’s possession of the goods will not be disturbed. In Nilblett v. Confectioners Materials
Co., In Mason v. Burningham, the plaintiff purchased a second hand typewriter for (pound) 20
from the defendant. She thereafter spent a sum of (Pound) 11-10 sh. for getting it overhauled and
putting it in order. Unknown to the parties, the typewriter had been stolen and the plaintiff was
compelled to return the same to its true owner. In an action by the plaintiff against the defendant,
it was held that the defendant had made a breach of warranty implied in a contract of sale of
goods that the buyer shall have an enjoy quiet possession of the goods. The plaintiff was entitled
to recover not only the sum of (Pound) 20, the price paid for the typewriter, but also the sum of
(Pound) 11-10 sh., the amount spent on overhauling, as the same was the loss arising naturally in
the usual course of things.
There is implied warranty that the goods sold shall be free from any charge or encumbrance in
favour of any third party. If there is a charge or encumbrance on the goods sold and the buyer has
to discharge the same, he is entitled to get compensation for the same from the seller. If the
charge or encumbrance on the goods is known to the buyer at the time of the contract of sale, he
becomes bound by the same and does not have any right to claim compensation for discharging
the same.
Law of Torts
In addition to the remedies under contract and criminal law, consumers have rights under tort
law. In welfare state tortuous liability has become a fundamental law for consumer protection.
Though the provisions of the Consumer Protection Act provide ample remedies to an Indian
Consumer, yet very many situations are still left over under which the consumer will have to
move under law of torts for the redressal of his grievances. It can be aptly said that in India,
consumer protection law is in the making and consumer is therefore having several laws and
forums available to him to pursue his remedy and to base his claim. From the consumer’s point
of view actions can lie under tort of deceit, or upon breach of duty to take care for supplying
irresponsible persons with dangerous articles. One cannot close his eyes towards the possibility
of action for the tort of breach of statutory duty that too, where the consumer has been injured by
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a defective product covered by laws of the country meant for his safety and protection. But in all
such actions in torts the liability of a defective product is primarily and broadly covered under
the head of negligence whether it may be negligence of mind or of conduct or a negligent act
itself. Liability for consumer tort can be traced under three heads i.e.
Based on its numerous legal intricacies, however, tort law is not the ideal remedy for injured
consumers in India. For example, the traditional doctrine of negligence imposes heavy
responsibility on the plaintiff to prove each of its required elements. These traditional legal
requirements naturally encourage injured consumers to pursue legal remedies under different
laws not surprisingly, it is estimated that for about half a century from 1914 to 1965, only 613
tort cases came before the appellate courts. The Indian law of torts apart being less developed is
also based upon English law of torts and upon the decisions given by the English courts. Hence
the Indian Consumers will also have to take recourse to the decisions given by the English courts
on the product liability domain in order to base their claims under law of torts. But under English
Consumer Protection Act 1987 the liability has been based upon strict liability. As a result of this
product liability under law of torts has been made more consumers oriented as the strict liability
has been supported in place of negligence based liability in England. It is relevant to mention
here that the Indian law under C.P. Act 1986 bases the product upon the negligence of the trader
and the service provider. Therefore the Indian courts while dealing with the product liability
under law of torts will either follow the Common Law principles of negligence based liability or
the strict liability as propounded in the case Ryland v. Fletcher and under C.P. Act 1987. Thus it
may be submitted that the Indian courts are not bound to accept any of the above principles laid
down by the English courts. It has come to be established in India through the decision given by
the Supreme Court in M.C. Mehta v. Union of India and Bhopal Gas Tragedy cases that the
Indian Courts have gone much ahead with respect to product liability by not applying the
exceptions to the strict liability 76 laid down in Ryland v. Fletcher by the English Courts. Thus
the Indian Courts have recognized absolute liability in such cases wherein voluntary consumers
were involved as suffers. It will therefore be right to say that the aforesaid approach of the
Supreme Court deserves to be applied to the cases of voluntary consumers also under Law of
Torts. Indian Courts can therefore provide for better protection and remedies to the Consumers
by applying absolute liability concept and strict liability where the facts of the case demand it.
This approach will be required especially in such cases where the consumer will not get proper
relief under the C.P. Act 1986 due to negligence based liability recognized there. Then only the
consumer’s interest will get proper recognition and protection but it shall be very difficult for the
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consumers to move to the ordinary courts under law of torts due to the requirement of court fees.
The orthodox legal requirements under the law of torts and contracts forced the policy makers to
craft specific legislation to protect consumers. As a result, the Consumer Protection Act of 1986
was enacted with the objective of providing “cheap, simple and quick” justice to Indian
consumers.
In most of the consumer cases the damage cause to the consumer could be compensated under
Law of Torts. This branch of Law allows compensation to be claimed for the wrong done by
another person. For example, the product supplied to a consumer injures him or his property, for
instance, the cooker purchased is defective and it bursts causing damage to a person or his
property. He can claim compensation for the same. When such a case goes to a consumer court
for assessing compensation, the principle of law of torts would be applied.
There are generally English cases to explain the working of law of torts. There is very little tort
litigation in India. One major reason for lack of tort litigation in India is lack of consciousness of
one’s rights. Secondly, cost of litigation is quite high. Moreover, one has to wait for years and
years before the case is decided. Apart from this the amount of compensation is generally too
meager.
Some idea about the position in England can be had from the case of Donoghue v. Stevenson,
where, way back in 1932, a decomposed body of a snail was found in a bottle of ginger-beer
after the plaintiff had already consumed a part of the contents from the bottle. The matter went
up to the House of Lords and the liability of the manufacturer was recognised.
Similarly, in 1936, in Grant v. Australian Knitting Mills Ltd., the underwears purchases by a
person, having excess of chemicals in them, caused skin disease (dermatitis) to the buyer. The
manufacturer was held liable for the same.
In Clarke v. Army & Navy Co-operative Society Ltd., a person purchased a tin of disinfectant
powder. The lot of tins being defective, when the buyer tried to open the lid with a spoon, the
contents flew to her eyes and injured the same. The seller was aware of the defect but he was
negligent in not warning the buyer about the same. He was held liable for negligence.
Similarly, when the hot water bottle water defective and its burst caused burn injuries to the
buyer’s wife, or the milk caused disease because it contained typhoid germs, the seller was held
liable for the same.
In the kind of situations mentioned above a person would not bring a civil action in India to
claim compensation, under law of Torts. However, after the passing of the Consumer Protection
15
Act, 1986, we find many such cases, coming before the Consumer Forum, because the justice
there is much less expensive and also much quicker. One need not engage a lawyer and the
consumer Forum can evolve its own procedure to avoid unnecessary delays, which would
otherwise be there in Civil Courts.
16
20. The Sick Industrial Companies (Special Provision) Act. 1985.
The above mentioned legislations have also been enacted from time to time which help the
common person in dealing with the violation of rights of the consumer as well as the goods and
services being availed by him.
Short Questions
Ans under the Act, a complaint can be made in writing in the following circumstances:
1. If you have suffered loss or damage as a result of any unfair trade practices adopted by
the trader.
3. If you have been charged a price in excess of the price displayed or fixed by or under any
law for the time being in force.
17
Q.2 How can file?
Ans. The complaint is to be filed within two years from the date on which cause of action has
arisen. There is no fee for filing a complaint. Even an affidavit does not need stamp papers. A
complaint can be sent by post or presented in person by complaint or his authorised agent.
Usually the Forums Require 3-5 copies of complaint.
2. Name and complete address of the opposite party or parties as the case may be.
(i) buys any goods for a consideration which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment and includes any user of such goods
other than the person who buys such goods for consideration paid or promised or partly paid or
partly promised, or under any system of deferred payment when such use is made with the
approval of such person, but does not include a person who obtains such goods for resale or for
any commercial purpose; or
(ii) hires or avails of any services for a consideration which has been paid or promised or
partly paid and partly promised, or under any system of deferred payment and includes any
beneficiary of such services other than the person who 'hires or avails of the services for
18
consideration paid or promised, or partly paid and partly promised, or under any system of
deferred payment, when such services are availed of with the approval of the first mentioned
person but does not include a person who avails of such services for any commercial purposes;
Explanation.— For the purposes of this clause, “commercial purpose” does not include use by a
person of goods bought and used by him and services availed by him exclusively for the
purposes of earning his livelihood by means of self-employment;
Ans. “Consumer dispute” means a dispute where the person against whom a complaint has been
made, denies or disputes the allegations contained in the complaint.
Question of pricing of a flat or plot by a Housing Development Authority or any other housing
organisation does not cover under the ambit of consumer dispute’.
There was an act of violence in the reserved compartment of a train by the unauthorised
passengers. One authorized passenger suffered fracture of D - 12 vertebral column and thus
permanent disability. National Commission found that there was a negligence or deficiency on
the part of Railway authorities, hence ‘consumer dispute’.
Ans The term ‘defect’ has been defined under Section 2(1) (f) of the Act. In the definition clause
the words “under any Contract, express or implied or” have been added in the year 1993. The
original provisions with regard to the ‘defect ‘are reproduced below:
“Defect” means any fault, imperfection or shortcoming in the quality, quantity, potency, purity
or standard which is required to be maintained by or under any law for the time being in force or
[under any contract, express or implied or] as is claimed by the trader in any manner whatsoever
in relation to any goods.
Defect – Defect, as has been defined under Section 2 (1) (f) means any fault, imperfection or
shortcoming in the quality, potency, purity or standard of goods, which is
19
Commercial Use – If the goods has been purchased for commercial use and only afterwards the
defect has been found out, then the ‘complainant’ cannot be a ‘consumer’ for the purpose of
removing that defect.
Unproved fact – If there is any defect, but the facts regarding the purchase and defect have not
been proved then in such conditions the complainant has no right to claim compensation , where
the examination report also does not find any defect.
Compensation for defect – There was a ‘defect’ in the T.V. set and the complainant succeeded
with the DCF and order was passed to replace the T.V. set and to pay a compensation of Rs
2,500. But in appeal to the State Commission by the opposite party the compensation amount
was reduced to Rs 500 only. The appeal was then filed by the complainant and National
Commission upheld the decision of DCF and set aside the order of State Commission
Defect in Scooter – The machine was found defective of the scooter purchased. Because as per
the claim, the consumption of petrol was more. The National Commission has held that the
scooter should be taken back and the value should be refunded if the scooter does not run 40
kilometers in a liter of petrol.
Standard of Cement – If the cement supplied is below standard than the standards prescribed in
the order of supply, such supply of cement comes under the category of defect’.
Defective Gas Cylinder and Regulator – Defective gas cylinder and regulator should be
changed and for such defect compensation can also be claimed. But the defect found in the
material produced in the Encyclopedia does not come under the Act, as there was no defect in
printing or binding of that book.
Artificial Dents – If there is a manufacturing defect in the artificial dents then the claim can be
made against such defect. Compensation can also be dammed from the doctor concerned.
“District Forum” means a Consumer Disputes Redressal Forum established under clause (a) of
Section 9.
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(i) Makes or manufactures any goods or parts thereof; or
(ii) Does not make or manufactures any goods but assembles parts thereof made or
manufactured by others; or
(iii) Puts of causes to be put his own mark on any goods made or manufactured by any other
manufacturer.
Explanation – where a manufacturer dispatches any goods or part thereof to any branch office
maintained by him, such branch office shall not be deemed to be the manufacturer even though
the parts so dispatched to it are assembled at such branch office and are sold distributed from
such branch office.
"Person" includes,—
(iv) Every other association of persons whether registered under the Societies Registration Act,
1860 (21 of 1860) or not.
“restrictive trade practice” means a trade practice which tends to bring about manipulation of
price or conditions of delivery or to affect flow of supplies in the market relating to goods or
services in such a manner as to impose on the consumers unjustified costs or restrictions and
shall include—
(a) Delay beyond the period agreed to by a trader in supply of such goods or in providing the
services which has led or is likely to lead to rise in the price;
(b) any trade practice which requires a consumer to buy, hire or avail of any goods or, as the
case may be, services as condition precedent to buying, hiring or availing of other goods or
services;
21
Q. 10 Service [Sec 2(1)(o)]
"service" means service of any description which is made available to potential users and
includes, but not limited to, the provision of facilities in connection with banking, financing
insurance, transport, processing, supply of electrical or other energy, board or lodging or both,
housing construction, entertainment, amusement or the purveying of news or other information,
but does not include the rendering of any service free of charge or under a contract of personal
service.
The objects of the Act itself explain the scope and extent of the Act. Section 3 in detail covers
the scope & extent. This Act has no effect in excluding the remedy available in any other law for
the time being in force. The scheme under this section can be explained as:
(1) Additional Remedy: - Section 3 of the Act is clear and in unambiguous terms. It is
stated that the provisions of 1986 Act shall be in addition to and not in derogation of the
provisions of any other law for the time being in force. The scope & extent of section 3 came for
consideration before Supreme Court in the leading case Lucknow Development Authority v.
M.K. Gupta (AIR 1994 Sc 787). The court observed, the importance of the Act lies in promoting
welfare of the society by enabling the consumer to participate directly in the market economy.
The main purpose of the Act is to provide better protection to consumers. The Act is neither
penal nor punitive; the provisions of this Act give an additional remedy to the consumers besides
those that may be available under any other existing laws.
(2) Supplementary Remedy: - The remedies available under this Act shall not be taken a
restriction, bar or in derogation of other remedies available in any other existing laws. It was
explained the Supreme Court in L.D.A. v. M.K. Gandhi as (AIR 1994 SC 787)
“One of the inherent objectives of such social welfare measures is to provide better, efficient and
cheaper services to the people. Any attempt, therefore to exclude services offered by statutory, or
official bodies to the common man would be against the provisions of the Act. Further it was
observed that, “the entire objective of the Act is to protect a consumer against mal-practices in
business”.
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(3) Alternative remedy – ‘No Bar’: - Existence of an alternative remedy will also not be taken
as a bar of jurisdiction of this Act.
According to P.M. Bakshi, there are four remedies open to the consumer whose life or property
is damaged by a professional person while rendering professional service:
(i) The first remedy is in civil court for damages for breach of contract
(ii) The second remedy lies in tort, for failure to exercise reasonable care & skill. The
claimant is entitled to liquidate damages, and the quantum of damages depends on the extent of
the injury.
(iii) The third remedy is disciplinary remedy that is the institution of proceedings before the
disciplinary tribunal of the profession. e.g. architects, doctors, lawyers have disciplinary
authorities to regulate professional discipline.
(iv) Under Indian Penal Code also, sections 304 A, 336, 337 and 338 are generally invoked
for the purpose of negligence.
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CONSUMER PROTECTION ACT, 2019
Q-1 What are the salient features of Consumer Protection Bill 2019.
(i) The Act provides for establishing three-tier consumer dispute redressal
machinery at the national, state and district levels.
Q-2 What are the Provisions for Consumer Protection Amended 2019.
Provided for the Three-tier consumer dispute redressal machinery as the National
(NCDRC) State (State Commissions) and District Levels (District Fora)
• Mediation
• Product Liability
Q.1 what is deficiency of services? Explain with decided cases the deficiency of services in
relation to Banks and telecom services.
An s. Meaning and Scope of deficiency in service in the Consumer Protection Act, 1986
Deficiency
The word ‘deficiency’ has been defined under Section 2 (1) (g) of the Act, which is being
reproduced below:
“Deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality, nature
and manner or performance which is required to be maintained by or under any law for the time
being in force, or has been undertaken to be performed by a person in pursuance of a contract or
otherwise in relation to any services. A consumer can make complaint before a consumer Forum
for deficiency in service.
The term “deficiency” as has been defined under Section 2 (1) (g) means any fault, imperfection,
shortcoming or inadequacy in the quality, nature and manner of performance of service which is
:
It is clear from the definition that the deficiency must relate to nature and performance of
service, contract which have been undertaken.
Deficiency in service – In case of ‘deficiency’ in service the consideration is the main point. If
the component of consideration is not there then complaint cannot be filed.
Allotments – If there is a delay in the issuance of the allotment letter then such delay is covered
under the deficiency in service. If there is a delay in the construction of house and the delay is
no reasonable as construction period extended upto two years than originally fixed. Extension
found not reasonable, therefore, there is a deficiency in service. If there is delay in giving the
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possession of the plot and flat by the Housing Development Authority, then there is a deficiency
in service.
Non-supply of water by Irrigation Deptt. – To provide the water to the farmers was a
responsibility of the Irrigation Department. Because of non-supply of water for farming timely,
there was a loss to the farmer due to no proper cultivation which is tantamount to the negligence
on the part of Irrigation Department and thus was a deficiency in service.
Air Journey – During the air journey, the food supplied was not good and in another case the
flight was delayed, both are treated as deficiency in service.
Delay by Insurance Co. in Claim – If there was unwanted delay in claim case and was
extended upto two years in deciding the claim by the Insurance Co. Then such delay is covered
under the deficiency in service if the delay is not based on any good reason. But
non-submission of the insurance claim is not covered under the term deficiency in service. The
Insurance Co. acts according to the condition of contract then also it is not covered under the
term ‘deficiency in service’.
Telephone Services – There was a case of delay in unlocking the S.T.D. facility despite the
appropriate fee was deposited by the subscriber. Such delay was treated as deficiency in service.
If the Telephone is disconnected arbitrarily resulting loss in business, then there is deficiency in
service and the complainant is entitled to get compensation. If the Bill is issued in excess of
whatever due by the Telecom Department that comes under the category of deficiency in service.
Electricity Services – Electricity disconnected on short notice without any fault was found
illegal. The Commission directed for restoration of the connection and also awarded
compensation. If there is deficiency in re-connection by the Electricity Board then it is also
covered under the ambit of deficiency in service.
Banking Services – Two Bank Draft were of the same nature. One was permitted to be enchased
and the other was dishonored and cancelled. This was treated as negligence covered under the
deficiency in service. Recovery of draft commission in excess, release of goods without the
payment clearance and non-payment of provident fund which was held illegally are also
covered under deficiency in service.
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LIC Services – If the claim of the LIC Policy has been rejected on the material fact, the
complaint can be rejected as there is no negligence on the part of LIC and, thus, no deficiency in
service.
Postal Services – The postal services are covered under Section 6 of the Indian Post Office Act.
Therefore, non-supply of registered envelope containing two demand drafts of Rs. 10,000 each is
not covered under the provisions of Consumer Protection Act as deficiency in service.
Other Illustrations - If the building is constructed according to the sanctioned plan and
agreement, then there is no deficiency in service in the house construction.
1. The complainant had purchased the return Railway ticket but could not get the berth;
there is a deficiency in service.
3. If the plot is not being provided in old price as per allotment letter, the deficiency in
services is there.
5. If there is delay in disposal/ release of the pledged shares by the Bank then the Bank is
provider of service and applicant is a ‘consumer’ and hence, there is deficiency in service.
When intimation has been given to consignee and he has failed to take delivery of goods timely,
there is no deficiency in service.
The term ‘service’ has been defined under Section 2 (1) (o) of the C.P. Act. In the definition
clause the word ‘housing construction has been added in the year 1993. The original definition as
provided in the Act is as under:
“Service” means service of any description which’s made available to potential users and
includes the provision of facilities in connection with banking, financing insurance, transport,
processing, supply of electrical or other energy, boarding or lodging or both. [Housing
construction], entertainment, amusement or the conveying of news or other information, but does
not include rendering of any service free of charge or under a contract of personal service.
Free of Charge and personal contract services – Almost all kinds of services have been included
in this term but the services which are being provided free of charge or under a contract of
personal service cannot be covered under the scope of Consumer Protection Act.
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Consideration essential – The word ‘service’ has been used under Section 2 (1) (d) (ii), 2 (1) (g)
and 2 (1) (o). The plain reading of all these together, indicates that ‘service’ means the services
which are provided for some consideration. If there is a lack of consideration then such services
are not covered under the C.P. Act.
Services of any description by Public Authorities – Definition of ‘service’ can be divided into
three parts – namely, (1) Inclusive, (ii) Main and (iii) exclusionary parts. The ‘inclusive’ and
exclusionary part have limited scope, but the words included in the main parts such as ‘any
description’ and ‘potential users’ are provided to broaden the scope of the C. P. Act and includes
the possibility of forthcoming consumers who wants to join such consumer activity. It also
includes the protection to the consumers against the private and public body and the statutory
bodies as well. The only test which is required to be looked into is what the nature of duty is,
service or facility which is being provided for or being executed by such body, as a statutory
duty.
Ans Allotment of Plot/Flat - The allotment of the plot/flat which is being done by the Housing
Development Council is covered under the purview of C.P. Act. And such ‘services’ are
provided to the consumers and delay in possession is also covered.
In a case the complainant/respondent has alleged of undue delay in the allotment and delivery of
possession of plot./flat/house. The Consumer Forum awarded an interest of 18% per annum. In
revision made by HUDA under section 21 of the CP Act the National Commission confirmed the
award to interest.
Airlines Services – If the cost of the food is included in the Air fare which is the consideration
for providing food also. Any substandard or adulterated food provided by the Airlines during the
journey is covered under the definition of ‘Service’.
Banking services – If there is a relation of debtor and creditor between the Bank and the
complainant and the shares were pledged to the Bank for providing loans and such shares are
sold by the Bank after the due date then such service cannot be said to be hired. But where
interest is received the Bank for providing the service of overdraft, wharfage and demurrage,
such functions are covered under the ambit of service’.
Medical and Hospital Services - Hospitals run by the Government and the treatment being
provided free charge is not covered under ‘service’. But where the patient has paid of the fee to
the Hospital for his/her treatment means the service provided for the consideration. Service
under the Act is the contract for professional service or personal service and not the contract of
personal service.
28
Education Institutions – If valuation or revaluation or answer books are not done properly, then
such services are not covered under the ambit of the services for consideration and thus not a
consumer dispute. But providing good education arrangement and declaration of result are
covered under service.
Medical Services – Medical profession is a service under Section 2 (1) (o) of the C.P. Act
provided for some consideration. The term has been well defined by the Supreme Court. The law
discussed by the Apex court includes (a) the professional liability, (b) medical practitioner, (c)
the interpretation of the term ‘service an payment of taxes not to be a consideration.
When the doctor did not render the medical service to the patient free of cost, then such services
are covered under C.P. Act. When it is proved that the complainant is the consumer than the
bank is provider of service, for some consideration. If there is delay on the part of the Bank, then
there is a deficiency in service.
If the services to the bona fide ‘insurer has not been provided by the Insurance Co. timely, then
there is delay and deficiency in service, and the complaint is entitled for interest.
Ans. Consumerism
Consumerism is the basic thought that “Consumers need to be protected”. The fundamental
questions which spring from this basic thought are:
Answer to the above questions may be aptly termed with ‘Consumerism’. Thus, who is a
Consumer? When and by whom a complaint can be made? and what are the relief available to
consumers? Are the aspects of ‘Consumerism’, It can be compared with a coin having two
sides, viz., trader and consumer (customer). The words trader and customer have its relevance
since the date of civilization. So protection of interest of customers has been a matter of
concern from the olden times and what we find today is not a product of a day or a year but has
been a matter of constant process.
In the 19th century manufacturer’s liability was first time established in the leading case of Carlil
v. Carbolic Smoke Ball Company. Further, the judgement in Donoghue v. Stevension gave
impetus to it, where Lord Atkin laid down a very important principle of determining duty of a
manufacturer. The facts briefly were that the defendant, a manufacturer of ginger-beer. The
retailer sold it to A who had given it to his friend Miss Donoghue. She drank the ginger-beer.
29
The battle contained the decomposed remains of a snail which were not, and could not be,
detected until the greater part of content of the battle had been consumed. As a result, she
alleged that she became seriously ill in consequence and sued the manufacturer for negligence.
Lord Atkin, in this case laid down the principle of duty to take reasonable care to the consumer
where products result in an injury to the consumer’s life or property.
This case was followed by the Judicial Committee of the Privy Council in 1935 in Grant v.
Australian Knitting Mills Ltd.
The framework for the Consumer Act was provided by a Resolution, dt.09.04.1985 of the
General Assembly of the United Nations Organization. This is known as “Consumer Protection
Resolution No.39/248”. India is a signatory to the said resolution.
In India, it was at the end of twentieth century the Consumer Protection was enacted. The
Consumer Protection Act, 1986 received the assent of the President on Dec. 24, 1986, but came
into force on 15th April, 1987. Prior to this Act, we have the Indian Contract Act, 1827, The
Sale of Goods Act, 1927, The Dangerous Drugs Act, 1940, The Agricultural Produce (Grading
and Marketing) Act, The Indian Standards Institution (Certification Marks) Act, The Prevention
of Food Adulteration Act, 1954, The Indian Penal Code 1860, The Standards of Weights and
Measures Act, etc. 1979 which to some extent protect consumer interests. However, these laws
require the consumer to initiate action by way of a civil suit involving lengthy legal process
which is very expensive and time consuming.
“Right to know whether food products, cosmetics and drugs are on non-vegetarian or vegetarian
origin: Is Fundamental Right of Consumers?”
There are the legal rights of Consumer and Consumer Forum are meant to protect them. ‘Right to
information’ is a right to be informed about the quality, quantity, potency, purity, standard and
price of goods and services, with a view to protect the consumer against unfair trade practices.
‘Right to information’ though a legal right has now assumed as a fundamental right of
consumers.
Mahatma Gandhi, the father of nation, attached great importance to what he described as poor
consumer” who according to him should be the principal beneficiary of the consumer movement.
30
He said, “A consumer is the most important visitor on our premises. He is not dependent on us
we are on him. He is not an interruption to our work. He is the purpose of it. We are not doing a
favour to the consumer by giving him an opportunity. He is doing us a favour by giving an
opportunity to serve him.”
Is consumerism still in its infancy in our country? The answer is yes. Consumer awareness is low
due to the apathy and lack of education among the masses. None has told them about their rights
to be informed about product quality, price, protection against on safe product, access to variety
of goods at competitive prices, consumer education etc. What consumerism lacks here is
education and information resources, testing facilities, competent leadership, price control
mechanism, and adequate quasi judicial machinery.
31
business, government and civil society to enhance consumers’ satisfaction and social welfare
which will in turn benefit all of them and finally make the society a better place to live in.
Ans. The need of strong consumerism in our country is on account of the following reasons:
1. In vast country like India, it is very difficult to organize the consumers. The people
besides being the backward have linguistic, cultural and religious differences which makes the
problems quiet intricate or complex.
3. Poverty, lack of social awareness, accepting life as it is and passive outlook are some of
the factors which make consumer movement difficult to increase.
4. There may not be a positive common objective for the consumers except their desire for
safe quality products, for reasonable price and a feeling of strong negative reactions against the
products. In wake of large scale production and the variety and choice conferred on the
consumers, a consumer needs guidance which can only be appropriately provided by a consumer
organization.
5. The advertisement bombarded on the consumers make them quite confused and hence
again a need for consumer guidance.
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Some Judgements
Consumer Protection – Banking & Finance - Fraud of Deposits – Refund of amount. Appellant
filed this appeal contending that the amount deposited by him in NSO was misappropriated and
never deposited thus it should be returned back. The appellant entitled to get the amount back.
Consumer Protection – Banking & Finance - Fraud of Deposits – Refund of amount. Appellant
filed this appeal contending that the amount deposited by him in NSO was misappropriated and
never deposited thus it should be returned back. The appellant entitled to get the amount back.
Consumer Protection – Banking & Finance - Fraud of Deposits – Refund of amount. Appellant
filed this appeal contending that the amount deposited by him in NSO was misappropriated and
never deposited thus it should be returned back. The appellant entitled to get the amount back.
Consumer
Section 2(1)(d) of the Act defines the expression “Consumer”. Consumer means any person who
buys any goods and hires or avails of any services for consideration by any person but does not
include any person who obtains such goods for resale on for any commercial purpose.
Only consumers not sellers- The primary purpose to define the term ‘Consumer under the Act is
to restrict availability of remedies to consumers only and not to others. Therefore, the provision
of this Act applies only to non-business buyers and excludes the customers who purchase the
goods or hire the services for commercial purposes means to differentiate from business sellers.
33
Who is Consumer? - The term ‘consumer’ has been defined in two parts under the Act with an
exception:
Therefore, the provisions of Section 2 (1) (d) covers (i) transactions for supply of goods having
whole range of commodity market and (ii) rendering of service covered the whole service sector.
The Supreme Court of India gave a comprehensive expression of the term ‘Consumer and has
held that the legislature enacted this legislation with the aims to protect the economic interest of
a consumer as a purchaser of goods and a user of services for a consideration and this purchase
of hiring should be not be for the commercial purpose. Therefore three conditions are to be
fulfilled to become consumers –
(iii) Consideration should have been made for hiring such services in the manner prescribed
under Section 2 (1) (d) (ii).
i.e. consideration paid or promised, or partly paid and partly promised, or under any system of
deferred payment.
(i) A water-cooler was purchased and installed at a bus-stand of the use of general public
free of charge. Such transaction was found to be a Consumer sale.
(ii) If a small business is being run with the help of loan and a machine is found defective
then the burden of proof should be shifted to the seller to the effect that such produce was for
self-employment, or for commercial purpose which denied the person as a ‘consumer.
(iv) The compute purchased for the preparation and composition of research project for the
award of Ph.D. is not for commercial purpose and so the complainant is a ‘consumer’.
34
(v) The complainant imported an electrical goods from abroad, and its was taken into
custody by the customs official and was found tampered. It was held that the complainant was
consumer.
(vi) E P B A X system was purchased by the complainant. There was an annual maintenance
contract for any defect of the system. It was held that the complainant was a consumer.
(i) The repeated purchase of a thing is not sufficient to make it a trade sale and that the
transaction (sale of cement) is a sale simpliciter and is not the out category and the purchaser is a
consumer.
(ii) The legislative intention of the term ‘consumer’ under Section 2(1) (d) requires broader
view but excluded a person who obtains any goods for resale or for any commercial purpose.
Therefore, to confine the redressal to the services contracted or undertaken between the seller
and the ‘consumer’.
(iii) To protect the consumer from the exploitative an unfair, practices of the trading and
manufacturing bodied and also to provide the consumer with easily accessible, inexpensive and
speedy remedy for the loss suffered by the ‘consumer’ is the main objective and purpose of the
Consumer Protection Act, 1986.
(iv) A child was being treated in a government hospital, but was taken to a private hospital by
the parents. There was a proved negligence on the part of hospital authorities. Therefore, it has
been held by the Apex Court that not only such child but also the parents of that child covered
under the term ‘consumer’ and thus claim the compensation.
(v) Where the ‘service is being provided under the welfare scheme to the employees under
the provisions of the Employees’ Provident Fund Scheme 1952, then an employee member
should be treated as consumer’ of the services of the Provident Fund Keeping Organisation.
The following persons are not the consumer in terms of Section 2(1)(d) of the Act-
2. The purchaser of taxi car EPBAX system, Rubber Mining Mill, are not covered
under the term defined as ‘consumer’ because these items were used for commercial purpose.
But in case of taxi car purchased for livelihood, the position has been changed since the
amendment in 1993. But the taxi purchased by a commercial house is not covered in term of
‘consumer’.
3. A purchaser of shares or debentures for the purpose of resale should not be covered under
the term consumer, because such transaction is for a commercial purpose.
4. If the goods or machine has been purchased for the business which is not covered purely
in the nature of self-employment to earn livelihood, cannot be said to be a consumer.
(ii) If the service was not provided for any consideration then the complainant cannot be
treated as consumer.
• The right to be protected against the marketing of goods which are hazardous to life and
property;
• The right to be informed about the quality, quantity, potency, purity, standard and price
of goods so as to protect the consumer against unfair trade practices;
• The right to seek redressal against unfair trade practices or unscrupulous exploitation of
consumer; and
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• The right to consumer education
Q.7 What are the consumer rights? What are the importance of consumer right?
Ans. The consumer rights have been highlighted from time to time. He has rights both towards
goods and redressal of his grievance. He has the following rights:-
(1) Right to Choose:- The consumer has a right to choose from available goods. This right will
be exercised only if a variety of goods is available.
(2)Right against exploitation:- Consumers have right against exploitation from mal trade
practices, false and misleading advertisements.
(3)Right to buy quality goods:- Consumer has a right to get good quality products and right
services.
(4)Right to information:- Consumer has to right to be informed of the quality, price, operational
requirements, adverse side effects, if any, and other relevant facts about the products.
(5)Right to safety;- Consumer has a right to against those goods which are unsafe or injurious to
health.
A consumer is exposed to many hazards- physical, environmental and exploitation due to unfair
trade practices. He should be protected from the consumption of unsafe products such as
adulterated eatables, spurious medicines etc. The economic interest of the consumer should be
protected against unfair trade practices, deceptive and false advertisements.
Consumer protection is essential both for the consumer and for the businessman.
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Consumer’s Ignorance- A consumer may not be aware of his right and remedies against
unscrupulous marketers. Consumer protection creates awakening among consumers and they
start protesting against anything wrong done by the businessman.
Unorganized Sector- Consumers are unorganized in India. Though there may be some
organizations here and there for protecting the interests of consumers but still it is an
unorganized sector.
Consumer protection is in the interest of every businessman. It is important for the businessman
in the following way:-
(1) Needed for Survival- A business exists for the consumer, whatever is produced is purchased
by the consumer. If consumers are not satisfied by the products of a business, then it will not
survive for long.
(2)Use of Social Resources- A business uses resources of the society for the producing goods
and services. The profits earned by a business are the outcome of use of social resources.
(3)Social Responsibilities- A business is responsible for the welfare of the society. It is expected
to supply quality products at reasonable price.
Need for Protection - A consumer needs protection for the following reasons:
1. Unorganized Consumers- India is a vast country where people have varied social &
economic backgrounds. The consumer are so widely spread that it is not possible to organize
them for a cause for consumer protection.
2. Literacy and Ignorance- A large chunk of Indian consumers are illiterate so they do not
understand their right etc. People are not even aware of various rights endowed to them under
various legislative measures.
3. Production of Duplicate Product- The advancement of science and technology has enabled
producers to bring out similar products. There is a galore of duplicate products. It is difficult for
the consumer to distinguish between a genuine and a duplicate product.
4. Deceptive Advertising- Advertising is the main media of promoting goods. Some producers
give deceptive and wrong information about quality, utility and safety of goods.
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5. Malpractice of Businessman- The consumer expects products of good quality at reasonable
prices. He wants full value for the money he spends. In many cases the consumers are exploited
by selling to them goods which are defective, substandard and inferior.
Ways of Consumer Protection – What are the ways of spreading consumer protection?
A. Self Regulation by Business- Business produces goods and services for the consumers.
Consumer needs various goods for his use. Business exists for the consumer. The consumer does
not purchase goods of a certain producer then he will no more remain in production. There is
growing realization in the business that the consumer should be provided goods quality products
at reasonable prices.
1. The Contract Act, 1872- This Act binds people to the contract undertaken by them. It
explains the procedure for undertaking and performance of the contract.
2. The Sale of Goods Act, 1930- This Act lays down the duties and responsibilities of the seller
towards disclosures about the product he is selling. It also explain the precautions to be taken by
the buyer.
3. The Essential Commodities Act, 1955- This Act is meant to control production and supply of
essential commodities to the customers. Since essential goods are needed by everybody, there is
a likelihood of exploitation by producers or distributors.
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4. The Preventions of Food Adulteration Act, 1954- This Act is meant to check adulteration in
food articles and ensure their purity in order to protect the health of people.
5. The Competition Act, 2002- This Act is related to prevent exploitation under monopoly and
restrictive trade practices. The suppliers may sometimes adopt measures to control supply of
goods in order to change higher prices.
1. The right to be protected against marketing of goods which are hazardous to life and
property.
3. The right to be informed about quality, quantity, potency, purity, standard and price of
goods to protect the consumer against unfair trade practices.
4. The right to seek redressal against unfair trade practices or unscrupulous exploitation of
consumer.
Consumer Education
Consumer Education means to educate the consumers, as to what, where, when, how and how
much to buy and how to use what they have bought.
The above definition if understand would promote the relevance of educating people so that they
a can make correct purchases.
2. Makes us alert, well informed and vigilant against corrupt practices in market,
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All the points listed above are advantages of consumer education
Q. 9 What do you mean by consumer education? What are the advantages and aspects of
consumer education?
Ans. There have been several definitions advanced to try and define consumer education. The
US Department of Education for example defines consumer education as the process by which
consumers:
Develop skills to make decisions in the purchase of goods and services in the light of personal
values, maximum utilization of resources, available alternatives, ecological considerations and
changing economic conditions;
Become knowledgeable about law, their rights and methods of recourse, in order to participate
effectively and self-confidently in the market place and take appropriate actions to seek
consumer redress;
Develop an understanding of the citizen’s role in the economic, social and government systems
and how to influence those systems to make them responsive to consumers’ needs.
Rather than limiting oneself to a rigid definition, understanding of consumer education can also
begin from the standpoint that both children and adults should grow into becoming
well-informed and critical consumers of products, commercial services, public service etc. The
"process of becoming" entails not so much the provision of consumer information regarding
products, services, the environment and other considerations but rather the continuous cultivation
and development of living skills which would include cognitive skills such as critical and
conceptual thinking, knowledge and understanding [particularly the impact of individual,
business government decisions on consumers] and literacy skills such as the ability to read, write
and count.
Consumer education
In the contemporary societies, the consumer is always faced with a mass of goods and services
that are products of complex and advanced industrial, agricultural and services technologies. The
necessary skills to make rational decisions amidst these forces and the complexities of free
market economies are often beyond the ability of most consumers.
Consumer education is essential to provide the skills and knowledge to empower consumers and
enable them to use their resources effectively and increase their awareness of their wider role in
society.
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Consumer Education addresses not only problems of consumers individually but also of
sustainable consumption, social justice, human rights, ethical values and overcoming poverty.
Consumer education contributes towards the formation of a participative, critical and competent
citizenship.
Specifically, consumer education enables individuals to develop the ability to become critical
consumers. It teaches people for example to make reasoned appraisal of advertisements and other
activities through which consumers are influenced to consume particular products and services.
Reasoned appraisal could include the overall implications, both to the individual and society, of
consuming that particular product or service. Through consumer education, consumers are
equipped with knowledge, skills and understanding of the market. Consumer education enables
consumers to judge and make competent decisions about their financial transactions.
It also stimulates the nation’s social and economic development. Consumers, who exercise free
choice based on knowledge of facts, will be able to make the best use of resources within their
disposal such as time, money, knowledge and ability. For example, consumer education enables
citizens to act in a more enlightened and critical manner which helps reduce the number of court
cases. Consumer education also helps consumers to use scarce resources appropriately and
responsibly thus increasing the successes of government development plans. For vulnerable
consumers, such as the poor in society, consumer education is of survival importance. Very
often, the poor have no option but to live on very meagre resources. Consumer education thus
enables them to separate wants from needs and to manage whatever is within their disposal more
efficiently. These translate to significant social and economic development of the nation.
Consumer education is the only single cost effective mechanism that provides and guarantees
consumer protection. Besides serving as a pro-active way of protecting consumers against abuses
in the market place, consumer education also serves as a preventive measure. For example,
educated consumers will protect themselves and prevent exploitation in the market place.
Consumer education is about living and sharing. It involves knowledge, skills, values and social
responsibility. There are four aspects of consumer education.
1. Informed Choice
Consumer education must be functional. The business of living in this modern world is complex
and can be bewildering. We must learn to obtain information of goods and services, discriminate
between different sources of information, understand the psychology of selling and advertising,
learn to shop wisely, distinguish between needs and wants, understand the alternatives of
conserving and saving rather than buying and consuming.
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2. Value Systems
Consumer education must include the development of a value system. We must learn how to
share and care. Consumers are not individuals insulated away from the rest of society. They are
part of the society. Consumer education must enable the consumer to understand that individual
consumer decisions have broad social impact and influence on such important things as the
overall allocation of resources within the society. Such education should enable consumers to
consider seriously and carefully the environmental and social impacts of their economic
decisions and the sustainability of the eco-system in supporting life on this planet.
In pursuing the daily business of living, we play three distinctive roles as workers, consumers
and citizens. Sometimes such roles can overlap and may be in conflict with one another. As
consumers we want to buy goods that are safe, durable and at reasonable prices. As workers, we
may be contributing to the production of shoddy goods, which are unsafe and unacceptable from
an informed consumers’ perspective. These conflicting situations make it difficult for us to
understand where we should stand as consumers. It is therefore important to articulate and
understand both our responsibilities and rights as consumers. This will contribute to a better
understanding of our roles in different situations, help us avoid any conflict of roles and bring
about greater harmony in consumers’ relationships with other market players.
Consumer education must catalyse action. Consumers [recipients of consumer education] must
become aware of the available avenues of consumer complaint and redress and learn to use them
for their benefit. Most important, consumer education should help develop the intellectual
process of inquiry and problem solving, motivate participation and social concern in promotion
not only of value for our money but also value for us as human beings.
All governments should be urged to incorporate consumer education as a mandatory part of the
basic school curriculum. Consumers International and its members should promote the
importance of consumer education programmes both to government and international agencies,
and develop greater contacts with the media and use it for implementing programmes.
In certain situations, consumer education is found in various subjects in the school curriculum.
Some education authorities find this to be better way of conveying the concept of consumer
rights and consumer protection to students. In other situations, consumer education is an
independent subject within the school curriculum. A critical analysis of different national school
curricula however reveals that in certain situations, consumer education is totally missing or
grossly misrepresented in school curricula.
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Today, very young children have enormous direct and indirect spending power. Not only do they
receive pocket money and birthday presents, but they influence parental spending on household
goods and foodstuffs. Early consumer education is important in giving children the skills and
knowledge to participate responsibly and effectively in the market place while also contributing
to the development of sustainable consumption in the society.
It is in school that civic awareness is shaped and schools are fertile ground for molding the mind
of future consumers. There is no doubt that the integration of consumer education into the formal
school curriculum can be of immense benefit to societies. Students already make consumer
choices in school cafeterias, canteens and local shops and kiosks. Students for example should be
educated to distinguish the needs from wants, to budget their spending and to make informed
choices about the goods they buy. Surely, the growing market products, services and advertising
aimed at the young consumers makes consumer education in the formal schools all the more
necessary.
The object of the Act is protecting the interest of consumers and for that purpose Consumer
Councils and Remedial Agencies has been established under the provisions of the Act.
“The Consumer Protection Bill, 1986 seeks to provide for better protection of the interest of
consumers and for that purpose, to make provision for the establishment of consumer councils
and other authorities for the settlement of consumer disputes and for matters connected
therewith.”
CLASSES OF COUNCILS
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It is, therefore, clear that the Act provides establishment of councils at three stages: National,
State and District.
1. [The Central Government shall by notification, establish with effect, such date as it may
specify in such notification, a Council to be known as the Central Consumer Protection Council
(hereinafter referred to as the Central Council)
(a) The Minister in charge of the [Consumer affairs] in the Central Government, who shall
be its Chairman, and
(b) Such number of other official or non-official members representing such interests as may
be prescribed.
The Central Government shall, by notification establish a council to be known as the Central
Consumer Protection Council. This council shall consist of a chairman and with such other
official or non-official members as may be prescribed. The minister in-charge of the consumer
affairs in the Central Government shall be Chairman.
The Constitution of the Central Consumer Protection Council and the Working Groups –
1. The Central Government shall, by notification in the Official Gazette constitute the
Central Consumer Protection Council (hereinafter referred to as the Central Council) which shall
consist of the following members, not exceeding 35, namely –
2. the Minister in-change of Consumer Affairs in the Central Government who shall be the
Chairman of the Central Council;
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3. The Minister of State (where he is not holding independent charge) or Deputy Minister
in-charge of Consumer Affairs in the Central Government who shall be the Vice-Chairman of the
Central Council;
4. the Minister in-charge of Consumer Affairs of two of the States from each region as
mentioned in Schedule I to be changed by rotation on expiration of the term of the Council on
each occasion;
6. two Members of Parliament – one from the Lok Sabha and one from the Rajya Sabha;
9. representatives of the Consumer Organisations from amongst the Indian members of the
International Organisation, namely, Consumer International – not exceeding six, to be nominated
by the Central Government;
10. representatives with proven expertise and experience who are capable of representing
consumer interests, drawn from amongst consumer organizations, consumer activists, women,
farmers trade and industry – not exceeding five, one from each of the regions specified in
Schedule annexed to these rules;
11. the Secretary in-charge of Consumer Affairs in the State to be nominated by the Central
Government – not exceeding three;
12. The [Secretary in –charge of Consumer Affairs in the Central government] shall be the
member-secretary of the Central Council.
14. Any member may, by writing under his hand to the Chairman of the Central Council,
resign from the Council. The vacancies so caused or otherwise, shall be filled from the same
category by the Central Government and such person shall hold office so long as the member
whose place he fills would have been entitled to hold office, if the vacancy had not occurred.
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Standing Working Group
For the purpose of monitoring the implementation of the recommendations of the Central
Council and to suggest the working of the council, the Central Government may constitute from
amongst the members of the council, a Standing Working Group, under the chairmanship of the
Members-Secretary of the council.
The Standing Working Group shall consist of not exceeding 30 members and shall meet as and
when considered necessary by the Central Government of the Council. Section 5 and Rule 4
provide procedure as follows:
1. The Central Council shall meet as and when necessary, but [at least one meting] of the
Council shall be held every year.
2. The Central Council shall meet at such time and place as the Chairman may think fit and shall
observe such procedure in regard to the transaction of its business as may be prescribed.
Rule 4 –Under sub-section (2) of section 5, the Central Council shall observe the following
procedure in regard to the transaction of its business –
1. The meeting of the Central Council shall be presided over by the chairman. In the
absence of the chairman, the vice-chairman shall preside over the meeting of the Central
Council. In the absence of the Chairman and the Vice-Chairman, the Central Council shall elect
a member to preside over that meeting of the Council.
2. Each meeting of the Central Council shall be called by giving, not less than ten days from
the date of issue, notice in writing to every member.
3. Every notice of a meeting of the Central Council shall specify the place and the day and
hour of the meeting and shall contain statement of business to be transacted thereat.
5. For the purpose of performing its functions under the Act, the Central Council may
constitute from amongst its members, such working groups as it may deem necessary and every
working group so constituted shall perform such functions as are assigned to it by the Central
Council. The findings of such working groups shall be placed before Central Council for its
consideration.
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6. In connection with the journey undertaken to and fro by the non-official members for
attending the meeting of the Central Consumer Protection Council or its working group, they
shall be entitled to economy class air fare. The non-official members shall be entitled to a sum of
Rs.2000 per each day of the meeting as incidental charges to cover the expenditure towards their
daily allowance, lodging, local conveyance from residence to the station/airport and from
station/airport to the venue of meeting and vice-versa. Every claim made under this sub-rule
shall be subject to certifying that the member will not claim any benefit from any other Central
Government Ministry, Department or Organization during his visit for attending the meeting of
the Central Consumer Protection Councilor any of its Working Group. Local non-official
members residing at the place of the venue of the meeting, shall be paid consolidated conveyance
and hire charges, to the tune of Rs.500 per diem irrespective of the classification of the city.
Members of Parliament attending meetings of the Councilor or its Working Group shall be
entitled to travelling and daily allowances at such rates as are admissible to such members".
Objects of the Central Council have been expressed as Charter of Protection of Consumer
Rights. The objects of the Central Council shall be to promote and protect the right of the
consumers such as –
(a) The right to be protected against the marketing of goods [and services] which are
hazardous to life and property;
(b) The right to be informed about the quality, quantity, potency, purity, standard and price
of goods [or services, as the case may be] so as to protect the consumer against unfair trade
practices;
(c) The right to be assured, wherever possible, access to a variety of goods [and services] at
competitive prices;
(d) The right to be heard and to be assured that consumer’s interests will receive due
consideration at appropriate Forum;
(e) The right to seek redressal against unfair trade practice [or restrictive trade practices] or
unscrupulous exploitation of consumers; and
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(2) The State Consumer Protection Council (Section 7 & 8)
1. The State Government shall by notification, establish with effect from such date as it may
specify in such notification, a Council to be known as the Consumer Protection Council for ….
(hereinafter referred to as the State Council)
(c) The Minister in-charge of consumer affairs in the State Government who shall be its
Chairman;
(d) such number of other official or non-official members representing such interests as may
be prescribed by the State Government.
[(c) such number of other official or non-official members, not exceeding ten, as may be
nominated by the Central Government.
3. The State Council shall meet as and when necessary but not less than two meetings shall
be held every year.
4. The State Council shall meet at such time and place as the Chairman may think fit and
shall observe such procedure in regard to the transaction of its business as may be prescribed by
the State Government.
5. U.P. Consumer Protection Rules, 1987 has been enacted but it does not provide the number
of members of official or non-official.
6. Objects of the State Council (Sec. 8) – The objects of every State Council shall be to promote
and protect within the State the rights of the consumers laid down in clauses (a) to (f) of section
The Provisions as to composition of District Council have been provided under sections 8A and
8B by Amendment Act, 2002. In original Act there was no such provision.
(i) The State Government shall establish for every district, by notification, a council to be
known as the District Consumer Protection Council with effect from such date as it may specify
in such notification.
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(ii) The District Consumer Protection Council (hereinafter referred to as the District Council)
shall consist of the following members, namely -
(a) The Collector of the district (by whatever name called), who shall be its Chairman; and
(b) Such number of other official and non-official members representing such interests as
may be prescribed by the State Government.
(iii) The District Council shall meet as and when necessary but not less than two meetings
shall be held every year.
(iv) The District Council shall meet at such time and place within the district as the Chairman
may think fit and shall observe such procedure in regard to the transaction of its business as may
be prescribed by the State Government.
Objects of the District Council (Sec. 8B) - The objects of every District Council shall be to
promote and protect within the district the rights of the consumers laid down in clauses (a) to (f)
of section 6.
These consumer and other working groups have been established to make and suggest
recommendation for better protection of consumer’s interest. Thus councils have only
recommendatory nature. Its recommendations are not binding but only persuasive. Rule 4
provides that resolution passed by the Central Council shall be recommendatory in nature.
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UNIT-III
(a) The President, who is, has been, or is qualified to be a District Judge; and
(b) Two other members one of whom shall be a woman, who shall have the following
qualifications, namely:
(iii) be persons of ability, integrity and standing, and have adequate knowledge an experience
of at least ten years in dealing with problems relating to economics, law, commerce,
accountancy, industry, public affairs or administration.
(a) Has been convicted and sentenced to imprisonment for an offence which, in the opinion of
the State Government. Involves moral turpitude; or
(d) Has been removed or dismissed from the service of the Government or a body corporate
owned or controlled by the Government; or
(e) has, in the opinion of the State Government, such financial or other interest as is likely to
affect prejudicially the discharge of his or her functions as a member; or
(f) Has such other disqualifications as may be prescribed by the State Government.
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The disqualifications mentioned above are a new provision, as no such provision existed prior to
the Consumer Protection (Amendment) Act, 2002. Similar disqualifications have also been
introduced by incorporation of similar provisos in sections 16 & 20, in respect or members of the
State Commission and National Commission, respectively.
Every appointment under sub-section (1) shall be made by the State Government on the
recommendation of a selection committee consisting of the following, namely:
3 Secretary, incharge of the Department dealing with consumer affairs in the State
Member
Provided that where the President of the State Commission is, by reason of absence or otherwise,
unable to act as Chairman of the Selection Committee, the State Government may refer the
matter to he Chief Justice of the High Court for nominating a sitting Judge of that High Court to
act as Chairman.
Every member of the District Forum shall hold office for a term of five years or up to the age
sixty-five years, whichever is earlier.
A member shall be eligible for re-appointment for another term of five years or up to the age of
sixty-five years, whichever is earlier subject to the condition that he fulfils the qualifications and
other conditions for appointment mentioned in clause (b) of sub-section (1) and such
re-appointment is also made on the basis of the recommendation of the Selection Committee.
A member may resign his office in writing under his hand addressed to the State Government
and on such resignation being accepted, his office shall become vacant and may be filled by
appointment of a person possessing any of the qualifications mentioned in sub-section (1) in
relation to the category of the member who is required to be appointed under the provisions of
sub-section (1A) in place of the person who has resigned. A person appointed as the President or
as a member, before the commencement of the Consumer Protection (Amendment) Act, 2002,
shall continue to hold such office as President or member, as the case may be, till the completion
of his term.
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Salary and Honorarium (Section 10(3)]
The salary or honorarium and other allowances payable to, and the other terms and conditions of
service of the members of the District Form shall be such as may be prescribed by the State
Government:
Provided that the appointment of a member on full-time basis shall be made by the State
Government on the recommendation of the President of the Sate Commission taking into
consideration such factors as may be prescribed including the work load of the District Forum.
The District Forum shall have jurisdiction to entertain complaints where the value of the goods
or services and compensation, if any, claimed does not exceed Rs. 20 lakhs. The maximum limit
of pecuniary jurisdiction which was Rs. 5 lakhs has been increased to Rs. 20 lakhs by the
Consumer Protection (Amendment) Act, 2002.
The increase in the pecuniary jurisdiction will be more convenient to the complainant. It will
help reduction in the number of complaints to the State Commission and the National
Commission.
Some cases prior to the C.P. (Amendment) Act. 2002 indicate the working of the jurisdiction
position.
In Krishan Dass Chaurasia v. State Bank of India, the total claim in a complaint did not
exceed Rs. 100.000/-. It was held that the matter was not within the jurisdiction of the State
Commission. The complainant could seek the remedy from the District Forum.
Therefore, jurisdiction, which is vested in a District Forum, cannot be created for the State
Commission by merely exaggeration of a claim.
In B. Raghunath v. Trans India Tourism, the complainant had suffered a loss of the Rs.
11,300 and Rs. 5,000/- according to his own statement. He claimed compensation of Rs.
5,00,000. It was evident that he had purposely boosted his claim to bring the matter within the
pecuniary jurisdiction of the State Commission. The complaint was returned by the State
Commission for presentation in the proper District Forum with necessary correction.
(1) A complaint shall be instituted in a District Forum within the local limits of whose
jurisdiction:
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(a) The Opposite Party or each of the opposite parties, where there are more than one, at the
time of the institution of the complaint, actually and voluntarily resides or [caries on business or
has a branch office or personally works for gain; or
(b) any of the opposite parties, where there are more than one, at the time of the institution of
the complaint actually and voluntarily resides [or carries on business or has a branch official, or
personally works for gain, provided that in such case either the permission of the District Forum
is given, or the opposite parties who do not reside for carry on business or have a branch office,
or personally work for gain, as the case may be, acquiesce in such institution: or
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. the consumer to whom such goods are sold or delivered or agreed to be sold or delivered
or such service provided or agreed to be provided;
b. any recognised 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; or
d. the Central Government 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.
Section -12 which prescribes the manner in which complaint has been made has been substituted
by Amendment Act, 2002. The important changes made by the amended provision are as under-
(1) Court fee to be paid now. – Hitherto no court fee had to be paid while filing a
complaint. After the amendment every complaint shall be accompanied with such amount of fee
and payable in such manner as may be prescribed.
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(3) Admissibility of complaint within 21 days. – The admissibility of complaint shall
ordinarily be decided within 21 days from the date on which the complaint was received
Section 13 has been substituted by the Consumer Protection (Amendment) Act, 2002. The
revised provision is as under:
(a) refer a copy of the admitted complaint, within 21 days from the date of its admission to
the Opposite Party mentioned in the complaint directing him to give his version of the case
within a period of 30 days or such extended period not exceeding 15 days as may be granted by
the District Forum.
(b) Where the Opposite Party on receipt of a complaint referred to him under clause (a)
denies or disputes the allegations contained in the complaint, or omits or fails to take any action
to represent his case within the time given by the district forum the District Forum shall Proceed
to settle the consumer dispute in the manner specified in clauses (c) to (g):
The District Forum shall, if the complaints admitted by it under Sec. 12 relate to goods in
respect of which the procedure specified in sub-section (1) cannot be followed, or if the
complaint relates to any services –
(a) refer a copy of such complaint to the Opposite Party directing him to give his version of
the case within a period of 30 days or such extended period not exceeding 15 days as may be
granted by the District Forum,
(i) where the Opposite Party, on receipt of a copy of the complaint, referred to him under
clause (a) denies or disputes the allegations contained in the complaint, or omits or fails to take
any action to represent his case within the time given by the District Forum, the District Forum
shall proceed to settle the consumer dispute on the basis of evidence brought to its notice by the
complainant and the Opposite Party, where the Opposite Party denies the allegations contained in
the complaint, or
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(ii) ex parte on the basis of evidence brought to its notice by the complainant where the
Opposite Party omits or fails to take any action to represent his case within the time given by the
Forum;
(c) Where the complainant fails to appear on the date of hearing before the District Forum. The
District Forum may either dismiss the complaint for default or decide it on merits.
(i) Every complaint shall be heard as expeditiously as possible and endeavor shall be made
to decide the complaint within a period of 3 months from the date of receipt of notice by opposite
Party where the complaint does not requires analysis or testing of commodities and within 5
months if it requires analysis or testing of commodities.
(ii) No adjournment shall be ordinarily granted by the District Forum unless sufficient cause
is shown and the reasons for grant of adjournment have been recorded in writing by the Forum :
Provided further that the District Forum shall make such orders as to the costs occasioned by the
adjournment as may be provided in the regulations made under this Act.
(iii) In the event of a complaint being disposed of after the period so specified this District
Forum shall record in writing, the reasons for the same at the time of disposing of the said
complaint.
(iv) Passing of interim order – Where during the pendency of any proceeding before the
District Forum, it appears to it necessary, it may pass such interim order as is just and proper in
the facts and circumstances of the case.
The District Forum shall have the same powers as are vested in a civil court under Code of Civil
Procedure, 1908 while trying a suit in respect of the following matters, namely:
(i) The summoning and enforcing the attendance of any defendant or witness and examining
the witness on oath.
(ii) The discovery and production of any document of other material object producible as
evidence.
(iv) The requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant source.
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(v) Issuing of any commission for the examination of any witness, and
Every proceeding before the District Forum shall be deemed to be a judicial proceeding within
the meaning of Sections 193 and 228 of the Indian Penal Code and the District Forum shall be
deemed to be civil court for the purpose of Sec. 195, and Chapter XXVI of the Code of Criminal
procedure. 1973.
(1) If after the proceeding conducted under Sec. 13, the District Forum is satisfied that the goods
complained against suffer from any of the defects specified in the complaint or that any of the
allegations contained in the complaint about the service are proved, it shall issue an order to the
Opposite Party directing him to [do] one or more of the following things, namely :
(a) To remove the defect pointed out by the appropriate laboratory from the goods in
question;
(b) To replace the goods with new goods of similar description which shall be free from any
description when shall be free from any defect.
(c) To return to the complainant the price or, as the case may be the charges paid by the
complainant.
(d) To pay much amount as may be awarded by it as compensation to the consumer due to
the negligence of the Opposite Party
[Provided that the District Forum shall have the power to grant punitive damages in such
circumstances as it deems fit];
(f) To discontinue the Unfair Trade practice or the restrictive trade practice of not to repeat
them;
(h) To withdraw the hazardous goods from being offered for sale;
[(ha) to cease manufacture of hazardous goods and to desist from offering services which are
hazardous in nature.
(hb) to pay such sum as may be determined by it, if it is of the opinion that loss or injury has
been suffered by a large number of consumers who are not identifiable conveniently;
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Provided that the minimum amount of sum as payable shall not be less than 5 per cent of the
value of such defective goods sold or services provided, as the case may be, to such consumers :
Provided further that the amount so obtained shall be credited in favour of such person and
utilized to such manner as may be prescribed;
[(hc) to issue corrective advertisement to neutralize the effect of misleading advertisement at the
cost of the Opposite Party responsible for issuing such misleading advertisement]
It may be noted that clauses (e) to (h) and (i) as mentioned above, have been inserted by the
Consumer Protection (Amendment) Act, 1993, so as to confer greater powers on the District
Forum in respect of its findings. For instance, now the District Forum has been specifically
empowered to order that the defects or deficiencies in the services in question be removed, or to
discontinue or not to repeat any unfair or restrictive trade practice, not to offer for sale, or to
withdraw the hazardous goods from the market, or to provide adequate costs to the parties.
Similarly, clauses (ha), (hb) and (hc) have been inserted in Section 14(1) by the Consumer
Protection (Amendment) Act, 2002 to deal with relief in case of hazardous goods and services,
compensation when there are large number of consumers, who are not identifiable conveniently,
and remedy by way of corrective advertisement.
Appeal
Sec. 15 makes the following provision for appeal by the aggrieved party against the order of the
District Forum.
Any person aggrieved by an order made by the District forum may prefer an appeal against such
order to the State Commission within a period of 30 days from the date of the order in such form
and manner as may be prescribed:
Provided that the State Commission may entertain an appeal after the expiry of the said period of
30 days if it is satisfied that there was sufficient cause for not finding it within that period:
Provided further that no appeal by a person, who is required to pay any amount in terms of an
order of the District Forum, shall be entertained by the State Commission unless the appellant
has deposited in the prescribed manner 50% of that amount or Rs 25000 whichever is less.
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(2) STATE COMMISSION
(a) a person who is or has been a Judge of a High Court, appointed by the State Government,
who shall be its President;
[Provided that no appointment under this clause shall be made except after consultation with the
Chief Justice of High Court;]
(b) not less than two, and not more than such number of members as may be prescribed and one
of the who shall be a woman, who shall have the following qualifications, namely :
(iii) be persons of ability, integrity and standing, and have adequate knowledge and experience of
at least ten years in dealing with problems relating to economics, law, commerce, accountancy,
industry, public affairs or administration:
Provided that not more than 50% of the members shall be from amongst persons having a
judicial background.
Explanation – For the purposes of this clause, the expression “persons having a judicial
background” shall mean persons having knowledge and experience for at least a period of ten
years as presiding officer at the district level court or any tribunal at equivalent level.
A new proviso has been added to Sec. 16 (1), by the C.P. Amendment Act, 2002, which
prescribes the following disqualifications of the members:
(a) Has been convicted and sentenced to imprisonment for an offence which, in the opinion
of the State Government, involves moral turpitude; or
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(d) Has been removed or dismissed from the service of the Government or a body corporate
owned or controlled by the Government.; or
(e) Has, in the opinion of the State Government, such financial or other interest, as is likely
to affect prejudicially the discharge by him of his functions as a member; or
(f) Has such other disqualifications as may be prescribed by the State Government.
Consultation under Sec. 16(1)(a) with Chief Justice of High Court vis-à-vis consultation under
Article 217 of Constitution of India for appointment of High Court Judge – Both are not equated
for appointment of High Court Judge. Though process may be similar in several other aspects,
two consultations could not be qualitatively identical as one was for appointment to statutory
post and other was constitutional appointment.
Every appointment under sub-section (1) shall be made by the State Government on the
recommendation of a Selection Committee consisting of the following members, namely:
3 Secretary, incharge of the Department dealing with consumer affairs in the State
Member
Provided that where the President of the State Commission is, by reason of absence or otherwise,
unable to act as Chairman of the Selection Committee, the State Government may refer the
matter to the Chief Justice of the High Court to act as Chairman.
(i) The jurisdiction, powers and authority of the State Commission may be exercised by Benches
thereof.
(ii) A Bench may be constituted by the President with one or more members as the President
may deem fit.
(iii) If the members of a Bench differ in opinion on any point. The points shall be decided
according to the opinion of the majority, if there is a majority, but if the members are equally
divided, they shall state the point or points on which they differ, and make a reference to the
60
President who shall either hear the point or points himself of refer the case for hearing on such
point or points by one or more or the other members and such point or points shall be decided
according to the opinion of the majority of the members who have heard the case, including
those who first heard it.
The salary or honorarium and other allowances payable to, and the other terms and conditions of
service, of service, of the members of the State Commission shall be such as may be prescribed
by the State Government:
Provided that the appointment of a member on full-time basis shall be made by the State
Government on the recommendation of the President of the State Commission taking into
consideration such factors as may be prescribed including the work load of the State
Commission.
(1) Every member of the State Commission shall hold office for a term of five years or up to
the age of sixty-seven years, whichever is earlier:
Provided that a member shall be eligible for re-appointment of another term of five years or up to
the age of sixty-seven years, whichever is earlier, subject to the condition that he fulfills the
qualifications and other conditions for appointment mentioned in clause (b) of sub-section (1)
and such re-appointment is made on the basis of the recommendation of the Selection Committee
Provided further that a person appointed as a President of the state Commission shall also be
eligible for re-appointment in the manner provided in Clause (a) of sub-section (1) of this
section.
A member may resign his office in writing under his hand addressed to the State Government
and on such resignation being accepted, his office shall become vacant any may be filled by
appointment of a person possessing any of the qualifications mentioned in sub-section (1) in
relation to the category of the member who is required to be appointed under the provisions of
sub-section (1A) in place of the person who has resigned.
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Jurisdiction of the State Commission (Section 17)
(I) To entertain complaints where the value of the goods or service and compensation, if any,
claimed exceeds Rs. 20 lakhs but does not exceed rupees 1 crore; and
(II) To entertain appeals against the orders of any District Forum within the State; and
(III) To call for the records and pass appropriate orders in any consumer dispute which is
pending before or has been decided by any District Forum within the state, where it appears to
the State Commission that such District Forum has exercised a jurisdiction not vested in it by
law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its jurisdiction
illegally or with material irregularity.
It may be noted that prior to amendment the pecuniary jurisdiction of the State Commission was
upto Rs. 20 lakhs. By the C.P. (Amendment) Act, 2002, the jurisdiction of the State Commission
has been increased to Rs. 1 crore. The change is likely to be beneficial to the consumer. It will
reduce the number of complaints to the National Commission. The National Commission shall
entertain complaints above the value of Rs. 1 crore only.
Pecuniary jurisdiction – Enhancement of claim for Rs. 10 lacs and interest. (sec. 17) - Where
there was enhancement of claim for Rs. 10 lacs and interest, due to amendment to Act enhancing
pecuniary jurisdiction of State Commission, claim was within that enhanced jurisdiction.
A complaint shall instituted in a State Commission within the limits of whose jurisdiction –
(a) The Opposite Party or each of the opposite parties, where there are more than one, at the time
of the institution of the complaint, actually an voluntarily resides or carries on business, or has a
branch office or personally works for gain; or
(b) any or the opposite, parties, where there more than one, at the time of the institution of
complaint, actually and voluntarily resides, or carries on business or has a branch office, or
personally works for gain, provided that in such case either the permission of the State
Commission is given or the opposite parties who do not reside or carry on business or have a
branch office or personally works for gain, as the case may be, acquiesce in such institution; or
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Transfer of cases (Section 17A)
The Consumer Protection (Amendment) Act, 2002 has inserted Section 17A, which enables the
State Commission to transfer a case from one district Forum to another within the State.
On the application of the complainant or of its own motion, the State Commission may, at any
stage of the proceeding, transfer any complaint pending before the District Forum to another
District Forum within the State if the interest of justice so requires.
Section 17B is another provision inserted in the Act by the C.P. (Amendment) Act, 2002 which
provides for establishing of Circuit Benches of the State Commission. The provision is as under :
The State Commission shall ordinarily function in the State Capital but may perform its
functions at such other place as the State Government may, in consultation with the State
Commission, notify in the Official Gazette, from time to time.
The provision of Section 12, 13 and 14 under the rules made thereunder for the disposal of
complaints by the District Forum shall, with such modifications as may be necessary, be
applicable to the disposal of disputes by the State Commissioner.
Appeal
Any person aggrieved by an order made by the State Commission in exercise of its powers
conferred by sub-clause (i) of clause (a) of section 17 may prefer an appeal against such order to
the National Commission within a period of 30 days from the date of the order in such form and
manner as may be prescribed :
Provided that the National Commission may entertain an appeal after the expiry of the said
period of 30 days if it is satisfied that there was sufficient cause for not filing it within that
period.
A new provision has been inserted by the C.P. (Amendment) Act, 2002, according to which, no
appeal by a person, who is required to pay any amount in terms of an order of the State
63
Commission, shall be entertained by the National Commission unless the appellant has deposited
in the prescribed manner 50 per cent of the amount or Rs. 35,000, whichever is less.
Section 19A has been inserted by the Consumer Protection (Amendment) Act, 2002. It provides
for expeditious hearing of appeal, quicker decision and restriction of adjournment.
(1) An appeal filed before the State Commission or the National Commission shall be heard
as expeditiously as possible and an endeavor shall be made to finally dispose of the appeal within
a period of 90 days from the date of its admission.
(2) No adjournment shall be ordinarily granted by the State Commission or the National
Commission, as the case may be, unless sufficient cause is shown and the reasons for grant of
adjournment have been recorded in writing by such Commission.
(3) The State Commission or the National Commission, as the case may be, shall make such
orders as to the costs occasioned by the adjournment as may be provided in the regulations made
under this Act.
(4) In the event of an appeal being disposed of after the period so specified, the State
Commission or the National Commission, as the case may be, shall record in writing the reasons
for the same a the time of disposing of the said appeal.
Powers of State Commission regarding review Order – There was failure on part of builder to
hand-over flat to complainants. Order was passed by State Commission giving option to builder
either to hand-over flat or refund amount with compensation. On so called application was filed
by complainants “for being mentioned”. State Commission had completely changed its judgment
by introducing new concept of choice to complainants about delivery of flats as against
alternative relief of refund. Held that as Order of Commission could not be treated as one of the
correction or rectification of clerical mistakes in review proceedings, hence, Order of
Commission was liable to be set aside by writ Court.
3. NATIONAL COMMISSION
(a) A President – He should be a person who is or has been Judge of the Supreme Court, to be
appointed by the Central Government:
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Provided that no appointment under this clause shall be made except after consultation with the
Chief Justice of India,
(b) not less than four, and not more than such number of members, as may be prescribed, and
one of whom shall be a woman, who shall have the following qualifications, namely : -
(iii) be persons of ability, integrity and standing and have adequate knowledge and experience of
at least ten years in dealing with problems relating to economics, law, commerce, accountancy,
industry public affairs or administration:
Provided that not more than 50 per cent of the members shall be from amongst the persons
having a judicial background
Explanation – For the purposed of this clause, the expression “persons having judicial
background” shall mean persons having knowledge and experience for at least a period of ten
years as a presiding officer at the district level court or any tribunal at equivalent level.
Every appointment under this clause shall be made by the Central Government on the
recommendation of a Selection Committee consisting of the following, namely:
1 a person who is a Judge of the Supreme Court to be nominated by the Chief Justice of
India Chairman
3 Secretary of the Department dealing with consumer affairs in the Government of India
Member
The provision regarding establishing Benches of the Commission has been introduced by the
Consumer Protection (Amendment) Act, 2002. The provision is as follows:
(i) The jurisdiction powers and authority of the National Commission maybe exercised by
Benches thereof.
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(ii) A Bench may be constituted by the President with one or more members as the President
may deem fit.
(iii) If the members of a Bench differ in opinion on any point, the points shall be decided
according to the opinion of the majority, if there is a majority, but if the members are equally
divided, they shall state the point or points on which they differ and make a reference to the
President who shall either hear the point or points himself or refer the case for hearing on such
point or points by one or more or the other members and such point or points shall be decided
according to the opinion of the majority of the members who have heard the case, including
those who first heard it.
(a) To entertain -
(i) Complaints where the value of the goods or service and compensation, if any, claimed
exceed Rs. 1 crore. And
(b) to call for the records and pass appropriate orders in any consumer dispute which is
pending before or has been decided by any State Commission where it appears to the National
Commission that such State Commission has exercised a jurisdiction not vested in it by law, or
has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction
illegally or with material irregularity.
(1) The provisions of Sections 12, 13 and 14 and the rules made there under for the disposal
of complaints by the District Forum shall, with such modifications as maybe considered
necessary by the Commission, be applicable to the disposal of disputes by the National
Commission.
(2) Without prejudice to the provisions contained in sub-section (1), the National
Commission shall have the power to review any order made by it, when there is an error apparent
on the face of record.
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Additional Powers of the National Commission [Sec. 22A, 22B]
The following new provisions have been inserted by the Consumer Protection (Amendment) Act,
2002 regarding additional powers of the National Commission:
Where an order is passed by the National Commission ex parte `against the Opposite Party or a
complainant, as the case may be, the aggrieved party may apply to the Commission to set aside
the said order in the interest of justice.
On the application of the complainant or of its own motion, the National Commission may, at
any stage of the proceeding. In the interest of justice, transfer any complaint pending before the
District Forum of one State to District Forum of another State or before one State Commission to
another State Commission.
The National Commission shall ordinarily function at New Delhi and, perform its functions at
such other place as the Central Government may, in consultation with the National Commission
notify in the Official Gazette, from time to time.
When the office of President of a District Forum, State Commission, or of the National
Commission, as the case may be, is vacant or a person occupying such office is, by reason of
absence or otherwise, unable to perform the duties of his office, these shall be performed by the
senior most member of the District Forum, the State Commission or of the National
Commission, as the case may be:
Provided that where a retired Judge of High Court is a member of the National Commission,
such member or where the number of such members is more than one, the senior most person
among such members, shall preside over the National Commission in the absence of President of
that Commission.
Appeal
Appeal to the Supreme Court against the order of the national Commission (Sec 23)
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According to section 23 – any person, aggrieved by an order made by the National Commission
in exercise of its powers conferred by sub-clause (i) of clause (a) of section 21, may prefer an
appeal against such order to the Supreme Court within a period of 30 days from the date of the
order:
Provided that the Supreme Court may entertain an appeal after the expiry of the said period of 30
days if it is satisfied that there was sufficient cause for not filing it within that period.
No appeal by a person who is required to pay any amount in terms of an order of the National
Commission shall be entertained by the Supreme Court unless that person has deposited in the
prescribed manner 50% of that amount or Rs. 50.000, whichever is less.
Appeals in short
There is no fee for filing appeals in the State and National commissions. Procedure is the same
as that complaint except that the application has to be accompanied by the copies of the orders
appealed against with reasons for filing appeals.
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UNIT-IV
Q.1. What are the objectives of the Competition Act, 2002 and how would the objectives of
the Act be achieved?
Or
Introduction
Competition is not defined in law but is generally understood to mean the process of rivalry to
attract more customers or enhance profit or both. In simple words competition is a kind of
contest between individuals, groups, nations, animals etc. It arises whenever two or more parties
strive for a goal which cannot be shared Animals compete for food, mates, water etc, humans
compete for clothes, shelter, fame, wealth, power, money. Business too is often associated with
competition as most companies are in competition with at least one or other firm over the same
group of customers. The spirit of competition makes enterprises more efficient and offers wider
choices at lower prices. Competition can be of two types, fair competition which is beneficial for
consumers, producers, sellers and whole society. The consumers can buy more of better quality
products at lower prices. Fair competition induces economic growth. The other is Unfair
Competition where there is deliberate reduction in output to increase prices, discriminatory
pricing, tie-up sales etc.
In the pursuit of globalization, India has responded to opening up its economy, removing
controls and resorting to liberalization. The natural corollary of this is that the Indian market
should be geared to face competition from within the country and outside.
Competition law for India was triggered by Articles 38 and 39 of the Constitution of India. These
Articles are a part of the Directive Principles of State Policy. Pegging on the Directive
Principles, the first Indian Competition law was enacted in 1969 and was christened the
Monopolies and Restrictive Trade Practice, 1969 (MRTP Act). Articles 38 and 39 of the
Constitution of India mandate, inter alia, that the State shall strive to promote the welfare of the
people by securing and protecting as effectively, as it may, a social order in which justice social,
economic and political shall inform al the institutions of the national life, and the State shall, in
particular, direct its policy towards securing and protecting as effectively, as it may, a social
69
order in which Justice social economic and political shall inform all the institutions of the
national life, and the State shall, in particular, direct its policy towards securing :
(i) That the Ownership and control of material resources of the community are so distributed
as best to Sub serve the common good, and
(ii) That the operation of the economic system does not result in the concentration of wealth
and means of production to the common detriment.
Competition law deals with market failures on account of restrictive business practice in the
market Restrictive business practices can be of many kinds and include inter-alia agreement to
restrict competition, cartelization, predatory pricing, being sale, resale price maintenance, abuse
of dominance etc.
The history of competition law is usually traced back to the enactment of Sherman Act in 1890
in the US. Law is an instrument to regulate human behavior. With the emergence of dominant
market players, law was required to regulate their behavior in the market. Therefore, competition
law was introduced. It had two fold purposes. At the first instance, competition law ensures
competition in market. Secondly wherever there is Competition, there is likelihood of unfair
competition and Competition law also restricts unfair Competition. The primary rationale for
having in place an effective competition law regime is for the interest of the consumers and
promoting efficiency in the market.
Background of Competition Act: After the attainment of independence, India adopted and
followed policies comprising of command and control laws, rules, regulations and executive
orders. The MTRP Act was on such case where in command and control economy was based.
Broadly the Act was based on four principles:
2. Welfare state,
It was designed to avoid economic concentration of the power in the Indian economy by
exercising surveillance and adopting proper measure in case the economic concentration proves
to the common detriment of general public. The broad premise on which the MRTP Act rests are
unrestrained interaction of competitive forces, maximum material progress through rational
allocation of economic resources, availability of goods and services of quality at reasonable
prices and finally a just and fair deal to the Consumers .
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Failure of MRTP Act
One of the reasons for poor performance of the MRTP Act was the absence of proper and
adequate definitions in the Act. Also, MRTP Commission was also very poorly resourced with
adequate weapons while checking the anti-competitive practices in the market. In 1991, rocked
by a balance of payment crisis, government of India introduced market oriented reforms aimed at
dismantling the industrial licensing system, giving business the freedom to make investment
decisions and the gradual opening of key infrastructure sectors to private investors.
The need for a new Law has its origin in Finance Ministers speech in February, 1999: “The
MRTP Act has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing monopolies
to promoting Competition. The Government has decided to appoint a committee to examine this
range of issues and propose a modern competition law suitable for our conditions.”
In October, Central government appointed high level committee under the chairmanship of Mr.
Raghavan, the aim of the committee was to formulate the competition law in tune with economic
reforms and international development. The committee presented its report on May 2000. The
draft competition law was presented on November 2000. After certain amendments the
parliament passed the new law, called completion Act 2002. The act came into force on January
2003
The preamble of the Act declares the intention of the Government to press in service the
provisions of the Act for the achievement of the following objectives:
(iv) To ensure freedom of trade for all participants and markets in India.
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On the whole this legislation seeks to clear all the hurdles in promoting competition among
business units of domestic and foreign origin. The new Act attempts to delimit practices like
cartels, bid rigging, exclusive supply and distribution agreements. Due to lack of procession in
the clauses of the MRTP Act, one had to depend on the interpretation of the MRTP commission
or courts. This anomaly was sought to be corrected through the Competition Act.
In view of the policy shift from curbing monopolies to promoting competition, there was a need
to repeal the Monopolies and Restrictive Trade practices Act. Hence the competition law aims at
doing away with the rigidly stretched MRTP Act. The Competition Law is behaviour oriented
and flexible.
The differences between the old law (namely the MRTP Act, 1969) and the new Law (the
Competition Act 2002) may perhaps be best captured in the form of a table displayed below:
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8. No Combination regulation
13. Doesn’t vest MRTP commission to inquire into cartels of foreign origin in a direct
manner.
14. Very little administrative and financial autonomy for the competition commission Based
on post-reform scenario
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IV Person offences and all the rest subjected to rule of reason.
Competition law also known as anti-trust law in some jurisdictions is that branch of law which is
designed to protect the interest of the consumer by protecting competition in the market. This
competition is protected by protecting trade and commerce from restraints, monopolies, price
fixing, and price discrimination. A perfect competition exists in “a completely efficient market
situation characterised by numerous buyers and sellers, a homogenous product, perfect
information for all parties and complete freedom to move in and out of the market”. Even though
perfect competition is a utopian concept, it is used as a standard for measuring market
performance.
Conclusion
The message is loud yet clear that a well planed exhaustive competition compliance programme
can be of great benefit to all enterprises irrespective of their size, area of operation, jurisdiction
involved, nature of product supplied or services rendered and the same is essential for
companies, its directors and the delegate key corporate executives to avoid insurmountable
hardships of monetary fines, civil imprisonment, beside loss of hard-earned reputation when the
Competition Authority, the media and others reveal the misdeeds in public.
Definitions
Section 2 of Competition Act, 2002 defines words and expressions used in the Act. Some
important terms are given below:
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Cartel (section 2(c))
“Person” includes—
i. an individual;
iii. A company;
iv. A firm;
vi. any corporation established by or under any Central, State or Provincial Act or a
Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);
vii. Anybody corporate incorporated by or under the laws of a country outside India;
viii. A co-operative society registered under any law relating to cooperative societies;
x. every artificial juridical person, not falling within any of the preceding sub-clauses;
“price”, in relation to the sale of any goods or to the performance of any services, includes every
valuable consideration, whether direct or indirect, or deferred, and includes any consideration
which in effect relates to the sale of any goods or to the performance of any services although
ostensibly relating to any other matter or thing;
The rubric of the new law Competition Act, 2002 has essentially four compartments:
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(c) Combination Regulation
Firms enter into agreements, which may have the potential of restricting competition. Section 3
of the Act states that no enterprise or association of enterprises or person or association of
persons shall inter into any agreement in respect of production, supply, distribution, storage,
acquisition or control of goods or provision of services which causes or is likely to cause an
‘appreciable adverse effect’ on competition within India. A scan of competition laws in the
world will show that they make a distinction between horizontal and vertical agreements
between firms. The Competition Act defines the tem ‘agreement’ under section 2 (b) as to
include any arrangement, understanding or action in concert and covers both vertical as well as
horizontal agreements.
General Meaning
Agreements which generally cause an adverse effect or distort or restrict competition are called
anti-competitive agreements. An anti-competitive agreement might be characterised as one,
which interferes with the Commercial freedom of either party to the agreement (or even with a
third party) to trade freely as it would wish. Under the aegis of Indian law, the scope of
agreement has been specifically dealt with provisions under Competition Act, 2002 Sec. 2 (b) of
the Competition Act 2002 defines the word agreement.
Section 3 of the Competition Act 2002 deals with the prohibition of agreements, which have an
adverse effect on competition, which is one of its objectives. The Act provides for
anti-competitive agreement as under:
(1) No enterprise or association of enterprises or person or association of persons shall enter into
any agreement in respect of production, supply, distribution, storage, acquisition or control of
goods or provision of services, which causes or is likely to cause an appreciable adverse effect
on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1)
shall be void.
The term appreciable adverse effect on competition used in section 3(1) has not been defined in
the Act However, section 19 (3) states that while determining whether an agreement has an
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appreciable adverse effect on competition under section 3, the Commission shall have due regard
to all or any of the following factors.
Types of Agreement
There is a distinction that is made of anti competitive agreements i.e. horizontal agreements and
vertical agreements. These agreements are very different and easily distinguishable.
The difference between the two has been highlighted through the table below
1. In Horizontal agreements the parties to the agreement are enterprises at the same stage of the
production chain engaged in similar trade of goods or provision of services competing in the
same market.
2 .Horizontal Anti-Competitive Agreements are entered into between rivals or competitors. They
are obviously harmful in terms of consumer’s welfare
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5. Horizontal Anti-Competitive Agreement that determine prices or limit/Control production or
share market of production by market allocation or result in bid rigging or collusive bidding are
presumed to have an appreciable adverse effect on competition.
6. The burden of proof is on the defendant to prove that the agreement is not anti-competitive
In vertical Agreements the parties to the agreements are non competing enterprises at different
stages of the production chain.
For e.g. agreements essentially between manufactures and suppliers, i.e. between producers and
wholesalers or between manufactures and retailers etc.
Vertical Anti-competitive Agreements are entered into between parties having actual on potential
relationship of purchasing or selling to each other.
Vertical Anti-competitive Agreements are not presumed to have an appreciable adverse effect on
competition and automatically prohibited. Whether a vertical agreement is anit-competitive or
not is to be decided on case by case basis considering the consequences of the agreement an
whether they substantially restrict competition or not.
The burden of proof is on the party alleging the Anti Competitive practice to prove that the
agreement is anti-competitive.
Examples: Agreements are resale price maintenance, tie in agreements exclusive supply and
distribution agreements
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Q. 2 An agreement is anti-competitive if it affects competition. Comment.
Ans Anti competitive agreements are specified in the act in two categories:
(a) Presumed anti-competitive agreements – here burden is on defendant to prove that the
practice is not anti-competitive and
(b) Anti-competitive if agreement affects competition – here the burden is on appellant (who
is alleging anti-competitive practice) to prove that the practice is anti-competitive.
(c) Shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the market
or any other similar way.
(d) Directly or indirectly results on bid rigging or collusive bidding, shall be presumed to
have an appreciable adverse effect on competition. Nothing contained in this sub-section shall
apply to any agreement entered into by way of joint ventures if such agreement increases
efficiency in production, supply, distribution, storage, acquisition or control of goods or
provision of services. (Section 3(3))
‘Directly or indirectly determining purchase or sale price’ will include ‘Resale Price
maintenance’ also and hence it will be a ‘presumed anti-competitive pride’, though ‘resale price
maintenance’ is covered u/s 3(4).
Shall be presumed
The words used in the section are ‘shall be presumed’. As per section 4 of Evidence Act,
wherever it is directed that the Court shall presume a fact, it shall regard such fact as proved,
unless and until it is disproved. Thus, the presumption is rebuttable, i.e. the defendant can prove
that it has no appreciable adverse effect on competition. The tribunal shall presume that the
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practices enumerated in section 3(3) are anti-competitive. How – ever, defendant can prove that
these are not anti-competitive.
Practices are ‘Presumed’ not ‘deemed’ – The practices (a) to (d) are ‘presumed
anti-competitive practices’. They are not ‘deemed’ anti-competitive practices. Distinction
between ‘presumed’ and ‘deemed’ is that in case of a ‘deeming provision’, Court has to assume
that the ‘deemed position’ is ‘real position’ and apply law accordingly. Defendant cannot prove
that they are not really anti-competitive practices. In case of ‘presumed practices’, defendant can
prove that they are not anti-competitive practices, but burden of proof is on him.
“Bid rigging” means any agreement, between enterprises or persons referred to in section 3 (3)
engaged in identical or similar production or trading of goods or provision of services, which has
the effect of eliminating or reducing competition for bids or adversely affecting or manipulating
the process for bidding. Bid rigging or collusive bidding is a ‘presumed’ anti-competitive
agreement.
Any agreement amongst enterprises or persons at different stages or levels of the production
chain in different markets, in respect of production, supply, distribution, storage, sale or price of,
or trade in goods or provision of services, including-
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Thus, there is no presumption that the agreement is adversely affecting competition. In other
words, burden is on complainant to prove that the agreement is adversely affecting competition.
However, practices enumerated in section 3(3) are ‘presumed’ (but not deemed) anti-competitive
practices.
“Exclusive supply agreement” includes any agreement restricting in any manner the purchaser in
the course of his trade from acquiring or otherwise dealing in any goods other than those of the
seller or any other person.
“Exclusive distribution agreement” includes any agreement to limit, restrict or without the output
or supply of any goods or allocate any area or market for the disposal or sale of the goods.
“Refusal to deal” includes any agreement which restricts, or is likely to restrict, by any method
the persons or classes of persons to whom goods are sold or from whom goods are bought.
“Resale price maintenance” includes any agreement to sell goods on condition that the prices to
be charged on the resale by the purchaser shall be prices stipulated by the seller unless it is
clearly stated that prices lower than those prices may be charged. ‘Resale price maintenance’ can
get covered under section 3(3) also as ‘directly or indirectly determining price’
Tie-in-sales or full line forcing means requiring a person to purchase something else
compulsorily along with goods he wants to purchase [section 33 (b) of MRTP Act] e.g. A
company has two products A and B out of which A is popular, but B is not. It may say that ‘A’
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will not be given unless B is also purchased e.g. forcing dealers to purchase tooth brushes (which
are not every popular) along with tooth pastes (which are popular).
(a) Asking customer to enter into service contract while buying goods – In re R.P.
Electronics – RTPE 73/86 decided on 8-5-89
(b) Requiring customer to buy gas stove while giving gas connection – Chanakya and
Siddhartha Gas Co., decided on 27.1.85 by MRTP.
(c) School making it compulsory to buy uniforms and books only from its own shop – Amar
Jeevan Public School, In re decided by MRTP on 1-12-92.
(d) Compelling customer who is buying TV set to also buy voltage stabilizer from the seller
– In re. United Radio and Television Co. – RTPE No. 73 / 1987.
“Exclusive dealing agreement’ was a ‘Restrictive Trade Practice’ under MRTP Act. The words
used in definition in MRTP Act were not to deal with goods other than those of seller”. These are
comparable to words ‘exclusive supply agreement’ or ‘exclusive distribution agreement’ used in
Competition Act. Hence, following case law under MRTP Act will be relevant.
(a) Buyer asking manufacturer not to manufacture identical goods for any other buyer
without consent of buyer – DGIR v. Studds Accessories (P.) Ltd. – RTPE 331 / 1988.
(b) Agreement that distributor will purchase goods only from the manufacturer or from other
as may be nominated by him – DGIR v. Mundipharma AG – (1995) 18 CLA 272 (MRTPC).
(c) Territorial restrictions – i.e. not to sale to sale beyond prescribed territory – Vadilal
Enterprises Ltd. In re (1998) 91 Comp Cas 824 (MRTPC).
In DGIR v. Kothari Electronics (1997) 25 CLA 249 (MRTPC), it was held that exclusive dealing
cannot be permitted unless it is shown that it is in public interest. In DGIR v. Mahindra & Ltd.
(1999) 33 CLA 66 (MRTP), exclusive dealership clause was not permitted when it was found
that machines are not very sophisticated or technically complex to warrant exclusivity in
distributorship.
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Resale Price maintenance
Resale price maintenance means ‘not to allow resale below certain price or not to sell above a
certain price’, if maximum price is indicated, it should be clearly stated that dealer is free to
charge below the indicated prices –
In DGIR v. Infar (India) Ltd. (1999) 35 CLA 250 (MRTPC 3 member full bench), it has been
held that if the price indicated is ‘Maximum Retail Price’, it is obvious that the retailer are
authorised to sell the product at prices below the maximum, it is not necessary to specifically
state that ‘price below the maximum retail price can be charged’. Obvious need no telling.
[Earlier, some benched had decided that is must be specifically specified that prices below can be
charged’, while other benches of Commission had held that specific mention is not necessary.
Now the controversy is set at rest].
In DGIR v. Pfizer Ltd (2000) 37 CLA 364 (MRTPC 3 member full bench ), it was held that if
product is covered under Drug Price Control Order and is authorised under any law, it is not
necessary to mention in price list that retailers are free to sell products below the prices indicated
in the list.
Newspapers exempted – In case of Registrar V. Bennett Coleman and Co. Ltd., 40 (i.e. they can
prescribe minimum price). This is because speed is essence of publishing a newspaper. Allowing
retailer or vendor to bargain the price would delay the process of reaching consumers fast. This
will reduce circulation, which will lead to reduction in quality and also increase in costs. This
will not be in long term interest of public. (The case was decided on 2-9-1981).
Direct price maintenance permitted – Resale Price Maintenance (RPM) is different from direct
price maintenance, where the manufacturer sells goods through its own retail shops and fixed
prices to be charged in such shops (e.g. Batas, Gwalior Rayon, etc. have their own retail shops).
Fixing price in such shops is not prohibited.
Agreements permitted by law cannot be termed as ‘anti-competitive’ Hence, right of any person
to restrain any infringement of or to impose reasonable conditions, as may be necessary for
protecting any of his rights which have been or may be conferred upon him under following Acts
will not be held as ‘Anti-competitive agreements :
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(a) The Copyright Act, 1957
(c) The Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999
(d) The Geographical Indications of Goods (Registration and Protection) Act, 1999
The right of any person to export goods from India to the extent to which the agreement relates
exclusively to the production supply, distribution or control of goods or provision of services for
such export will not be held as anti-competitive.
Q.3 what is abuse of dominant position? What is the procedure for inquiry into abuse of
dominant position?
Or
Ans The term ‘dominance’ doesn’t signify any arithmetic or quantitative share in the market;
rather it is a matter of subjective analysis. Dominant position has been defined appropriately in
the Act in term of position of strength, enjoyed by an enterprise in the relevant market, in India
which enables it to (i) operate independently of competitive forces prevailing in the relevant
market; or (ii) affects its competitors or consumers or the relevant market in, its favour.
(2) There shall be an abuse of dominant position [under sub-section (1), if an enterprise or a
group].—-
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Explanation— For the purposes of this clause, the unfair or discriminatory condition in
purchase or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory
price in purchase or sale of goods (including predatory price) or service referred to in sub-clause
(ii) shall not include such discriminatory condition or price which may be adopted to meet the
competition; or
(c) Indulges in practice or practices resulting in denial of market access [in any manner]; or
(e) Uses its dominant position in one relevant market to enter into, or protect, other relevant
market.
‘Dominant position’ itself is not prohibited. What is prohibited is its misuse. The abuse can be by
an enterprise or ‘group’.
(i) buys any goods for a consideration which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment and includes any user of such goods
other than the person who buys such goods for consideration paid or promised or partly paid or
promised, or under any system of deferred payment when such use is made with the approval of
such person, whether such purchase of goods is for resale or for any commercial purpose or for
personal use;
(ii) hires or avails of any services for a consideration which has been paid or promised or
partly paid and partly promised, or under any system of deferred payment and includes any
beneficiary of such services other than the person who hires or avails or the services for
consideration paid or promised, or partly paid and partly promised, or under any system of
deferred payment, when such services are availed of with the approval of the first-mentioned
person whether such hiring or availing or services is for any commercial purpose of for personal
use.
Purchase for commercial purpose covered – Note that for purpose of Consumer Protection Act,
person purchasing goods/ availing services for commercial purposes will not be’ consumer’, but
he will be ‘consumer’ under Competition Act.
“Relevant market” means the market which may be determined by the commission with
reference to the relevant product market or the relevant geographic market or with reference to
both the markets.
“Relevant geographic market” means a market comprising the area in which the conditions of
competition for supply of goods or provision of services or demand of goods or services are
distinctly homogenous and can be distinguished from the conditions prevailing in the
neighboring areas.
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Relevant product market [section 2(s)]
“Relevant product market” means a market comprising all those products or services which are
regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the
products or services, their prices and intended use.
The commission shall, while inquiring whether an enterprise enjoys a dominant position or not
under section 4, have due regard to all any of the following factors –
(d) Economic power of the enterprise including commercial advantages over competitors.
(e) Vertical integration of the enterprises or sale or service network of such enterprises.
(g) Monopoly or dominant position whether acquired as a result of any statute or by virtue of
being a Government company or a public sector undertaking or otherwise.
(h) entry barriers including barriers such as regulatory barriers, financial risk, high capital
cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of
substitutable goods or service for consumers.
(l) Relative advantage, by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have appreciable adverse effect on
competition.
(m) Any other factor which the Commission may consider relevant for the inquiry. [section
19(4)]
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For determining whether a market constitutes a “relevant market” for the purposes of this Act,
the Commission shall have due regard to the “relevant geographic market” and “relevant product
market”. [Section 19(5)]
The commission shall, while determining the “relevant geographic market”, have due regard to
all or any of the following factors –
(f) Language.
(h) Need for secure or, regular supplies or rapid after-sales services. [Section 19(6)]
The Commission shall, while determining the “relevant product market”, have due regard to all
or any of the following factors – (a) physical characteristics or end-use of goods (b) price of
goods or service (c) consumer preferences (d) exclusion of in-house production (e) existence of
specialized producers (f) classification of industrial products. [Section 19(7)]
Ans. Section 4(2) states that there shall be an abuse of dominant position under section 4(1), if
an enterprise or ‘group’, follows any of the following practices.
Thus, if such practices are adopted to meet competition, it will not be abuse of dominant power.
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Predatory price [Explanation (b) to section 4(2)]
“Predatory price” means the sale of goods or provision of services ,at a price which is below the
cost, as may be determined by regulations, of production of the goods or provision of services,
with a view to reduce competition or eliminate the competitors.
Limiting or restricting (i) production of goods or provision of services or market therefore; or (ii)
technical or scientific development relating to goods or services to the prejudice of consumers, is
abuse of dominant position.
Indulging in practice or practices resulting in denial of market access in any manner is abuse of
dominant position.
Using dominant position in one relevant market to enter into, or protect, other relevant market is
abuse of dominant power.
For example, Microsoft used its dominant position in Disk Operating System to dominate
browser market and ruined Netscape.
The Competition Commission may inquire into any alleged contravention of the provisions
contained in section 3(1) or section 4(1) either on its own motion or –
(a) On receipt of any information, in such manner and accompanied by such fee as may be
determined by regulations from any person, consumer or their association or trade association; or
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Q.5 what is a combination under the Act? What are the thresholds in case of
combinations?
Take over; amalgamation, merger etc. are some of the ways of increasing market dominance.
Competition Act intends to exercise control over such mergers and amalgamations, with a view
to ensure that such amalgamations and mergers are not anti-competitive. The provisions are
contained in sections 5 and 6.
Combination (Section 5)
The acquisition of one or more enterprises by one or more persons or merger or amalgamation of
enterprises shall be treated as ‘combination’ of such enterprises and persons or enterprises in
following cases.
Any acquisition where the parties to the acquisition, being the acquirer and the enterprise, whose
control, shares, voting rights or assets have been acquired or are being acquired jointly have –
(A) Either, in India, the assets of the value of more than rupees one thousand crores; or
turnover more than rupees three thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than five hundred
million US dollars, including at least rupees five hundred million US dollars, including at least
rupees fifteen hundred crores on India; will be ‘combination’.
Assets/turnover exceeding specified limits hit by provisions – If after acquisition, the joint
assets/turnover increase the aforesaid limits, it will be ‘combination’ of course, if acquirer
already had those assets or turnover, any further acquisition will be ‘combination’.
Any acquisition where the group, to which the enterprise whose control, shares, assets or voting
rights have been acquired or are being acquired, would belong after the acquisition, jointly have
or would jointly have –
(A) Either in India, the assets of the value of more than rupees four thousand crores or
turnover more than rupees twelve thousand crores; or
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(B) In India, or outside India, in aggregate, the assets of the value of more than two billion
US dollars, including at least five hundred crores in India or turnover more than six billion US
dollars, including at least Rs. fifteen hundred crores in India.
Acquiring of control by a person over an enterprise when such person has already direct or
indirect control over another enterprise engaged in production, distribution or trading of a similar
or identical or substitutable goods or provision of a similar or identical or substitutable service, if
the enterprise over which control has been acquired along with the enterprise over which the
acquirer already has direct or indirect control jointly have –
(A) Either in India, the assets of the value of more than rupees one thousand crores or
turnover more than rupees three thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than five hundred
million US dollars, including at least rupees five hundred crores in India, or turnover more than
fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India .
Acquiring of control by a person over an enterprise when such person has already direct or
indirect control over another enterprise engaged in production, distribution or trading of a similar
or identical or substitutable goods or provision of a similar or identical or substitutable service, if
the group, to which enterprise whose control has been acquired, or is being acquired, would
belong after the acquisition, jointly have or would jointly have -
(A) Either in India, the assets of the value of more than rupees four thousand crores or
turnover more than rupees twelve thousand crores; or
(B) In India or outside India, in aggregate, the assets of the value of more than two billion US
dollars, including at least rupees five hundred crores in India, or turnover more than six billion
US dollars, including at least rupees fifteen hundred crores in India, is combination.
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Merger of enterprises [section 5(c)(i)]
Any merger or amalgamation in which the enterprise remaining after merger or the enterprise
created as a result of the amalgamation, as the case may be, have – (A) either in India, the assets
of the value of more than rupees one thousand crores or turnover more than rupees three
thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more
than five hundred million US dollars, including at least rupees five hundred crores in India, or
turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred
crores in India .
The group, to which the enterprise remaining after the merger or the enterprise created as a result
of the amalgamation, would belong after the merger or the amalgamation, as the case may be,
have or would have, - (A) either in India, the assets of the value of more than rupees four
thousand crores or turnover more than rupees twelve thousand crores; or (B) in India or outside
India, in aggregate, the assets of the value of more than two billion US dollars, including at least
rupees five hundred crores in India, or turnover more than six billion US dollars, including at
least rupees Fifteen Hundred Crores in India .
No person or enterprise shall enter into a combination which causes or is likely to cause an
appreciable adverse effect in competition within the relevant market in India and such a
combination shall be void.
The definition and heading of the section itself means that it is ‘regulation of combination’.
Thus, combination in itself is not prohibited, it will be held void only if it adversely affects
competition.
Provision does not apply to acquisition by PF/FII [sections 6(4) & 6(5)]
The provisions of section 6 shall not apply to share subscription or financing facility or any
acquisition, by a public financial institution, foreign institutional investor, bank or venture capital
fund, pursuant to any covenant of a loan agreement or investment agreement.
The public financial institution, foreign institutional investor, bank or venture capital fund,
referred to in section 6(4), shall within seven days from the date of the acquisition, file with the
Commission the details of the acquisition including the details of control, the circumstances for
exercise of such control and the consequences of default arising out of such loan agreement or
investment agreement, as the case may be.
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Mandatory notice to commission [Section 6(2)]
Any person or enterprise, who or which proposes to enter into a combination, shall give notice to
the Commission, in the form as may be specified, and the fee as prescribed by regulations,
disclosing the details of the proposed combination, within thirty days of –
(a) approval of the proposal relating to merger or amalgamation, referred to in section 5(c)
by the board of directors of the enterprises concerned with such merger or amalgamation, as the
case may be or
(b) Execution or any agreement or other document for acquisition referred to in section 5(a)
or acquiring of control referred to in section 5(b).
Cooling period of 210 days – There is ‘cooling period’ of 210 days after such notice is given.
‘Combination’ cannot become effective during the ‘cooling period;
If any person or enterprise fails to give notice to the Commission under section 6(2) of
Competition Act, the Commission shall impose on such person or enterprise a penalty which
may extend to one per cent of the total turnover or the assets, whichever is higher, of the
combination.
If penalty so proposed to be imposed by Commission on a person, show cause notice duly signed
by Secretary shall be given asking for submitting explanation in writing within 15 days. Penalty
shall be imposed only after giving opportunity of personal hearing to the person [regulation 48 of
Competition Commission of India (General) Regulations, 2009].
Procedure at Commission after receiving notice [section 6(3) read with section 30]
The Commission shall, after receipt of notice u/s 6(2), examine the notice and form prima facie
opinion as provided in section 29 (1) and then proceed as per provisions of section 29, 30 and 31.
As per section 29(1), the Commission has to form a prima facie opinion whether a combination
is likely to cause or has caused an appreciable adverse effect on competition within the relevant
market in India. If it forms such an opinion, it shall issue a notice to show cause to the parties.
Thus, if Commission forms prima facie opinion that the combination will not adversely affect
competition, it need not proceed further. Otherwise, it will issue show cause notice to parties to
combination and commence further proceedings.
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There is conflict in provisions. As per section 6(3) read with section 29(1), Commission can drop
proceedings if, on prima facie opinion, it comes to conclusion that competition will not be
adversely affected. However, section 20(2) states that inquiry is mandatory.
Combination not effective for 210 days from date of notice, or till CCI issues order u/s 31
(Section 6(2A)) – The combination shall not come into effect until 210 days or order of
Commission u/s 31 received, whichever is earlier. Under section 31, Commission can either
approve the combination or can order that combination shall not be effective or propose
modifications in combination.
For the purpose of determining whether a combination would have the effect or is likely to have
an appreciable adverse effect on competition in the relevant market, the Commission shall have
due regard to all or any of the following factors –
(a) Actual and potential level of competition through imports in the market.
(e) Likelihood that the combination would result in the parties to the combination being able
to significantly and sustainable increase prices or profit margins.
(g) Extent to which substitutes are available or are likely to be available in the market.
(h) Market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination.
(i) Likelihood that the combination would result in the removal of vigorous and effective
competitor or competitors in the market.
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(m) Relative advantage, by way of the contribution to the economic development, by any
combination having or likely to have appreciable adverse effect on competition.
(n) Whether the benefits of the combination outweigh the adverse impact of the combination,
if any.
Inquiry into combination by Commission on its own [section 20(1)] – The Commission may
inquire into whether such a combination has caused or is likely to cause an appreciable adverse
effect on competition in India – (a) upon its own knowledge or (b) information relating to
acquisition referred to in section 5(a) or acquiring of control referred to in section 5(b) or merger
or amalgamation referred to in section 5 (c).
Commission shall not initiate any inquiry under this sub-section after the expiry of one year from
the date on which such combination has taken effect. [proviso to section 20(1)].
Inquiry on combination on receiving notice [section 20 (2)]- The Commission shall, on receipt of
a notice under section 6(2), inquire whether a combination referred to in that notice or reference
has caused or is likely to cause an appreciable adverse effect on competition in India.
In case of receipt of notice u/s 6(2), the enquiry is mandatory and the time limit of one year
within merger, as specified in section 20(1) does not apply. Note that notice under section 6(2) is
to be issued by enterprise itself.
Approve the combination or direct that it will not take effect (Section 31(1&2)) – Where the
Commission is of the opinion that any combination does not, or is not likely to, have an
appreciable adverse effect on competition, it shall, by order, approve that combination including
the combination in respect of which a notice has been given under section 6(2).
Where the Commission is of the opinion that the combination has, or is likely to have an
appreciable adverse effect on competition, it shall direct that the combination shall not take
effect.
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Propose modifications to combination (Section 31(3 & 4 & 5)) – Where the Commission is of
the opinion that the combination has, or is likely to have, and appreciable adverse effect on
competition but such adverts effect can be eliminated by suitable modification to such
combination, it may propose appropriate modification to the combination, to the parties to such
combination.
The parties, who accept the modification proposed by the Commission under section 31(3), shall
carry out such modification within the period specified by the Commission.
If the parties to the combination, who have accepted the modification under section 31(4), fail to
carry out the modification within the period specified by the Commission, such combination
shall be deemed to have an appreciable adverse effect on competition and the Commission shall
deal with such combination in accordance with the provisions of this Act.
If the parities to the combination do not accept the modification proposed by the Commission
under section 31(3), such parties may, within thirty working days of the modification proposed
by the Commission submit amendment to the modification proposed by the Commission under
that sub-section.
If the Commission agrees with the amendment submitted by the parties under section 31(6), it
shall, by order, approve the combination.
If the Commission does not accept the amendment submitted under section 31(6), then, the
parties shall be allowed a further period of thirty working days within which such parties shall be
allowed a further period of thirty working days within which such parties shall accept the
modification proposed by the Commission under section 31(3).
If the parties fail to accept the modification proposed by the Commission within thirty working
days referred to in section 31(6) or within a further period of thirty working days referred to in
section 31(8), the combination shall be deemed to have an appreciable adverse effect on
competition and be dealt with in accordance with the provisions of this Act.
96
UNIT-V
Or
Explain the provisions regarding resignation, removal and suspension of Chairperson and
other Members.
1. The Commission shall consist of a Chairperson and not less than two and not more than
six other Members to be appointed by the Central Government.
2. The Chairperson and every other Member shall be a person of ability, integrity and
standing and who has special knowledge of, and such professional experience of not less than
fifteen years in, international trade, economics, business, commerce, law, finance, accountancy,
management, industry, public affairs or competition matters, including competition law and
policy, which in the opinion of the Central Government, may be useful to the Commission.
Administration and enforcement of the Competition Law requires an administrative set up. This
administrative set up should be more proactive than reactive for the administration of the
Competition Policy. The administrative set up should take a proactive stand to be specified and
adopted to promote Competition by not only proceeding against these who violate the provision
of the Competition Law, but also by proceeding against the institutional arrangement and public
policies that interfere with the fair and free functioning of the markets. It is in this context that a
competition authority should have the following two basic functions.
(a) Administration and enforcement of Competition Law and Competition Policy to foster
economic efficiency and consumer welfare.
The Competition Act 2002 empowers the Central Government for the establishment of
Competitive Commission of India to prevent those malpractices that adversely affect
Competition. Additionally, it was enacted to promote and sustain Competition in markets as well
97
as to protect the interests of consumers. Thus the act was enacted to ensure free & fair trade
amongst participants in Indian markets and such other matters connected therewith. The
constitutional validity of the establishment of Competition Commission came to be challenged in
the case of BRAHM DUTT v. UNION OF INDIA (AIR 2005 SC. 730) where the composition of
the Competition Commission was under scanner. The ground of challenge was that Competition
Commission envisaged by the Act was more of a judicial body having adjudicatory powers on
questions of importance and legalistic in nature and in the background of doctrine of separation
of powers recognised by the Indian Constitution, the right to appoint the judicial members of the
Commission should rest with the chief justice of India or his nominee. Further the Chairman of
the Commission had necessarily to be a retired Chief Justice or Judge of the Supreme Court or of
the High Court, to be nominated by Chief Justice of India or by a Committee presided over by
the Chief Justice of India. In other words, the contention is that the Chairman of the Commission
had to be a person connected with the judiciary picked for the job by the head of the Judiciary
and it should not be a bureaucrat or other person appointed by the executive.
The Apex Court refrained from giving a Judgment as there were affidavits filed by Union of
India stating that there has been proposed some amendments to the effect that so as to enable the
Chairman and the members to be selected by a committee presided over by the chief Justice of
India or his nominee. Hence the court stated that one should look at the amendment as and when
notified and then address the issues of constitutionality. The Government passed a Competition
(Amendment) Bill 2006 in the light of above judicial dicta of the Supreme Court. The Bill was
passed by both houses and the necessary changes were made under the Competition Act 2002
vide Competition (Amendment) Act, 2007. The various changes that are made interalia seeks to
make the following amendments to the Competition Act so as to make CCT fully operational on
a sustainable namely.
It will function as a market regulator for preventing anti-competitive practices in the country. It
will also have advisory and advocacy functions in its role as a regulatory.
The Commission shall have, for the purposes of discharging its functions under this Act, the
same powers as are vested in Civil Court under the Coe of Civil Procedure (1908) while trying a
suit. [Section 36 (2), Competition Act 2002]
CAT will be guided by principles of natural justice and it can regulate its own procedure. The
proceedings before CAT are deemed to be judicial proceedings.
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Appointment and Removal of Chairperson and other members of Commission
1. The Chairperson and other Members of the Commission shall be appointed by the
Central Government from a panel of names recommended by a Selection Committee consisting
of –
d. two experts of repute who have special knowledge of, and professional experience in
international trade, economics, business, commerce, law, finance, accountancy, management,
industry, public affairs or competition matters including competition law and policy - Members.
2. The term of the Selection Committee and the manner of selection of panel of names shall
be such as may be prescribed.
The term of Selection Committee shall be one year and six months. Joint Secretary of Ministry
of Corporate Affairs will be its convener. The procedure to be followed by selection committe
has been specified in CCI (Term of the Selection Committee and the Manner of Selection of
Panel of Names) Rules, 2008.
The Chairperson and every other Member shall hold office as such for a term of five years from
the date on which he enters upon his office and shall be eligible for reappointment. However,
Chairperson and other Members shall not hold office after he has attained the age of 65 years.
• The Chairperson and every other Member shall, before entering upon his office make and
subscribe to an oath of office and of secrecy in prescribed form and manner [section 10(3)].
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• In the event of the occurrence of a vacancy in the office of the Chairperson by reason of
his death, resignation or otherwise, the senior-most Member shall act as the Chairperson, until
the date on which a new Chairperson takes office [section 10(4)].]
• When the Chairperson is unable to discharge his functions owing to absence, illness or
any other cause, the senior-most Member shall discharge the functions of the Chairperson until
the date on which the Chairperson resumes the charge of his functions [section 10(5)].
Resignation, removal and suspension of Chairperson and other Members (Sec. 11)
(1) The Chairperson or any other Member may, by notice in writing under his hand addressed to
the Central Government, resign his office:
Provided that the Chairperson or a Member shall, unless he is permitted by the Central
Government to relinquish his office sooner, continue to hold office until the expiry of three
months from the date of receipt of such notice or until a person duly appointed as his successor
enters upon his office or until the expiry of his term of office, whichever is the earliest.
(2) Notwithstanding anything contained in sub-section (1), the Central Government may, by
order, remove the Chairperson or any other Member from his office if such Chairperson of
Member, as the case may be, -
(b) Has engaged at any time, during his term of office, in any paid employment; or
(c) Has been convicted of an offence which, in the opinion of the Central Government, involves
moral turpitude; or
(d) Has acquired such financial or other interest as is likely to affect prejudicially his
functions as a Member;
(e) Has so abused his position as to render his continuance in office prejudicial to the public
interest; or
(3) Notwithstanding anything contained in sub-section (2), no member shall be removed from his
office on the ground specified in clause (d) or clause (e) of that sub-section unless the Supreme
Court, on a reference being made to it in this behalf by the Central Government, has, on an
inquiry, held by it in accordance with such procedure as may be prescribed in this behalf by the
Supreme Court, reported that the Member, ought on such ground or grounds to be removed.
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Restriction on employment of Chairperson and other Members in certain cases (Section 12)
The Chairperson and other Members shall not, for a period of two years from the date on which
they cease to hold office, accept any employment in, or connected with the management or
administration of, any enterprise which has been a party to a proceeding before the Commission
under this Act.
However, they can accept employment under Central Government or a State Government or
local authority or in any statutory authority or any corporation established by or under any
Central, State or Provincial Act or a Government company [proviso to section 12].
Sec. 22 contains provision relating to constitution of benches for the exercise of its power an
authority.
Sec. 23 – deals with distribution with of business of the commission amongst its Benches.
Sec. 24 – deals with the procedure for deciding a case if there is a difference of opinion amongst
members
According to Sec. 24 if the members of a Bench differ in opinion on any point, they shall state
the point or points on which they differ and make a reference to the chairperson who shall either
hear the point or points himself or refer the case for hearing on such point or points by one or
more of the other members and such point or points shall be decided according to the opinion of
the majority of members who have heard the case, inducing there who first heard it.
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Sec. 25 lay down the jurisdiction of the Bench of the Commission
(i) Where during an inquing before the commission, it is proved to the satisfaction of the
commission, by affidavit or otherwise that an act in contravention of section 3 (i) or section 4 (i)
or Sec. 6 has been committed and continues to be committed.
Sec. 34 makes the following provision regarding the award of compensation by the commission
if there is contravention of the provisions of ch II of the Act. Viz., there is loss caused by
Anti-competition agreement or abuse of dominant position.
The commission shall not be bound by the procedure laid down by the code of civil procedure,
1908 but shall be guided by the principles of natural justice and, subject to other provision of this
Act and of any rules made by Central Government the commission shall have powers to regulate
its own procedure including the places at which they shall have their sittings, duration of oral
hearings when granted, and times of its inquiry.
Sec. 36 (3): Every proceeding before the commission shall be deemed to be a judicial proceeding
within the meaning of Sec. 193 and 228 and for the purposes of Sec. 196 of Indian Penal Code
and commission shall be a civil court for the purposes of Sec. 195 an chapter XXVI of the Code
of Criminal Procedure, 1973.
Sec. 37: The commission can review it own order and can modify or set aside the same.
Sec. 38: Commission may rectify its orders the commission may made the amendment to rectify
the mistake –
(ii) When any such mistake has been brought to its notice by any party to the order.
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Sec. 39: Execution of orders of commission
The order shall be enforced by the Commission in the same manner if it were a decree or order
made by a High Court or the Principal Court in a suit pending there in
Sec. 40: Appeal to Supreme Court This section provides for filing an appeal against the order of
the commission, to the Supreme Court.
No appeal, however, is permitted if the decision or order of the Commission has been made with
the consent of the parties.
The Chairperson will exercise administrative powers of the Commission. He can delegate his
powers to other member or officer of Commission [section 13].
Duty of the Commission is to eliminate practices having adverse effect on competition, promote
and sustain competition, protect the interests of consumers, and ensure freedom of trade carried
on by other participants, in markets in India [section 18]
Competition Advocacy
The Central Government may, in formulating a policy on competition (including review of laws
related to competition) or on any other matter, and a State Government may, in formulating a
policy on competition or on any other matter, as the case may be, make a reference to the
Commission for its opinion on possible effect of such policy on competition.
On receipt of such a reference, the Commission shall, within sixty days of making such
reference, give its opinion to the Central Government, which may thereafter formulate the policy
as it deems fit. [Section 49(1)]
Procedure for making such reference to Commission has been prescribed in regulation 33 of
Competition Commission of India (General) Regulations, 2009.
Time taken for removing defects in reference shall not be counted for purpose of time limit of 60
days–regulation 15(5) of Competition Commission of India (General) Regulation, 2009.
The opinion given by the Commission shall not be binding upon the Central Government and
State Government, in formulating such policy [section 46(2)].
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The Commission shall take suitable measures, as maybe prescribed, for the promoting of
competition advocacy, creating awareness and imparting training about competition issues
[section 49(3)].
The Commission shall have power to inquire in accordance with provisions contained in sections
19, 20, 26, 29 and 30 of the Act, into agreement or abuse of dominant position or combination if
such agreement or dominant position or combination has, or is likely to have, and appreciable
adverse effect on competition in the relevant market in India, and pass such orders as it deems
fit, notwithstanding that –
(a) An agreement referred to in section 3 has been entered into outside India; or
(f) Any other matter or practice or action arising out of such agreement of dominant position
or combination is outside India. [Section 32].
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