Chapter Ten

The Ethics of Consumer Protection

CONSUMER—AN IMPORTANT STAKEHOLDER

Consumers are often given a raw deal by way of substandard products, increased prices through market manipulation, failed warranties, poor after-sale services and a host of other unfair trade practices. This is in spite of the fact that the consumer is regarded as the king who through the market forces dictates the quality and quantity of goods, and leaders like Mahatma Gandhi consider him as the sole purpose for which an enterprise exists. Good business ethics should place the customer as one of the important stakeholders and should give the customer his or her due share.

Companies across the world have realized that there is a need for broader accounting of their performance towards stakeholders as against mere bottom line accounting that is of interest only to stockholders.

Companies like IBM and Shell have taken steps to include stakeholder consultations as part of their corporate strategy. Similarly, Dow Chemicals includes service to stakeholders in its vision statement, which says “To be successful, we have to provide a balance to the needs of all four of these groups (customers, employees, shareholders and society). If we maximise the return to any one or two of these stakeholder groups at the expense of the others, we won’t survive very long”.¹

It is generally perceived that the interests of stockholders who are part-owners of the company need not necessarily be the same as that of the society in which the companies function. Though, there is no doubting the validity of this statement, it is not as watertight as it seems because both stockholders and stakeholders are investors in any given company. An investor can be defined as anyone who commits something of value: it could be money or some thing else that might not be directly related to money. Employees for instance, ‘invest’ part of their lives with the employer.

HIDDEN TAXATION ON SOCIETY

Dr Ralph Estes, Professor of Business Administration at American University, published a paper, ‘The Public Cost of Private Corporations’ in the journal Advances in Public Interest Accounting in the mid-1990s. Dr Estes argued that corporations do not pay or calculate the costs that their operations impose on society at large. They only pay their internal costs. According to Dr Estes, financial statements of corporations reveal only internal costs to the entity and do not measure or reveal the uncompensated costs to society. Though these costs are difficult to measure they are real to those on whom they are imposed. Social costs should be matched against the benefits obtained.

Dr Estes firmly argued that it is necessary to re-evaluate the process of assessing the performance of corporations to improve public policymaking. Financial statements that ignore social costs can present a distorted picture of performance that might influence governments to be overly generous with corporate benefits or lax in enforcing corporate regulations. Dr Estes computed that these social costs or external diseconomies added up to US$ 2.6 trillion (1994), almost twice the entire US federal budget and more than ten times the annual federal deficit. Also, since the annual corporate profits in the United States work out to only approximately US$ 1 trillion, it was certain that stakeholders were paying these costs.²

STAKEHOLDER ALLIANCE

The Stakeholder Alliance, a North American advocacy group has come out with the Sunshine Standards with the objective of making corporations more accountable to stakeholders.³

These Standards provide direction for corporations reporting to stakeholders—the employees, customers, communities, suppliers, as well as financial investors.

The fundamental principle underlying the standards is that “All information should be provided that stakeholders may need to make rational, informed decisions in the marketplace, and to protect themselves from negative consequences of corporate actions; this disclosure must be complete, accurate, timely, objective, understandable and public”.

The Sunshine Standards press corporations to disclose actions brought by customers and regulatory authorities regarding products, services and market practices. Customers should be informed about all risks from normal usage, problems associated with the usage of the product, design for recycling, biodegradability of products and packaging, etc. Customers are also entitled to be informed about unusual lifecycle costs, including repairs, energy consumption and disposal that will be borne by parties other than the producer or seller, warnings, with appropriate detail, regarding unusual contamination and adulteration exposure and risks during production, shipping, marketing and storage.⁴

CONSUMER AND CONSUMER PROTECTION

A consumer is any person who, or firm, Hindu Undivided Family (HUF), cooperative, or association which

• buys any goods for a consideration which has been fully or partly paid for, with a purpose that does not include resale or any commercial purpose (except self-employment);
• hires or avails of any services for a consideration which has been fully or partly paid for, with a purpose that does not include free service or services under a personal contract.

Consumer protection refers to the steps necessary to be taken or measures required to be accepted to protect consumers from business malpractices.

It may be regarded as a movement like consumerism. This is primarily necessary because businesspersons aim at maximizing profits, often at the expense of consumers.

PARTIES TO CONSUMER PROTECTION

Over the years, consumer protection has assumed great importance to civil society. For effective consumer protection, it is essential that three parties—consumers, businesspersons, and government—have vested interests in ensuring that consumer rights are implemented.

1. Role of Consumers: Consumers should, as far as possible, take care of their own interest and protect themselves from market malpractices. To realize this objective, they should know their rights and exercise them. They should not depend on the good sense of businesspersons. Consumers have a right to education and also a right to be heard. They should attend training programmes for consumers arranged by local consumer associations or by their own association and invite consumer activists to speak to them on consumer rights and remedies available under the law to protect them.
2. Role of Businesspersons: Producers, distributors, dealers, wholesalers as well as retailers should pay due attention to consumer rights in their own interest, by ensuring supply of quality goods and services at reasonable prices. To prevent unfair practices, associations of traders, chambers of commerce and industry, and manufacturers’ associations should entertain consumer complaints against their members and take proper action against those guilty of malpractices.
3. Role of Government: Consumer protection is a responsibility of governments to ensure the general interest of society. Appropriate laws should be enforced and existing laws amended to protect consumer interests in the light of recommendations of consumer associations. Representations of consumer groups should also be associated with the policy-making bodies set up by governments both at the centre and the states. A number of consumer protection measures have been taken by the Indian Government from time to time.

As per the Guidelines for Consumer Protection provided by the United Nations: “The governmental role in consumer protection is vital and finds expression through policy-making, legislation and development of institutional capacity for its enforcement. To provide a legal basis for enforcing basic consumer rights, every country needs to have an irreducible minimum of consumer protection legislation”. Such legislation should have important features as physical safety, standards for the safety, quality of goods and services, distribution facilities redress and education and programmes relating to information, promotion and protection of consumer’s economic interests.⁵

In amplifying the role of the governments further, the UN guidelines want them to set up distribution facilities for essential goods and services. Governments should, to the extent required (i) Adopt or maintain policies to ensure efficient distribution of goods and services to the public, especially to people living in rural communities and to the poor. Such need-specific policies should include assistance for the creation of adequate warehousing and retail facilities in rural areas, provision of incentives for consumer self-help and better control of the supply of essential goods and services in such areas. (ii) Encourage the setting up of consumer cooperatives and provision of information about them. (iii) Governments should establish legal and administrative measures to enable consumers or relevant organizations to get their grievances redressed fairly inexpensively and expeditiously through formal or informal procedures. (iv) the State also should encourage businesspersons to resolve all consumer disputes in a fair, fast and informal manner, “and to establish voluntary mechanisms including advisory services and informal complaints procedures, which can provide assistance to consumers. Information on available redress and other dispute-resolving procedures should be made available to consumers”.⁶ The guidelines encourage governments to develop, strengthen and maintain a strong consumer protection policy. In so doing, each government must set its own priorities for the protection of consumers in accordance with its economic and social circumstances and the needs of its population.⁷

HISTORY AND GROWTH OF CONSUMER PROTECTION

The genesis and growth of consumer movement could be traced to the consumer-related awareness that emerged in the United States all through the first half of the 20th century.

The 1920s witnessed serious efforts being made to reduce the exaggerated claims of advertisers of goods and services, and demands made for impartial testing of goods. A testing service established in the United States was so popular that it formed the basis for the present Consumers’ Union. The 1930s witnessed the growth of consumer cooperatives. The first federal consumer agency, Food and Drug Administration, demands the labelling of products and the introduction of USDA stamps. The 1940s ushered in 150 local consumer councils across the United States, which eventually drew together to form the National Association of Consumers. During the 1950s, The American Council of Consumer Interests was established by 750 members from universities, schools and consumer research organizations.

President Kennedy facilitated the formation of a permanent consumer agency in the Federal Government by establishing the Consumer Advisory Council. He stressed: “Additional legislation and administrative action is required if the Federal Government is to meet its responsibility to consumers in the exercise of their rights. These rights include: the right to safety, the right to be informed, the right to choose, and the right to be heard”.⁸

RALPH NADER’S CONTRIBUTION TO CONSUMER PROTECTION

The 1960s witnessed the formation of the Consumer Federation of America, which is a leading consumer protection organization today. It was during this period that Ralph Nader came on the scene and gave the cause of consumer protection high visibility. The 1970s saw a flourishing of private consumer protection agencies and councils. Such action prompted President Jimmy Carter to issue an Executive Order as a prelude to the establishment of a permanent federal consumer agency which is now known as the US Office of Consumer Affairs.

It was Ralph Nader who coined the term ‘consumer advocate’.

Before 1965, car dashboards were made of metal. Car wrecks could easily happen even at very low speeds. Seat belts had to be bolted to the car’s floor boards. During mid-speed wrecks, passengers could be thrown into the windshield. Windshields were made of safety glass that could easily chisel a passenger’s face and body in case of a wreck. Car doors were not capable of withstanding collision forces and were likely to pop off during accidents, proving to be fatal for the passengers.

Ralph Nader’s Unsafe at Any Speed (1965) focused on the Chevrolet Corvair. Many of the problems described in the book could be generalized to auto showroom and highway smash-ups. Based on the response to Nader’s book, the US Congress passed the Traffic and Motor Vehicle Safety Act of 1966.⁹

Nader’s relentless work has improved the quality of life for Americans in areas as diverse as the environment, healthcare, insurance, pension and disability rights. He is also the founder of numerous non-profit organizations which carry out this important work. Nader’s other great accomplishment concerns the education of America’s consumers. Through his efforts over the past half a century, consumers now understand their own power as social activists to make change through collective action.

The necessity of adopting measures to protect the interest of consumers arises mainly due to their helpless position and the unfair business practices. No doubt consumers have the basic right to be protected from the loss or injury caused on account of defective goods and deficiency of services. However, consumers are unable to make use of their rights due to lack of awareness and ignorance. For example, consumers have the right to choose the goods of right quality from a variety of similar goods available in the market. But they fail mostly to make the right choice because of misleading advertisements by which they are carried away and buy sub-standard goods. Under certain circumstances, they are helpless because of their inability to verify the quality of products. A clever shopkeeper can deceive them by his or her persuasive sophistry. If the date of expiry on a strip of medicinal tablets is not legible, they may buy them in a hurry depending on what the seller tells them. If the medicine does not have the desired effect, they may go to the doctor again and request him to prescribe some other medicine forgetting the fact that they have been supplied with an outdated medicine. Often consumers are guided by some of their beliefs without any basis. For instance, some of us believe that ‘higher price indicates better quality’ and so do not mind paying higher price for a product if the salesman recommends it to be of good quality. Again, it is a common belief that imported goods are invariably of a superior quality. So if there is a printed label or a mark that shows a product is made in a foreign country, we may buy it at a higher price without verifying its place of manufacture.

Processed food sold in packets, like potato chips, are not good for health, but young people use them because they are tasty. Certain brands of soft drinks are popular with young people as the brand ambassadors shown on the TV are popular film artists or cricketers and what they say carries a lot of weight with their fans. Excessive use of soft drinks is not good for health. It seems we have forgotten fresh lime water with sugar or salt as a good drink. Producers of goods often put standard certification marks such as ISI on the package as if these are genuinely certified. Similarly, it is very difficult to verify if packaged goods are sold short of the weight we pay for. Sometimes the weighing machines are defective.

Moreover, consumers are not fully aware of remedies open to them if goods are defective or there is deficiency of service. Nader’s initiatives made Americans realize why steps were to be taken to ensure passengers do not get sucked into the metal dashboard or the drivers’ necks are not snapped on the metal steering wheel. At mid-speed wrecks (say, 20 miles an hour), passengers could be thrown into the windshield, which was made of ‘safety glass’ that could chisel a passenger’s face and body. Car doors were not attached to the car’s body firmly enough to withstand collision forces, and would often pop open and off in an accident, which would instantly make the car’s frame (and the passengers inside) much more likely to be crumpled by the crash.

Nader’s book focused mostly on the Chevrolet Corvair, but many of the problems detailed were applicable in every auto showroom and highway smash-up. The response to Nader’s book led the US Congress to pass the Traffic and Motor Vehicle Safety Act of 1966. Since then, everything that adds the word ‘safety’ to the word ‘automotive’—seat belts, air bags, even the idea of manufacturers’ recalls, or requiring crash tests—can be traced directly to Nader’s book.

Nader also started the US Public Interest Group (PIRG), an umbrella group of state PIRGs that fought against corporations and politicians over issues from prescription drug costs to polluted waterways. Nader also founded the Center for Study of Responsive Law, Center for Auto Safety, the Disability Rights Center, the Pension Rights Center, the Project for Corporate Responsibility, and the Clean Water Action Project.

Without the work of Nader, his followers, and the groups he has organized, there would not have been such consumer protection enactments and establishments as Safe Drinking Water Act, Occupational Safety and Health Administration (OSHA), Environment Protection Agency (EPA), Consumer Product Safety Administration, and the Freedom of Information Act (FOIA) of 1974.

Ralph Nader is the best-known consumer advocate of the 20th century. Believing deeply in the rights of American citizens to be treated fairly by big businesses, to be protected by their government, and to be buffered from the excesses of organized institutions of all kinds, Nader is a tireless and single-minded organizer and activist. Beginning in the 1960s with efforts to promote the first car safety legislation, he has dedicated his energy to protect the constitutional rights of American citizen-consumers and to protect consumers from business. It is due to his tireless efforts and matchless initiatives that the consumer protection movement has made significant inroads all over the world, including developing countries like India.

CONSUMER PROTECTION, WHY AND HOW

The consumer has been at the receiving end in most countries of the world, especially in developing nations like India. On account of such exploitation, a strong public opinion has been built over the past five decades demanding protection to consumers. Consumer protection is possible only if adequate and appropriate cooperation is forthcoming from the three concerned parties, namely, consumers, business and the government. Consumers should assert their rights which include: (i) the right to safety; (ii) the right to be informed; (iii) the right to choose; (iv) the right to be heard; (v) the right to seek redressal; and (vi) the right to consumer education. They should accept consumerism and should succeed in making government and business more responsive to their rights. Consumerism should be effectively used to make business honest, efficient, responsible and responsive; and goad the government to adopt the required measures towards consumer protection and guarantee their legitimate rights. A UN report (1988) stresses that consumer rights must be “defended through (i) strict standards for consumer safety and health; (ii) product labelling about the content and proper use of products and their environmental and social impact; (iii) information and awareness campaigns about potential hazard, such as smoking and the improper use of feeding formula for infants”.¹⁰ Consumer protection can be achieved by producers and traders adopting discipline and self-regulation; NGOs and voluntary organizations of consumers acting in concert to safeguard the interests of consumers; by spreading information and awareness about different products and services; and through government legislation to prevent unethical practices of manufacturers and traders.

CONSUMER DUTIES AND RESPONSIBILITIES

Consumer protection is not a one-way street. To enjoy protection, consumers have to exercise some responsibilities too. M. R. Pai of the Forum of Free Enterprise, Mumbai, has listed a few responsibilities consumers are expected to bear.¹¹

1. Substantiate the Complaint: When a consumer makes a complaint against the seller of the product, it should be specific and supported by appropriate evidence, such as bills, acknowledged copies of correspondence. Complaints should not be vague or unsubstantiated. The complainant must be genuine in his or her claims.
2. Listen to the Seller: The consumer-complainant should seek the opinion/viewpoint of the seller before lodging a complaint with appropriate authorities. It is likely that in some cases the explanation of the seller may convince the consumer that he has not considered the other side of the problem, and to what extent remedy is available to him.
3. Cooperate With the Seller if Needed: There could be situations when a consumer has to co-operate with the seller. For instance, if too many consumers vie with one another to get a product or service in short supply, the seller may want the buyers to come in a queue and take it on first-come first-served basis. Moreover, buyers should not try to misuse their rights to exploit or embarrass the seller. They should give the first opportunity to redress their complaint to the seller himself; going to the consumer court should be the last resort.

   Likewise, there could be occasions when the seller himself may be helpless, as at times when the producer refuses to take back defective items from the seller. On such occasions, if the seller so desires, the consumer should join him in pressuring the producer to replace the defective item free of cost.

4. Avoid Inconvenience to Others: Consumers, even while they assert their rights from sellers or producers of products or services, should not cause trouble or inconvenience to others. When they resort to dharna or such type of agitations, it should not cause problems to the public.
5. Do Not Personalize Issues: Consumers should make it a point to complain against the system that causes them problems, and not against individuals, who may be replaced by others who may be as helpless or useless as the former.

   We can add a few more responsibilities.

6. Not Lend Self to Others: Consumers should ensure that they fight for their own causes, and should not lend themselves to be used as pawns in games played by politicians or political parties.
7. Be Well Informed: Consumers should try to be well informed, as far as possible, about the issue of their complaint. They must read and understand the terms of sale before buying goods, especially before lodging complaints. It is often found that people sign forms where they may surrender their rights of appeal by accepting certain clauses in fine prints in a hurry or for want of knowledge or out of sheer carelessness. This will make them ineligible to claim their rights. For instance, most of the medical insurance policies would provide reimbursement only if the patient is admitted into a hospital at least for a day for treatment of their ailments. Consumers who are not aware of this clause waste their time and the insurers’ in wasteful litigation.
8. Understand the Grievances Redressal Process: Consumers should have, to the best of their ability and understanding, a clear knowledge as to whom they should approach for redressal of their grievances. Instead of going to civil courts for ordinary issues such as poor quality of goods or the producer not keeping his or her promise of guarantee, the consumer should approach the dealers directly or if they are quality certified, the certifying authority for redressal. This would avoid wastage of time, efforts and resources on both sides.
9. Avoid Impulsive Buying: Consumers should plan their purchases, devote some time to select the product or service that would satisfy their wants, survey the market, gain knowledge about alternatives, have an idea of quality and price, and then make purchase decision. They should avoid impulsive buying. Moreover, one may seek the opinion of friends, relatives, neighbours, sellers, and information gleaned from advertisements, but the purchase decision should be one’s own.
10. Buy Goods From Authorized Agents: As far as possible, one should buy goods or services from genuine authorized agents, after paying due taxes and obtaining bills and receipts. If one tries to avoid sales tax and does not insist on a receipt, it may be a case of ‘penny wise and pound foolish’ later on, if one wants to lodge a complaint with courts or other government agencies.
11. Other Duties and Responsibilities: No consumer should make frivolous complaints. He or she should avoid rumour-mongering to spite any seller for personal reasons. Consumers should avoid causing damages to the seller’s business even if they have a genuine grievance against the seller over their purchase. Shouting at the seller in front of other customers so as to cause him or her embarrassment or loss of business is not only bad manners, but it will also jeopardize the chance of getting one’s grievances redressed. In case a customer comes across spurious or substandard products or someone charging exorbitant prices, he or she should caution others against such malpractices of a seller. Consumers should take it as their moral responsibility not to pollute the environment while disposing waste materials. It is important that consumers behave in a responsible manner before they point out an accusing finger against sellers of products and services. Many a time they are not only ignorant and unbalanced in their approach but also greedy and avaricious. Millions of depositors who were lured by abnormally high rates of interest offered by non-banking finance companies lost more than Rs 500 billion in the 1990s. Even today, thousands of people get cheated by fly-by-night operators who offer to give them double the value of money in terms of consumer durable items like TV sets if they deposited the money in advance. As the saying goes ‘as long as there are persons willing to be cheated, there will be persons who will be ready to cheat them’!

CONSUMER PROTECTION: INDIAN SCENARIO

The need for and importance of consumer protection has been realized in India for a very long time. In fact, even during the British regime, a number of enactments such as the Sale of Goods Act (1930) and Agricultural Produce (Grading and Marketing) Act (1937) had been enacted. After India’s independence, the now-repealed Monopolies and Restrictive Trade Practices Act (MRTP Act) 1970 and Consumer Protection Act 1986 were two landmark legislations that were passed to protect the consumers.

Unlike in the Western countries where the functioning of a free-market economy offers only a limited scope for governments to interfere in favour of any one segment of society, in India the socialistic pattern of society we had adopted since independence, allowed the government to arm itself with a number of statutory weapons to control production, supply, distribution, price and quality of a large number of goods and services. The Indian government is vested with the power to regulate the terms and conditions of sale, the nature of trade and commerce and so on. As T. Thomas, the former Chairman of Hindustan Lever Ltd. has stated at the 44th Annual General Body Meeting of the company’s shareholders, “In some ways our (Indian) bureaucracy has perfected the art of assuming the guardianship of all interests of the consumers and the vulnerable sections”.¹²

SPATE OF CONSUMER-ORIENTED LEGISLATIONS

Some of the important legislations enacted to protect the Indian consumers include the MRTP Act 1970, Industries (Development and Regulation) Act (IDRA) 1951, Essential Commodities Act 1955, Prevention of Food Adulteration Act 1954, Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act 1980, Trade Marks and Merchandise Marks Act 1958, Sale of Goods Act 1930, Indian Patents and Designs Act, Agricultural Products (Grading and Marketing) Act 1937, Indian Standard Institute’s Certification Act, Standard Weights and Measures Act 1956, Import and Exports Control Act, Packaged Commodities Order, Price and Stock Display Order, Consumer Protection Act 1986, The Food and Drugs Act, The Railway Claims Tribunal Act 1987, The Essential Commodities Act 1955, The Drugs and Cosmetics Act 1940, Fruit Products Order 1955, The Trading Stamps Act, The Cigarettes (Regulation, Production, Supply and Distribution) Act 1975, Hire-Purchase Act 1972, The Drugs and Magical Remedies (Objectionable Advertisements) Act 1954, Bureau of Indian Standards Act 1986, Narcotic Drugs and Psychotropic Substances Act 1985, The Emblems and Names (Prevention of Improper Use) Act, and Household Electrical Appliances (Quality Control) Order 1976, and Weights and Measures (Enforcement) Act 1985.

However, most of the objectives of the above pieces of legislation overlap. The multiplicity of laws for trade regulation and consumer protection has caused confusion among consumers as to which one is applicable in their cases, and in many cases enable offenders to slip out of the maze of legislations. Notwithstanding or because of too many legislations, there has been a weak implementation as a result of which unfair and exploitative practices abound in the Indian market. “Lack of competition in a number of product areas, consumers’ illiteracy, consumer indifference towards products, weak consumer organisations and lack of consumerism in the country are among the major factors that further enable erosion of consumer rights by business firms”.¹³

HOW ARE INDIAN CONSUMERS EXPLOITED?

India has one of the largest number of consumers in the world, perhaps next only to China. With more than 1,150 million people, and almost 20 per cent of them constituting the middle-income group having a considerable quantum of disposable income, India offers a very attractive market both for consumers and to those who are eager to cater to their ever increasing demands. However, this large body of consumers suffers from a variety of disabilities. These consumers who lay scattered through the length and breadth of the sub-continent are illiterate and unorganized. Almost 65 per cent of them live in rural and semi-urban areas with poor infrastructure, especially communication facilities. As opposed to these disadvantaged consumers, the suppliers of goods and services, both producers and distributors, are better organized. They are resourceful in every meaning of the term and adopt deceptive and dubious means to deceive and exploit consumers in a number of ways. The following are the most common unethical means through which they cheat the poor consumers.

Exorbitant Prices of Products and Services

Producers fix prices of products far higher than the cost of production including normal profit. Often the prices of some essential commodities are so high that most of the people cannot simply afford them. Some of the life-saving drugs are so costly that the poor and sickly patients who need them most do not afford to buy them. Producers of these medicines keep charging increasingly high prices with the passage of time. There have been instances where higher prices are marked for the medicines of the same batch, but of different lots. High price of course cannot be equated with superior quality. Indian prices may look comparatively cheaper to prices abroad, but if we relate them to the average Indian incomes, they are very high.

Deceptive Selling Practices

The Indian consumer, illiterate and ill-informed as he or she is, is easily duped by producers. Since most consumers hunt for bargain prices, producers offer ‘hefty’ discounts of say, 50 per cent after hiking the prices by almost 100 per cent. They advertise prominently ‘Discounts from 5 per cent up to 50 per cent’ and invariably it will be the lowest percentage discount for the shop-soiled items. Besides, they wriggle out of their publicized obligations by saying that they have placed a legend ‘Conditions Apply’. But this legend is printed so small that no prospective buyer would have noticed. This dubious practice is followed not only by private sector companies, but also by public sector enterprises. Moreover, since most Indian consumers are ardent users of imported products, they are charged huge prices for them, even though they are of inferior quality. Another side of the story is that many locally manufactured goods are palmed off as imported ones to the gullible buyers and charged very high prices. It is common knowledge that there was an entire township near Mumbai where hundreds of units produced goods labelled ‘Made in USA’, which referred to Ulhasnagar Sindhi Association!¹⁴

False and Misleading Advertisements

In India, many companies resort to false and unethical advertising practices. Many a herbal product is advertised as if it is a cure for all kinds of ailments. There are false and misleading representations that goods and services are of a particular standard, quality, grade, composition, style or mode, when they are not, and false representations of rebuilt, second hand, renovated, reconditioned or old goods as new goods. Goods or services are depicted as having sponsorships, approval, performance, characteristics, accessories, uses or benefits they do not have; the seller or the supplier is portrayed as having a sponsorship, approval or affiliation which he or she does not have and false representations are made concerning the need for or usefulness of some goods or services. Assurances in the form of a warranty or guarantee of the performance, efficiency or the length of life of products or of goods that are not based on an adequate and proper test; making a warranty or guarantee which is not intended to be acted upon; and misleading promises to replace, maintain or repair an article or any part thereof are all examples of falsified representation to the public, disparaging the goods, services or trade of competitors. For instance, a pharmaceutical company advertised that use of its paracetamol tablet did not have any side effects like aspirin, but it suppressed the experts report that the use of paracetamol had adverse effect on the liver.

A company announced in its advertisement that it was manufacturing 150 cc scooters in technical collaboration with a foreign company, although no such collaboration had been entered into. In another case, a company used the trademark of a well-known company ‘Philips’ in its advertisement for TV sets. On enquiry it was found that the company did not have the necessary permission from Philips for the use of its trade mark on TV sets. It was a case of misrepresentation of the fact that company was authorized to use the trademark ‘Philips’ on its audio products (radio sets) only. Such unethical practices are being followed in varying degrees in the country leaving the unsuspecting consumer at the mercy of such unscrupulous suppliers.

Defective Quality, Higher Prices

There are producers who lower the quality of the product they offer to consumers without disclosing it to them, even though they charge the same or higher prices. They may use low-quality inputs or use material inputs of lower specifications than advertised as in computers, electrical and electronic products. They take advantage of the buyers’ ignorance or his/her inability to enforce authority to detect such unethical practices and penalize them.

Sale of Hazardous Products to Ignorant Consumers

The Indian market is full of products which are hazardous to the health, life and property without the consumer knowing about it. In cases of liquor, drugs and cigarettes, most consumers know the side-effects of consuming them through public awareness campaigns and by reading about the consequences of consuming such products. But there are other products such as floor-cleaning acids and some so-called healthcare products that could, if used wrongly, create health problems. Many controversies have risen both in India and abroad about several herbal products making excessive claims of their curative value, and allegations of their containing bone powder and metals that can endanger the health of users. It is also said that self-medication or wrong use of medical products could cause a lot of health problems. In all these cases, the problem of choice becomes complex because producers do not caution prospective consumers of wrong uses or excess dosage.

Suppression of Material Information

Unlike in Western countries where manufacturers are legally required to provide material information about the quality and constituents of the products they market, and its adherence is enforced strictly by public authorities, this consumer-friendly practice is not followed in India. Also, producers in the country suppress material information about the quality, purity, standard or performance of the product. For instance, consumers of jewellery in the country lose a lot of money every year when they buy gold ornaments. The World Gold Councils’ benchmarks are rarely followed by jewellers, and they sell 18- or 20-carat gold as 22 carats and cheat customers out of a lot of money. This is done in cases of several other products and services as well.

False Product Differentiation

Many producers who offer to sell superior products tend to sell inferior substitutes. Whether it is in food products like ghee or in high-tech products such as computers, they do not deliver what they promise but an inferior variety or goods of lesser quality and specifications. In the edible oil category there is hardly any product differentiation and consumers end up paying high prices for oils that are far inferior to the ones they pay for.

Producers’/Sellers’ Collusion

Consumers in a free-market economy reap maximum benefits in the marketplace such as better quality products, cheaper prices and wider variety of products to choose from. Producers, on the other hand, tend to lose in an imperfect competitive market because of intense and fierce competition. So, they try to restrain competition through producer or trader collusion. This not only reduces product choices to the consumer, but also compels him/her to pay higher prices for poor quality products. It is a well-publicized fact that consumers of cement in Tamil Nadu pay as much as Rs 50–70 more per bag of cement compared to other states due to cartelization of cement manufacturers in the state.

Supply of Adulterated and Substandard Products

It is a well-known fact that petrol in India is adulterated with kerosene, cement with inferior coal ash, dal and grams with coloured mud and so on. It is very rare to find any high priced consumer product in its pure form or as advertised by the producer. Hardware products are invariably spurious and substandard. Even food articles such as edible oil, milk and fruit juices are adulterated in varying degrees. Indian consumers lose thousands of millions of rupees not only in paying normal prices for spurious products but also for medical treatment for illnesses due to the consumption of adulterated food articles. The Centre for Consumer Education Research Testing and Training (CONCERT) estimates that at the national level 40 per cent of petroleum products are adulterated and that the associated consumer loss is to the tune of Rs 400,000 million.¹⁵

Cheating Consumers by Giving Lesser Quantity for the Price

Various estimates suggest that Indian consumers pay more than Rs 30 million every year for quantities of products they do not get. Use of false weights and measures is commonplace throughout the country. Whether it is in ordinary provision stores, or public distribution systems or taxis or autos, customers are fleeced through false weighing machines, recalibrated meters and the like. Though there are the civil supplies, police and other departments equipped with the power to penalize the offenders, it is an open secret that it is never done, unless, of course, when the babus want to fleece the fleecers!¹⁶

Dishonoured Guarantees and Warranties

Indian manufacturers and sellers are notorious for not honouring their guarantees and warranties for their products. Every Indian user of durable consumer products would have experienced the agony of making the seller of products live up to the promises they made at the time of selling the products. They give some reason or the other to evade responsibility to their customers. For instance, even if a new refrigerator or washing machine breaks down due to the failure of a component, the sellers refuse to replace them saying that these are ‘perishable items’ and not covered under the warranty. Unfortunately, such unsavoury practices are followed not only by new or lesser known producers, but also by famous and well-established companies, including MNCs. The very same MNCs which scrupulously stick to the terms of guarantees in Western countries, resort to duplicity and deception when dealing with Indian consumers, such as the case of Coca-Cola, which follows double standards in India compared to the United States.¹⁷

Poor Redressal of Customers’ Genuine Grievances

It is not rare to find producers and sellers refusing to address the genuine grievances of customers once they have sold their products and received payments. They try to blame the customers for wrongful usage of the products. National and regional newspapers carry dozens of letters written by affected and unhappy users of products venting their grievances through the public for want of sympathetic hearing by the sellers. These days consumer courts and redressal forums penalize producers of products and service providers almost daily for deficiency of services by them.

Creating a Scare Out of Scarcity

It is a common occurrence in the Indian consumer market for sellers of many essential products to create artificial scarcity by hoarding or withholding supplies with a view of forcing buyers to pay a premium on the prices of their products. Prior to the adoption of the new economic policy in 1991, this practice was a routine affair. Companies used to corner licenses in benami names to pre-empt new players, but would not produce the licensed capacity, and persuade the government not to import those goods in shortage in the name of level playing field. This created a scarcity that was an ideal ground for them to demand a premium for the scarce products. If it was a controlled product such as cement, iron or coal, there would be a flourishing black market and generation of black money, all at the cost of the poor consumer.

Making Consumer Buy Unwanted Goods

Producers of goods, taking advantage of consumers’ ignorance and the influence of electronic media on their minds, manipulate the situation to make them buy new products they do not need. For instance, media advertisements on stain removers on clothes are totally manipulated to make consumers buy them in addition to detergents. They show on TV with excellent visuals how stains instantly vanish once you dip them into the liquid stain remover and then launder the clothes. They use either new or pre-washed clothes to convince viewers of how immaculately clean the clothes can become. Many new consumers are attracted to buy the costly product and repent at leisure.

Misleading Representation on Utility of Products

Many producers take advantage of the ignorance of ordinary consumers and the lax implementation of consumer protection laws, and dupe consumers about the need and utility of their products. For instance, producers of a herbal oil in Tamil Nadu claim that their product offers a panacea for obese, bald-headed, arthritis-suffering and pot-bellied people. They also show a certificate from a university research cell that it has proven medicinal value. People hardly ask themselves how one product can cure such diverse ailments. When such products are advertised on TV with appealing visuals and earful jingles, people immediately rush to buy those products. Many goods and services we use today are not so essential to our lives that we should have purchased them, but because producers advertise them so attractively and convincingly, many of us have been tempted to buy and use them for whatever they are worth. A modern salesperson is equipped with such advertising gimmicks that he or she can easily sell refrigerators to Eskimos!

Manipulating Conditions of Delivery

Delivery of many products is not a straightforward affair. Several conditions are attached to them that enhance the costs and cause inconvenience to consumers. An advertisement for air-conditioners shrewdly advises prospective customers to book their requirements immediately, pay an advance, take delivery three months thereafter. In small print it is also mentioned that a substantial amount of delivery charge will have to be added to the final payment. If one works out the total cost, it will be more than what a customer has to pay for air-conditioners available off the shelves. The advertisement is simply to lure the customers place orders so that the company knows the exact future demand to enable them to work out their production schedule. Another ruse followed by sellers these days is to offer unbelievable ‘add-ons’ as a sales gimmick and place a small asterisk, and in a still smaller footnote mention ‘conditions apply’ to fool both the prospective consumers and enforcing authorities. Those conditions, of course, are invitations to get fleeced!

Customers Pay for Numerous Intermediaries

The Indian marketing system is such that in most cases of products there is a long chain of intermediaries—middlemen, dealers and distributors, who add their own operating costs and profits, all of which have to be borne by customers. The system neither benefits producers, nor the ultimate consumers. It only adds to the cost of distribution, which is to be paid by consumers. For instance, it is said that a basket of onions containing 16% kilograms are sold by farmers at as low a price of Rs 10 or less at Nashik in Maharashtra whenever there is an abundance of crop, whereas a kilogram of onion is sold for more than Rs 10 in cities like Chennai or Bangalore. Even if we add the cost of transportation and other selling costs, it is incomprehensible as to why a consumer has to pay such bloated price for many of the essential products including food grains, vegetables and fruits.

Fall in Prices—Never Passed to Consumers

In one of the unexplainable situations in the Indian market place, whenever there is a rise in the wholesale prices of goods due to drop in production or natural calamities, consumers are charged higher prices immediately, as in cases of fruits and onions which touched the peak of Rs 60 per kilogram due to scarcity in the early 1990s. However, when there is a bumper crop and supply exceeds demand by a large margin, retail prices rarely come down, if at all. The consumer hardly seems to get any benefit out of the bounty of nature.

Buying Unaffordable Goods

In recent years, a psychological third-degree method is being used by producers with surplus stocks, dealers who want to make more money, advertising agencies with alluring captions and bankers with surplus liquidity. They join together and organize ‘melas’ and ‘mega exhibitions’ to lure gullible and often undecided customers. They are tempted with attractive gifts, easy credit and by the glib sales talk of the event being a once in a lifetime opportunity that will never come again. They are never given an opportunity to think about their repayment capability and rushed into the purchase of amenities and appurtenances of life. Having bought goods on instalments, many consumers find it difficult to meet their commitments. Bankers who confiscate vehicles from owners who could not pay, and sometimes even threaten the customer for payment are increasing in number every year.

Advertisement Cost

Some producers advertise their products heavily time and again in electronic and other media to create an impression that their product is a popular one. However, the heavy cost of advertisement is stealthily passed on to the consumer making him/her pay a heavy price without any quid pro quo.

Counterfeits Constitute Substantial Quantity of Goods in Store Shelves

India is known to have a large amount of counterfeit currency, especially of high denominations, circulating side by side with legal tender currency.¹⁸ Likewise, counterfeit goods also are being mixed with genuine products and sold to unsuspecting consumers. The odds of a customer picking up a counterfeit vary depending on what one buys. If it is stationery, the likelihood is one in two. If it is liquor, it is even higher. There is hardly any industry that is untouched by the scourge of counterfeiting. Data complied by Enforcers of Intellectual Property Rights (EIPR) show “that the maximum counterfeiting occurs in the computer peripherals and accessories industry, followed by auto parts and components, with FMCGs coming a close third”.¹⁹ EIPR has been now witnessing an emerging area, namely, international brands of lifestyle products where counterfeiting is rampant. “With large international luxury brands entering the Indian market, people are suddenly becoming brand conscious and they want to possess the brand, but they don’t want to pay the heavy price”.²⁰ So they are supplied with look-alikes of foreign brands such as bags, sun-glasses, wallets, perfumes and the like. The problem is that many genuine consumers who are willing to pay the real price, are also given these cheap imitations if they are not discerning enough.

A more telling statistical data was provided at a seminar on ‘Counterfeiting and Pass-offs’ held on 1 August 2006 in Mumbai.²¹ The seminar was organized by the Brand Protection Committee of the Federation of Indian Chambers of Commerce and Industry (FICCI). The following details were revealed at the seminar.

A study conducted by AC Nielsen shows that the government loses Rs 9,000 million annually from counterfeiting in the fast moving consumer goods (FMCG) sector alone. Also, nearly Rs 40,000 million worth of spurious drugs are sold every year, 10 per cent of major soft drink brands sold are spurious. The study also revealed that the industry lost a whopping Rs 100,000 million per annum in revenue because of the 10–30 per cent counterfeits in cosmetics, packaged foods and toiletries. Massive levels of counterfeiting are also found in automobile spare parts, accessories in computer hardware and the FMCG sectors. Together, these three segments alone account for approximately 60 per cent of all counterfeit goods. There is a new emerging trend: a large number of duplicates of international luxury brands along with Chinese counterfeit products have entered the country on a large scale in the wake of a crackdown on traders in China.

Amitabh Chandra, Commissioner of Food and Drug Administration (FDA) mentioned at the meet that there are a few issues that stand in the way of eradicating counterfeits in the country such as the inordinate delay of 15–20 years in getting counterfeiters convicted and the poor 5 per cent conviction rate. On the FDA’s part, it can cancel or suspend the counterfeiter’s license at best.

The country has a couple of acts to combat the menace, such as the Prevention of Food Adulteration Act and Cosmetics Act, but the problem is that these acts do not refer to counterfeit products, but the ‘misbranded’ or spurious products and thus there is no legal framework to book counterfeiters. Thus, these acts are ineffective to control counterfeits. Mr Chandra put forth a suggestion to FICCI to initiate a move to set up special courts to curb this menace as the existing system takes an unduly long time to bring the culprits to book.

Hoarding and Black-marketing

Hoarding and black-marketing is another problem that consumers often face. When any essential commodity is not made available in the open market and stocks are intentionally held back by dealers, it is known as hoarding. Its purpose is to create an artificial scarcity in order to push up the prices. Black-marketing is the practice of selling hoarded goods secretly at a premium. These practices are sometimes adopted when there is short supply of any product. Most of us may have read in the newspapers sometime back about scarcity of onions in the open market in some states and the high prices charged by traders who had hoarded them.

Tie-in-Sales

Buyers of durable consumer goods are sometimes required to buy some other goods as a pre-condition to sale or may be required to pay after-sales service charges for one year in advance. There had been a lot of complaints by consumers about tying up of new gas connections with the sale of gas stoves (burners). Also TV sets are sometimes sold on the condition that the buyers make advance payment of a year’s service charge.

Gifts for Products/Services

Offering gifts having no additional value, or coupons to collect a gift on the next purchase of some product are practices aimed at alluring consumers to buy a product. Often gifts are offered after the price of the product on sale has been increased. Dealers also announce contests or lottery among buyers of a product without the intention of awarding any prize.

Prices in India have been galloping over the past four decades causing severe hardships to consumers. It is true that deficit finance leading to increased supply of money to fund projects necessary for economic growth has been responsible for the inflationary spiral. But no less significant has been the role of producers of goods and services who have been charging very high prices without any reference to their cost of production. As pointed out earlier in cases of products like medicines, the prices charged are exorbitant. Another trick of the trade is to hike up prices and offer discounts to dupe the unsuspecting consumers. Cartelization to curtail competition, and heavy advertising, the cost of which is added as selling cost to product prices are common practices. Defective weighing and poor-quality products are other factors that rob consumers of their money’s worth. The worst offence against Indian consumers is the widespread practice of adulteration which is practised at several points in the supply chain, right from the manufacturer to the last seller. This unethical and often dangerous practice is found most in food and farm products. Small pebbles are added to bags of paddy, wheat, and grams. Dried and ground leaves are mixed with tea. Butter is mixed with coloured vanaspati, chilli powder with dust, spices with sand and saw dust. The worst offenders are producers and sellers of spurious drugs, who play havoc with the health and lives of more susceptible groups such as innocent children and unsuspecting elders.

CONSUMER PROTECTION IN INDIA

The word ‘consumer’ is used to describe a customer who buys for personal use and not for business purposes. Although the subject is comparatively new, its roots are old. The explosion of interest in consumer matters arose in the second half of the 20th century. The reason for this tremendous upsurge of activity is two-fold—a combination of new business methods and changing attitudes. The key factors are the complexity of goods that bring about new business methods and the changing forms of advertising and distribution.

The second half of the 20th century has seen a growing tendency among manufacturers to appeal directly to the public by forceful national advertising and other promotional methods. Further influence during the same period has been the development of a huge market, for extremely complex mechanical and electrical goods in many parts of the world. The need for what is called consumer protection has become far greater because the consumer is no longer in a position to rely on his/her own judgement when buying a complex product like for example, a computer. The second motivating force is the general move from individualism to collectivism.

The judiciary of the United States has been a long way ahead of many countries in recognizing and dealing with consumer problems. In particular, the American courts have increased through their proactive judicial pronouncements the manufacturer’s liability in two respects: (i) by moving from negligence liability to strict liability and (ii) by breaking the shackles of the private contract rule. The subject of consumer protection is very much alive in other Western countries.

It is desirable for consumers to be aware of their rights, and to exercise those rights responsibly and intelligently. In these days of audio-visual publicity through private and public media, it is indeed very difficult, if not impossible, to verify the exaggerated or false claims made by producers, manufacturers, distributors and dealers of various goods and services. The all-pervasive, exaggerated and often false claims, made for services and goods, emphasize the imperative need for consumer protection legislation and creation of an awareness about it among the general public.

In this connection, there are a number of enactments in India such as the Prevention of Food Adulteration Act 1954, the Drugs and Magic (Objectional Advertisement) Act 1964, the Essential Commodities Act 1955, the Trade and Merchandise Marks Act 1958, the Monopolies and Restrictive Trade Practices Act 1969, the Hire Purchase Act 1972, the Standards Weight and Measures Act 1976 etc. However, the remedies prescribed thereunder are time-consuming, inadequate and expensive. As in other areas of judicial processes, the offenders are hardly caught, proceeded against, and rarely, if ever, convicted. When violators go scot-free, the victims have no remedy and get frustrated.

LEGAL PROTECTION TO CONSUMERS

A number of laws have been passed by the Government of India over the years to protect the interests of consumers. The objectives of some of the important laws are as follows:

1. Agricultural Products (Grading and Marketing) Act, 1937: This act provides for grading and certifying the quality standard of agricultural commodities which are allowed to be stamped with AGMARK seal of the Agricultural Marketing Department of the Government.
2. Industries (Development and Regulation) Act, 1951: This act provides for control over production and distribution of manufactured goods. According to this act, the Central Government may order investigation of any industry, if it is of the opinion that there has been substantial fall in the volume of production, or a marked decline in the quality of a product or any unreasonable rise in price. After due investigation, the government may issue directions to set things right. If the directions are not acted upon, the government may take over the concerned undertakings.
3. Prevention of Food Adulteration Act, 1954:This act provides for severe punishment for adulteration of food articles. In the case of sale of adulterated food which is injurious to health and likely to cause death, life imprisonment with a minimum fine of Rs 3,000 may be payable. Food inspectors are appointed and they have powers to randomly check and analyse samples. Penalties are also provided under the act for offences committed by persons with regard to manufacture, import, storage, sale and distribution of adulterated food articles. A detailed analysis of this act is given later in this chapter.
4. Essential Commodities Act, 1955: Under this act, the government has power to declare any commodity as essential in the public interest. The government can thereby control the production, supply and distribution of the trading of such commodities. It also provides for action against anti-social activities of profiteers, hoarders and black marketeers.
5. The Standards of Weights and Measures Act, 1956: This act provides for the use of standard weights and standard measures of length throughout the country. ‘Metre’ has been specified as the primary unit for measuring length, and ‘kilogram’ as the primary unit for measuring weight. Before this act came into force, different system of weights and measures were used in different parts of the country like ‘pound’, ‘chhatak’ and ‘seer’ for weights, yard, inch and foot for length, etc. Such differences provided opportunities for traders to exploit the consumers.
6. Monopolies and Restrictive Trade Practices Act, 1969: Under the provisions of this act, as amended in 1983 and 1984, consumers and consumer groups can exercise their right of redressal by filing complaints relating to restrictive and unfair trade practices. The government had constituted the MRTP Commission which was empowered to deal with consumer complaints after due investigation and enquiry. The commission had power to award compensation for any loss or injury suffered by consumers. After liberalization of the Indian economy the MRTP Commission has been replaced by the Competition Commission.
7. Prevention of Black-marketing and Maintenance of Essential Supplies Act, 1980: The act allows detention of persons who indulge in black-marketing and ensures maintenance of supplies of commodities essential to the community. The maximum detention for such persons can be imprisonment up to six months.
8. Bureau of Indian Standards Act, 1986: The Bureau of Indian Standards (BIS) has been set up under this act, replacing the Indian Standards Institution (ISI), to protect and promote consumer interest. It has two major activities: formulation of quality standards for goods, and certification through the BIS certification marks scheme by which manufacturers are permitted to use the standardization mark (ISI) on their products after due verification of conformity with prescribed quality standards of safety and performance. The bureau has set up a consumer affairs department to create quality consciousness among ordinary consumers. There is also a public grievances cell where consumers can lodge complaints about the quality of products carrying ISI mark.
9. Consumer Protection Act, 1986: This act provides for consumer protection more comprehensively than any other law. Consumers can seek legal remedy for a wide range of unfair practices not only with respect to goods but also for deficiency in services like banking, insurance, financing, transport, telephone, supply of electricity or other energy, housing, boarding and lodging, entertainment, amusement, etc. This Act also includes provision for the establishment of consumer protection councils at the centre and the state. For the settlement of consumer disputes, the act has provided for a semi-judicial system. It consists of the District Form, the State Commission and the National Commission for redressal of consumer disputes. These may be regarded as consumer courts. A detailed analysis of this act is provided in the ensuing pages.

CONSUMER PROTECTION ACT 1986

The Consumer Protection Act, 1986 (COPRA) conferred a legal right to the individual consumer to seek legal redress or recover costs and damages for injury or loss suffered by him or her as a result of faulty, defective goods and services, bought or secured for valuable consideration. A vigilant consumer owes it to his or her own self and family members to know and understand the relevant provisions of this significant statue, which is a piece of socio-economic legislation.

This act (COPRA) is applicable to all defective goods and deficiency in service. ‘Goods’, under the act mean every kind of movable property, including stocks and shares, growing crops and things attached to or forming part of the land. And ‘Service’ means service of any description which is made available to potential users including facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information.

‘Consumer’ means any person who buys or hires any services for some consideration, paid or promised, and includes any other user of goods or services using them with the approval of the buyer. It does not, however, include a person who obtains goods for any commercial purpose or for resale.

The consumer in India, far from being alive to his or her rights (as is the case in the United States and the United Kingdom) is generally at the mercy of the manufacturer of goods, the wholesaler and the retailer, all of whom exploit him or her. The ‘six rights’ of the consumer as enunciated under Section 6 of the COPRA are

1. The right to safety, that is, the right to be protected against the marketing of goods and services which are hazardous to life and property.
2. 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.
3. The right to choose, that is, the right to be assured, wherever possible, access to a variety of goods and services at competitive prices.
4. The right to be heard and to be assured that consumer’s interests will receive due consideration at appropriate forums.
5. The right to seek redressal against unfair trade practices or restrictive trade practices or unscrupulous exploitation of consumers.
6. The right to consumer education.

All these rights mean that if a consumer wants to know on what basis the bus fare is fixed, or whether a product contains ingredients that are vegetarian or not, or the basis on which a builder determines the area of the flat including the ratio between the super built up area and the carpet area, then the information can be obtained through the Consumer Protection Councils.

The Consumer Protection Act also makes provision for the establishment of the other authorities for the settlement of consumer disputes through the consumer disputes redressal agencies which include:

• A Consumer Disputes Redressal Forum known as the District Forum established by the State government in each district of the state by notification.
• A Consumer Disputes Redressal Commission known as the State Commission established in each State by the State government by notification.
• A National Consumer Disputes Redressal Commission known as the National Commission established by the centre by notification.

Two of the salient features of the act are that it is applicable even to enterprises in the government sector, financial institutions and cooperative societies and that its provisions are in addition to, and not in derogation of the provisions of other laws, relating to consumer.

Industrial development in the field of manufactured goods has led to the influx of various consumer goods into the Indian market to cater to the needs of the consumers and a variety of services such as banking, financing, insurance, transport, housing construction, and entertainment have been made available to the consumers.

In order to protect the consumers from exploitation and to save them from adulterated and substandard goods and deficient services the Consumer Protection Act came into force on 15 April 1986 and it applies to the whole of India except the State of Jammu and Kashmir.

Eligibility to File a Claim

According to the act the eligibility to file a claim against the seller or manufacturer is vested on a consumer, described as any person who has bought goods or has hired or availed any service for a consideration, who

• finds any defect in the quality, quantity, potency, purity or standard of the goods, or
• finds any fault, imperfection, shortcoming, or inadequacy in the quality, nature and manner of performance in relation to the service

In the event of either of these grievances, he or she can approach the court for redressal. However, if a person has bought the goods for resale or for a commercial purpose he or she is not a consumer.

Limitation and Appeals

Within what period can a complaint be filed?

A complaint should be filed at the earliest but not later than two years from the date on which the cause of action arose. However, the court may entertain the complaint after a period of two years if the complainant is able to satisfy the court that there was sufficient cause for the delay.

Appeals

An appeal from the order of the District Forum lies to the State Commission, against the order of the State Commission to the National Commission and against the order of the National Commission to the Supreme Court.

All appeals are to be filed within 30 days of the order appealed against, and are to be accompanied by a certified copy of the order.

CONSUMER PROTECTION (AMENDMENT) ACT 2002

When the Consumer Protection Act 1986 was put into operation, it was thought that it would address all issues of consumer-related problems and find solutions for these issues. The objective of the act was “to provide for the better protection of the interests 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 concerned therewith”.²² However, the general perception was that the act was ineffective and the objectives remained mainly unfulfilled (Box 10.1). The act was also found to be suffering from a number of disabilities. With a view to removing these defects and making it more effective, a bill to amend the Consumer Protection Act 1986 was introduced in the Rajya Sabha in April, 2001. The amendments aim at facilitating quicker disposal of complaints empowering redressal agencies, streamlining procedures and widening the scope of the Act to make it more functional.²³ The bill was passed by the Parliament in November 2002. After the President of India gave his consent, the Consumer Protection (Amendment) Act, 2002 came into force on 15 March 2003. The amendment gives more ‘teeth’ to the act.

The main changes introduced by the Amendment Act are as follows:

1. In the original Act, the District Consumer Redressal Forums could deal with complaints involving compensation amount up to Rs 5,00,000 while for the State Commission the limit was fixed at Rs 2 million. These amounts were hiked to Rs 2 million and Rs 10 million, respectively. For the National Commission, the limit which previously was Rs 2 million, has now been enhanced to more than Rs 10 million.
2. Another consumer-friendly change that was provided by the Amendment Act concerns the setting up of benches and increasing the number of members in the National and State Commissions. If the number of cases is large, additional benches can be created that can operate at places other than their original headquarters. This was done to help consumers who would otherwise have to go to Delhi or state capitals for filing or attending cases.
3. To facilitate uninterrupted selection and filling up of vacancies of members of the State Commission, president and members of the District Forums, the selection committee has been changed by making a sitting judge of the High Court to preside over it, when the president of the State Commission is absent.
4. In case of absence of the incumbent president of the District Forum, State Commission or National Commission, a provision introduced in the Amendment Act empowers the senior member to act as president of the respective bodies.
5. Under the Amendment Act, minimum qualifications have been prescribed for members of all consumer courts.
6. For procedures such as admission of complaints, issue of notices and disposal of complaints a specific time frame (21 days for the admissibility of a complaint) has been prescribed under the Amendment Act. The act also prohibits adjournment during the course of hearing of the case.
7. Another improvement effected now is the exclusion of services used for commercial purposes from the purview of consumer courts, which can now concentrate on providing relief to individual consumers.
8. The courts can now issue interim orders. Under the Amendment Act, the court can award punitive damages.
9. Any affected party which appeals against the order of the forum, has to deposit 50 per cent of the amount awarded to the consumer.
10. Further, if any person fails to pay compensation, the consumer court can order recovery in the same manner as arrears of land revenue.

PREVENTION OF FOOD ADULTERATION ACT, 1954

The Prevention of Food Adulteration Act 1954 aims at making provisions for the prevention of adulteration of food. The act extends to the whole of India and came into force on 1 June 1955.

What Is Adulterated Food?

An article of food shall be deemed to be adulterated

1. if the article sold by a vendor is not of the nature, substance or quality demanded by the purchaser, or which it purports to be;
2. if the article contains any substance affecting its quality, or if it is so processed as to injuriously affect its nature, substance or quality;
3. if any inferior or cheaper substance has been substituted wholly or partly for the article, or any constituent of the article has been wholly or partly abstracted from it, so as to affect its quality, or if it is so processed as to injuriously affect its nature, substance or quality;
4. if the article had been prepared, packed or kept under unsanitary conditions whereby it has become contaminated or injurious to health;
5. if the article consists wholly or in part of any filthy, putrid, disgusting, rotten, decomposed or diseased animal or vegetable substance, or being insect-infested, or otherwise, is unfit for human consumption;
6. if the article is obtained from a diseased animal;
7. if the article contains any poisonous or other ingredient which is injurious to health;
8. if the container of the article is composed of any poisonous or deleterious substance which renders its contents injurious to health;
9. if the article contains any prohibited colouring matter or preservative, or any permitted colouring matter or preservative in excess of the prescribed limits; and
10. if the quality or purity of the article falls below the prescribed standard, or its constituents are present in proportions other than those prescribed, whether or not rendering it injurious to health.

INSTITUTIONAL ARRANGEMENTS UNDER COPRA

The Consumer Protection Act, 1986 has provided for some institutional arrangements to protect and promote consumer rights and to redress their grievances. The institutional arrangements are discussed here.

Consumer Protection Councils

The act envisages the establishment of Consumer Protection Councils at the national and state levels.

The council is basically advisory in nature. The Central Council will be constituted with the following members:

1. the Union Minister in charge of the Department of Food and Civil Supplies will be the chairman of the council; and
2. members not exceeding 150 in number consisting of officials drawn from various Union Ministries, Members of Parliament, consumer organizations, concerned autonomous bodies, representatives of women, farmers, trade and industry, and persons representing consumer interests.

The member-secretary of the council will be the Secretary in charge of Consumer Affairs in the Central Government. It is required under the Act to meet at least once in a year. The council, within its members, will constitute working groups to perform assigned functions and report the same to the council for deliberations.

State Consumer Protection Councils The State Consumer Protection Council will be established in each state by the respective State governments. The objects of the State Council are the same as those of the Central Council, namely, to promote and protect within the state, the rights of consumers as laid down under the Consumer Protection Act. The council consists of official and non-official members representing consumer interest, as may be nominated or appointed by the State government. The State Council shall meet as and when necessary, but not less than two meetings shall be held every year.

Three-Tier Consumer Dispute Redressal System

Section 9 of the Consumer Protection Act provides for the establishment of a three-tier system for the redressal of consumer disputes at the district, state and national levels in the ascending order of hierarchy. The objective of the system is to provide cheap and quick redressal of consumer grievances at the appropriate level with minimum technicalities and legal formalities. The act stipulates that a complaint relating to any goods sold or delivered (or agreed to be sold or delivered), or any service provided (or agreed to be provided) can be filed with the appropriate forum. The complaint can be filed by an individual consumer, a recognized association of consumers or by a State or Central Government (even if the government itself may not be an aggrieved party). There is also a provision under the Act, for a class action complaint in which one or more consumers can file a complaint on behalf of all interested or involved consumers. However, such a class action complaint can be filed only with the consent of the concerned District Forum.

There are at present 555 District Fora, 32 State Commissions one in each state and union territory, apart from the National Commission. Some of these bodies instituted for the redressal of consumer grievances under the Consumer Protection Act are discussed here.

District Forums

Composition: The district-level Consumer Redressal Forum is the foundation of the hierarchical structure envisaged by the Act. The forum would consist of three persons, appointed by the State government on the recommendations of a committee comprising (i) the president of the State Commission who will act as Chairman of the selection committee, (ii) Secretary, Law Department of the state, and (iii) Secretary-in-Charge of the Department of Consumer Affairs of the state concerned.

Qualifications of Members: (i) The president of the District Forum should be a person who has been, or qualified to be, a District Judge; (ii) A person of eminence in the field of education, trade or commerce; or (iii) a lady social worker. Apart from the president, the other two members should have adequate knowledge of law, commerce, accountancy, industry, public affairs and administration.

Term of Office: The term of office of each member of the District Forum is five years or up to the age of 65 years, whichever is earlier. Members are not eligible for reappointment.

Remuneration: The service conditions and monetary compensation for the members of the District Forum will be prescribed by the State government.

Jurisdiction of the District Forum: As per the act, the forum shall have the jurisdiction to arbiter cases of complaints where the value of goods or services and the claimed compensation do not exceed Rs 5,00,000. The matter of complaint should fall within the local limits assigned to the forum, ie., the geographic limit of a district (Box 10.2). Besides, a complaint shall be instituted in the forum within the limits of whose jurisdiction the opposite party or each of the opposite parties actually resides or carries on business at the time of filing the complaint; or any of the opposite parties actually resides or carries on business at the time of filing the complaint, provided that in such a case, the permission of the District Forum is given or the opposite parties who do not reside within the limits have no objection, or the cause of action, wholly or in part, in the proceseeds arise therefrom.

Procedure for Filing Complaints: Under the Consumer Protection Act, a complaint in relation to any goods sold or delivered or any service provided may be filed with the District Forum by (a) the consumer to whom such goods are sold or delivered or to whom such service is provided; (b) any recognized consumer association, whether the aggrieved consumer is a member or not; (c) one or more consumers where there are several consumers, united in common interest; and (d) the Central or the State Government.

Procedure for Settling Disputes: If the dispute arises out of product defect, the forum may send the product for testing and analysis by a government-approved laboratory and on the basis of the result of the test, the case is decided. When no such test is required, the case is decided on the merits of available evidence.

Powers of the Forum: Under the act, the District Forum is vested with the same powers as of a civil court. Additionally, it has the powers to order any person to produce related documents or products in his or her custody, furnish any information that may be required for the settlement of the dispute or authorize any officer to search any premise and seize concerned documents and goods which are likely to be destroyed, altered or secreted.

Moreover, the proceedings of the forum with regard to its decision on the basis of available evidence cannot be questioned in any court of law on the ground that the principle of natural justice was not followed. With the District Forum, oral submissions of the respondent (or opposite) party are acceptable.

Remedial Action: In case the complainant has been proved to have a legitimate grievance, the District Forum may, by way of relief or compensation to him or her, order the opposite party to (a) remove the defect or deficiency from the good or service; (b) replace the good with a new one which is free from the defect; (c) refund to the complainant the prices or charges received from the consumer; (d) pay a compensation to the consumer for loss, cost of injury or damage suffered by him or her; (e) cease and desist from the restrictive or unfair trade practice; or (f) withdraw the supply of the hazardous or defective good from the market. If necessary, the District Forum can order one or more of the above types of actions.

There have been many instances where the District Forums have ordered immediate compensation to the consumer for mental harassment and agony suffered from the action of the producer or supplier. In cases of government officials such as Revenue Officers, Railways and Road Transport Corporations or Electricity or Water and Sewerage Boards, the forums have ordered compensations to be paid out of public funds to the aggrieved complainants, but to be recovered subsequently from the officials responsible for causing the agony or mental harassment.

Dismissal of Frivolous or Vexatious Complaints: Where a complaint instituted before any redressal agency is found to be frivolous or vexatious, the redressal agency shall dismiss the complaint and make an order that the complainant shall pay to the opposite party such cost not exceeding Rs 10,000 as may be specified in the order.

Appeals Against Forums ’ Orders: Appeal against the order of the District Forum can be filed with the State Commission within 30 days of passing the order. In such cases, with a view to cutting down delay in ensuring speedy consumer justice, no further appeal against the order of the State Commission that heard the appeal is permitted.

State Consumer Dispute Redressal Commission

This state-wise consumer dispute redressal body, popularly known as State Commission is established in each State/Union territory under the Consumer Protection Act.

State Commission is the apex body in the State and its orders are binding on all the District Forums in the State.

Organization and Structure: The State Commission has, as its chief officer, a president, who is appointed by the State Government on the recommendation of the Chief Justice of the High Court. The President of the Commission is one who is or has been the Judge of a High Court. Two other members, of whom one is a woman constitute the commission. They too are the appointees of the State Government. The members have to be persons of ability, integrity and standing with adequate knowledge and experience in such areas as economics, law, commerce, industry and administration.

Compensation: The terms and conditions of service including remuneration, allowance, and perks of the members are determined by the State Government.

Terms of Office of Members of the Commission: The term of office of each member is five years or till the attainment of the age of 67 years (whichever is earlier) and he or she shall not be eligible for reappointment, as in the case of District Forums.

Jurisdiction of the Commission: The jurisdiction of the commission has three dimensions. In its monetary jurisdiction, it could entertain complaints up to Rs 1 million involving compensation exceeding Rs 5,00,000, but less than Rs 2 million. In its appellate jurisdiction, it can entertain appeals against the orders of a District Forum in the State. In its supervisory jurisdiction, it can take a case pending at a District Forum in its own hands in rare cases, if the State Government is of the view that the forum is exceeding its jurisdiction or committing material irregularity in the case.

Procedures and Dispute Resolution: The rules, procedures and manner of disposal of a complaint by a State Commission are similar to those of a District Forum.

Appeals: Appeals against the orders of the commission (except on appeals against the orders of a District Forum) can be filed in the National Commission within 30 days of the order.

Administrative Control: The State Commission has administrative control over the District Forums through (i) calling of periodic returns on cases dealt by them; (ii) issuance of instructions on procedural matters; and (iii) supervision of the functioning of the forums to ensure that the provisions of the Act are appropriately observed by the District Forums (Box 10.3).

National Commission

The Consumer Protection Act 1986 envisaged the setting up of the National Commission as an apex body in consumer dispute settlement. Accordingly the Central Government has established the National Consumer Disputes Redressal Forum at the national level.

Composition: The commission has a president and four members, one of whom is a woman. The President is appointed by the central government on the recommendations of the Chief Justice of India. The Central Government appoints the other four members on the recommendations of a selection committee consisting of (i) a judge of the Supreme Court nominated by the Chief Justice of India, who acts as chairman of the selection committee (ii) Secretary, Department of Legal Affairs, Government of India; and (iii) Secretary of the Department dealing with consumer affairs in the Government of India. The members of the National Commission are selected on the basis of their ability, integrity and standing and should have good knowledge and experience in the areas of economics, commerce, accountancy, industry and public administration.

Terms of Office of Members: The term of office of a member is 5 years or till the age of 70 years, whichever is earlier.

Service Conditions: The remuneration, allowances and other service conditions of the members of the National Commission are decided by the Central Government.

Jurisdiction: The monetary jurisdiction of the National Commission is above Rs 10 million. Its appellate jurisdiction includes all appeals against the order of the State Commission (Box 10.4). In its revisional or supervisory jurisdiction, it can call for records and pass orders in the case of a consumer dispute which is pending before a State Commission or has been decided by it, if it is found that it has failed to exercise its jurisdiction, or has exercised it illegally or with material irregularity.

Manner of Disposal of Complaints: The manner of disposal of a complaint is the same as that of a District Forum. The nature of powers of the National Commission is the same as that of a District Forum. It is obligatory for the parties involved (or their agents) to appear in person before the National Commission.

Administrative Controls: The Commission possesses and exercises administrative control over the State Commissions to ensure that the provisions of the act are suitably observed.

Appeals: Appeals against the orders of the National Commission can be filed in the Supreme Court within 30 days of its orders.

“At all levels of the three-tier consumer dispute redressal system, orders are considered final if no appeal is made against them. These orders are enforceable in the same manner as those of a Civil Court. These orders can be lawfully sent to the Civil Courts for execution in those territories over which they have the jurisdiction. In case the person against whom the case has been decided does not comply with the court order, he/she can be punished with imprisonment ranging from one month to three years, or fine or both. The complainant, in case he wins the case, is awarded the cost; while if he/she is found to have taken advantage of the opposite party by filing a frivolous and vexatious complaint, he/she can be fined up to Rs. 10,000, apart from petting his/her case dismissed”.²⁴

Monitoring Authority. The Department of Consumer Affairs under the Ministry of Consumer Affairs, Food, and Public Distribution monitors the disposal of cases by consumer courts through the National Commission.

QUALITY STANDARDS

One of the major grievances of Indian consumers is the poor quality of products they buy and pay for. In India, over the past five decades, the quality of products has been extremely poor because of monopolistic and imperfect competitive market situations under the mixed economy regime. Even public sector organizations never bothered to produce quality goods because of their monopolistic position and complacence due to lack of competition. As a result, the Indian consumer has to do with shabby and shoddy goods and equally poor and inefficient services. The situation seems to be improving since 1991 because of intense competition, but even then, the country has a long way to go to catch up with the Western societies in the matter of quality of goods and services.

The BIS which looks to quality of goods and services has the following functions.

1. preparation and implementation of quality standards of the country;
2. administering certification schemes, both for products and quality systems;
3. organizing and maintaining testing laboratories;
4. spreading consumer awareness;
5. liaisoning with international standards bodies;
6. organizing training programmes on quality control and developments; and
7. conducting ‘search and seize’ operations to curb misuse of standards and to protect consumers from spurious products.

The BIS has a national network with offices in state capitals and major metropolitan centres. It is engaged in developing need-based standards. The bureau also maintains the BIS Product Certification Marks Scheme and the BIS Quality System Certification Scheme based on International Standards of Quality Management (ISO 9000 series). The certification mark scheme is voluntary in nature. However, it has been made mandatory in cases of 131 items such as LPG cylinders, steel products, cement, food colours etc and 246 pesticides. The need for ensuring the safety of the people who consume these products has prompted public authorities to make certification for these products mandatory.

The BIS has recently entered into a collaboration with the World Gold Council to hallmark jewellery. Though India is the world’s largest buyer of gold, there is a lot of cheating of gold users in terms of quality and purity by businessmen in the jewellery industry.

STANDARDS OF WEIGHTS AND MEASURES

Another grievance of Indian consumers is the quantity reductions practised by merchants. To prevent this malpractice, the Standards of Weights and Measurement Act was passed in 1956, which was later replaced by a more comprehensive and less defective Act in 1976 in alignment with International Bureau of Weights and Standards. The act covers, apart from standards of weights, measures and packaging of products, related areas such as metrology, inter-state verification and stamping and numeration of products. The act is supplemented by the Standards of Weights and Measures (Enforcement) Act, 1985 with a set of rules to enforce the act effectively, apart from having provisions with regard to pre-packaged products. The Ministry of Civil Supplies of the Union Government monitors and administers the Act. However, it is the perception of all consumers in the country that though the statute book has a number of laws regarding weights and measures, they are hardly enforced resulting in monetary loss to poor and hapless Indian consumers.

ROLE AND INITIATIVES OF VOLUNTARY ORGANIZATIONS

In developing countries, it becomes necessary for the government to play a major role in providing protection to consumers and promoting their interests through legislative action. However, it is found that though the government passes a series of legislations, their enforcement is very weak due to lack of adequate manpower, low penalties the Acts carry and corrupt practices of bureaucrats. In most of the advanced countries, the growth of consumerism through spread of awareness of consumer rights and strong consumer leadership have resulted in the emergence of voluntary consumer organizations, through which consumers are empowered to safeguard their interests in a much better, effective and involved manner. A voluntary consumer organization is formed either as (a) an association or council or (b) a cooperative by a number of interested or concerned consumers with or without government help with a view to promoting and protecting their rights, saving themselves from exploitation by producers and sellers and enhancing their collective welfare. In India also consumer associations and cooperatives have been formed in recent times with varying degrees of success.

Consumer Associations or Councils

As far back as in 1963, a pioneering consumer organization was set up in Delhi with a view to collecting market intelligence, publishing bulletins for the information of consumers, studying the trends of inflation, and organizing consumer resistance against the malpractices of business and trade. This organization was named the National Consumer Service (NCS) to which some consumer associations and councils were affiliated in course of time. A year thereafter, in 1964, another consumer organization named Price Rise Resistance Movement (PRRM) was set up in New Delhi, which organized meetings to protest rising prices and set up open-air shops to sell vegetables, fruits and eggs at reasonable prices. In 1966, a voluntary organization by the name Consumer Guidance Society (CGS) was set up in Bombay to protect and promote the rights and interests of consumers. The CGS provides information and guidance to consumers, organizes campaigns against adulteration and publishes test results of goods. A consumer activitist H. D. Shourie of Delhi instituted another consumer organization known as ‘Common Cause’ which renders invaluable service to the cause of consumer protection. In 1968, a National Consumer Council of India, as an apex organization for consumer interests was formed in New Delhi.²⁵

Consumer Cooperatives

A consumer cooperative is a voluntary association of individuals to further the cause of consumers. In India, any 10 or more persons belonging to a particular place, class or occupation can come together and form a cooperative society. They can apply to the Registrar of Cooperative Society for registration. The Government of India has instituted the Consumer Welfare Fund in 1992 to provide financial assistance to registered consumer organizations. The assistance is provided to any agency or organization engaged in consumer welfare activities such as (i) creating consumer awareness; (ii) spreading consumer education; (iii) preparing publicity materials; (iv) setting up community based rural awareness projects; and (v) facilities for setting up testing laboratories, for a period of three years.

Consumer cooperatives offer a number of advantages to their members such as (i) increase in bargaining power; (ii) lower prices due to bulk purchase; (iii) unadulterated and standard, quality goods; (iv) correct weights and measures; (v) market prices for goods to avoid unhealthy competition with other retailers; the profits earned on this are usually spent on various social programmes for the benefit of members; (vi) distribution of essential commodities at reasonable prices; (vii) availability of goods during scarcity; and (viii) promotion of service, sacrifice and group behaviour attitudes. However, they have not succeeded in the country to the desired extent.

Coordination at the National Level

A1t the national level, the Confederation of Indian Consumer Organizations (CICO) has been formed in Delhi to coordinate the activities of consumer organizations and lead the consumer movement in the country. CICO also helps the formation of state-level federations. It has constituted four working groups to streamline its operations that take care of matters relating to public utilities, pricing, public distribution systems, product standards, quality control, product safety, consumer protection laws and the grievance redressal machinery. At the international level, the International Organization of Consumers’ Union (IOCU) functions as the world federation. Founded in 1960 and based in The Hague, the Netherlands, it links the activities of consumer organizations in about 75 countries.²⁶

OTHER INITIATIVES TO PROMOTE CONSUMER PROTECTION

Because of the importance and urgency of consumer protection, countries all over the world including our own, have instituted several measures. The Government of India has instituted a Consumer Welfare Fund (CWF) in 1992 with the view to providing financial assistance to protect and promote the welfare of the consumers, developing consumer awareness and strengthening the consumer movement in the country, especially in rural areas. The fund set up by the Department of Revenue under the Central Excise and Salt Act, 1994, is administered by the Department of Consumer Affairs and Public Distribution System, Ministry of Civil Supplies.

National Awards

The Ministry of Civil Supplies, Consumer Affairs and Public Distribution of the Government of India has instituted three National Awards to encourage the participation of consumer organizations, women and youth in the field of consumer protection, namely, National Award on Consumer Protection, National Women Award and National Youth Award on Consumer Protection. These awards are given every year.

Publicity Measures

World Consumer Rights Day is celebrated every year on 15 March, all over the world. The objective is to spread consumer awareness through various means such as display of hoardings, banners, bus panels, etc. Doordarshan and All India Radio also regularly broadcast programmes on consumer protection and brochures and booklets (‘Salient Features of Consumer Protection Act, 1986’, ‘Rights of Consumers’, ‘The Consumer Protection Act and You’, ‘Help Prevent Adulteration’, ‘Consumer Protection and Weights and Measures’, ‘Directory of Consumer Organisations’ etc.) are also published.²⁷

Customer Service Department of RBI

In an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism in banking, the Reserve Bank of India (RBI) has recently constituted a new department called Customer Service Department (CSD).²⁸ The functions of the CSD include dissemination of instructions or information relating to customer service and grievance redressal by banks and the RBI, and overseeing the mechanism in respect of services rendered by it.

Earlier all these activities were undertaken by different departments of the RBI. The CSD also administers the Banking Ombudsman (BO) scheme and acts as a nodal department for the Banking Codes and Standards Board of India (BCSBI). Ensuring redressal of complaints received directly by the RBI on customer service in banks is also undertaken by this department.

The CSD coordinates between banks, the Indian Banks Association, the BCSBI, BO offices and RBI regulatory departments on matters relating to customer services and grievance redressal. With a view to improving customer services and promoting fair business practices, the Standard Board of India (BCSBI) in consultation with the Indian Banks Association, has released the Code of Bank’s Commitment to Customers (CBCC). The banking codes provides an institutional framework to address some of the long-pending grievances and issues that have dogged customers in their dealings with banks.

The code²⁹ tells a customer what banking services he or she can expect in great detail.

The code promises to correct mistakes in the statements of account promptly and cancel any bank charges wrongly debited. It also promises to automatically register the name of its customers under the ‘Do not call’ service. It also prohibits the bank to share customers’ information even with group companies.

According to the code, banks will intimate their customers the changes in bank charges including interest rates when they have exhausted limits of free transactions or withdrawals. The code also exhibits rather unusual sensitivity to customers’ feelings inasmuch that it promises decency and decorum would be maintained when bank staff visit their work spots for collection of dues and such visits would be totally avoided during times of deaths or any such family tragedies. With regard to loan guarantors, the code promises to inform the customer everything he or she ought to know—the actual liability, when he or she has to discharge the liability to the bank, and the conditions under which he or she will be totally discharged of the liability as a loan guarantor.

SUMMARY

Though economic literature dubs the consumer as the sole purpose for which an enterprise exists and as one who should be treated with the respect he or she deserves, in reality, he or she is given a raw deal—sub-standard products, increased prices through market manipulation, failed warranties, poor after-sale services and a host of other unfair trade practices. A consumer patronizes a corporation by paying for its goods, supports it to cover not only the cost of production, but also the margin of profits. The very existence and continuance of a corporate depends on profits. Undoubtedly, a consumer is a very important stakeholder to an organization.

Protecting the consumer from avaricious producers and sellers has become an important task of governments all over the world. Consumer Protection refers to the steps necessary to be taken, or measures required to be accepted to protect consumers from business malpractices. The task of doing it has been made easier in Western countries because of widespread consumer awareness and the interest of sellers to honour their commitments to buyers in terms of quality, purity and standards. But in developing countries like India, there is neither consumer awareness nor knowledge of consumer rights on a large scale. There is also a lack of obligation of producers and sellers to consumers. It is very common in India to find that many products fail to satisfy the quality standards required and the sellers do not respond favourably to the genuine grievances of consumers. Tests conducted on many products reveal low quality and lack of safety when used. False promises and failed guarantees, underweight and wantonly hiked prices are some of the other consumer grievances. However, if all these problems exist for consumers, it is not for want of understanding of these problems by the civil society and the government. It is because of this understanding and the pressure from the civil society that the government has come out with a series of legislations to combat the problems faced by consumers. Take the instances of government’s efforts to promote consumer co-operatives, or its effort to organize efficiently the Public Distribution System. Both of these attempts reflected the understanding and goodwill on the part of the government, but the results have been poor for a variety of reasons. Two important factors stand out for this poor show (i) the lackadaisical attitude of most of the consumers themselves, and (ii) as in every other facet of the country’s economic life, the poor, corrupt and ineffective manner in which the various Acts have been implemented in the country. In Tamil Nadu, which is supposed to be a better administered state there is an alarming picture with the system of consumer disputes redressal. It has become a nightmare with, 21 of the 30 district consumer fora becoming defunct for want of presidents or members or both. The situation is so alarming that while the Consumer Protection Act stipulates that consumer cases should be disposed of within 90 days of filing, petitions have to wait for months together even to get numbered.³⁰ If this is the state of affairs in one of the better administered states, we can imagine to what extent consumers are protected in other poorly-managed states. Consumer protection is possible only if adequate and appropriate cooperation comes from the three concerned parties, namely, consumers, business and the government. Consumer protection can be achieved if producers and traders adopt discipline and self-regulation; NGOs and voluntary organizations of consumers act in concert to safeguard the interests of consumers; information and awareness is spread about different products and services; and through government legislation to prevent unethical practices of manufacturers and traders.

KEY WORDS

Bottomline accounting • Stakeholder consultations • Public perception • Hidden taxation • Generally Accepted Accounting Principles • Advocacy group • Risk of injury • Recycling • Biodegradability • Life cycle costs • Scorecard • Disability rights • Consumer advocate • Vulnerable sections of society • Exorbitant prices • Ardent consumers • Dubious practice • Gullible buyers • Misleading advertisements • Material information • Adulterated products • Unhonoured guarantees • Product utility • Manipulation of conditions • Counterfeits • Tie-in-sales • Adulterated food • Quality standards • Voluntary organizations.

DISCUSSION QUESTIONS

1. How important is the consumer as a stakeholder in a corporation? Substantiate your stand.
2. Trace the history and growth of consumer protection. What role did Ralph Nader play in promoting consumer interests?
3. In every other segment of capitalist economy, advocates of the system want governmental intervention to be avoided. But, why is State intervention preferred in promoting consumer interests?
4. Consumer interests can scarcely be protected unless he or she carries on his or her duties and responsibilities. What are these? Explain.
5. Explain, with suitable examples, how Indian consumers are exploited?
6. Trace and comment critically on the history and growth of consumer protection in India.
7. Explain the various nuances of the Consumer Protection Act (both 1986 and the Amended Act 2002) and comment on its efficacy.

FURTHER READING

Ralph Nader, http://en.wikipedia.org/wiki/Ralph_Nader

Case Study
WOCKHARDT LTD—DIVERGENCE BETWEEN PRECEPTS AND PRACTICES

(This case study is based on reports in the print and electronic media, and is meant for academic purpose only. The author has no intention to sully the image of the corporate or executives discussed.)

COMPANY PROFILE

Wockhardt is a global, pharmaceutical and biotechnology company that has grown by leveraging two powerful trends impacting the world of medicine—globalization and biotechnology. Its line of business includes manufacturing and distribution of pharmaceutical products and dietetic foods; biotechnology research; and provision of diagnostic medical services. Wockhardt is a listed pharmaceutical company in India.

The company has a market capitalization of US$ 1.3 billion and an annual turnover of US$ 285 million (Rs 12.39 billion). Wockhardt’s pace of growth and momentum permeates every mindset, system and technology within the organization.

The company has its headquarters in Mumbai, and has 10 manufacturing plants in India and the United Kingdom, subsidiaries in the United States, United Kingdom and Brazil, majority-owned companies in South Africa and Mexico, marketing offices in Africa, Russia, Central and Southeast Asia. Wockhardt has a strong track record in acquisition management, with three successful acquisitions in the European market. These acquisitions have strengthened Wockhardt’s position in the high-potential markets of the United Kingdom and Germany, and have expanded the global reach of the organization.

Aiding Wockhardt’s globalization plans are its ten world-class manufacturing plants in India and United Kingdom, its dedicated complex (comprising six facilities) at its Biotech Park, and its state-of-the-art research laboratories.

Wockhardt is distinguished by a strong and growing presence in the world’s leading markets, with half of its revenue coming from Europe and the United States. Wockhardt’s market presence covers formulations, biopharmaceuticals, nutrition products, vaccines and active pharmaceutical ingredients (APIs).

WOCKHARDT’S BUSINESS PHILOSOPHY

Wockhardt’s business philosophy is—‘Creating value by understanding and communicating with its customers and business partners’. The company’s vision is—‘To be the most admired Indian Health Care Group’.

In order to pursue the above business philosophy and meet the challenges for turning the vision into reality, the Board of Directors of Wockhardt has adopted a Code of Business Conduct and Ethics for directors and senior management of the company. This code is intended to focus the board, each director and each of the senior management personnel on areas of ethical risk, provide guidance to help them recognize and deal with ethical issues, provide mechanism to report unethical conduct, and help foster a culture of honesty and accountability. Each director and senior management personnel must comply with the letter and spirit of this code.

No code or policy can anticipate every situation that may arise. Accordingly, the code is intended to serve as a source of guiding principles for directors and senior management personnel. Directors and senior management personnel are encouraged to bring questions about particular circumstances that may involve one or more of the provisions of the code to the attention of the Chairman of the Board of Directors.

Wockhardt’s Code of Business Conduct and Ethics dwells on areas of conflicts of interest, misuse of corporate opportunities, compliance with applicable laws, dealing with accounting complaints and maintaining confidentiality of information

Although Wockhardt Ltd says in the Code of Business Conduct and Ethics that the company will follow ethical practices, the following unethical practices are attributed to the company.

Non-Compliance of FDA Regulations

The Food and Drug Administration (FDA) in the United States makes it compulsory for the companies to adhere to certain stipulations, and inspects factories before allowing foreign pharma companies to export medical drugs into the United States, and issues warning letters to pharma companies, when there is non-compliance. According to FDA’s requirements: “Written production and process control procedures are to be followed and documented in the pharmaceutical company and complete and accurate information about production batch is to be included in the records”.¹

However, “Wockhardt failed to comply with stipulations of FDA in its manufacturing facility in Waluj in Aurangabad.”² Hence the US FDA, the apex regulator of the US pharmaceutical industry warned Wockhardt Ltd about the same in its letter released on 10 April 2006, refering to Wockhardt’s letter dated 21 February 2006, and said that a November 2005 FDA inspection of the pharmaceutical plant had found that “written production and process control procedures were not always followed and documented”.³Also, the company was warned for not including complete and accurate information about each production batch in its control records. Dozens of FDA warning letters are issued every year. While most are resolved without penalty, the FDA can also take other regulatory action.⁴

Unethical Issues Relating to Breast-Feeding Regulations

In India, as in many other countries, aggressive marketing of breast milk substitutes by commercial interests triggered campaigns for promotion of breast-feeding. Moreover, the promotion of breast milk substitutes by medical professionals challenged traditional breast-feeding practices. The baby food industry cleverly sought to promote its products through health-care facilities.

In India, in the wake of global developments with regard to the promotion of breast-feeding, The Infant Milk Foods and Feeding Bottles Bill was passed in the Lok Sabha in 1989. It was reintroduced in 1991 but lapsed again. In 1992, the ‘Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act’ was finally passed. It came into force from 1 August 1993. The Act expressly prohibits:

• distribution of free samples of infant milk foods and feeding bottles to mothers;
• advertising to the public;
• promotion in health care facilities;
• distribution of gifts or samples to health workers;
• promotion of words and pictures that idealize bottle feeding;
• advice to mothers by company sales staff;
• financial assistance to health organizations or associations of doctors to organize conferences, seminars, and so on; and
• incentives to sales personnel/retailers based on volume of sales.

The central government has authorized four voluntary organizations to monitor the Act. These are the Central Social Welfare Board, the Indian Council for Child Welfare, the Association for Consumers Action on Safely and Health, and the Breast-feeding Promotion Network of India (BPNI).

Thus the Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 explicitly prohibits distribution of free samples to mothers.

However, Wockhardt Ltd, in spite of the 1992 regulation went on to distribute free samples, according to the study conducted by UNICEFACASH. The study revealed that the incidence of free samples prevailed all over India—it was highest in the country’s capital, New Delhi, followed by eastern, western and southern India. Seventy-two per cent of the free samples were given by Nestle; other companies that indulged in such illegal practices included Dalmia Dairy (24 per cent), Wockhardt (19 per cent) and Raptokos Brett (18 per cent). They even sponsored major events for professional medical and nutrition bodies to win their support. Large commercial interests coupled with the teaching of formula milk feeding in medical colleges became major barriers to the promotion of breast-feeding.⁵

Victimization of Employees

On 8 May 2003, more than 75,000 medical representatives from the entire country participated in a 50-day relay strike in Kerala under the aegis of the Federation of Medical and Sales Representatives Associations of India (FMRAI) protesting against the unethical policies of pharmaceutical companies which (i) denied the fundamental trade union rights of the members; (ii) pursued policies that treated sales promotion employees as vendible commodities and resorted to ‘hire and fire’ and (iii) increased the work-load imposed on the workers.⁶

However, it was found that Wockhardt Ltd had dismissed more than 77 medical representatives because of declining sales.⁷ It had also effected large number of transfers of the sales promotion employees for the same reason. All these anti-labour activities of the company had nothing to do with labour indiscipline, but related to unachievable sales targets.

The Wockhardt management with a view to pre-empting the strike, issued an office order on 6 February 2003. It made it known that the management would not in anyway have any truck with the FMRAI and that “any response to FMRAI’s call by an employee would be considered an undisciplined act and appropriate action would be taken against such respondents; the management would take firm action against individuals who maintained any relationship whatsoever directly or indirectly, with the FMRAI”.

Not satisfied with the threat, the circular also announced that the company intended to employ some well-known police officers in case there was any violation of law and order, arrogantly assuming to itself the powers of government and refusing to accept the rights of employees for ‘freedom of association’. FMRAI took up this matter and the various acts of victimization of the employees by Wockhardt with the Labour Department of the Government of India, but to no avail. The Federation also took up all these matters with the National Human Rights Commission. With no remedy in sight, the Centre for Indian Trade Unions (CITU) had approached the International Labour Organization (ILO) and complained against Wockhardt Ltd. for violation of its labour standards and the Indian government for being a mute witness to all these infractions by the company.⁸

Lack of Security of Service to Workers

Wockhardt Ltd has been increasingly squeezing the employees, particularly the field workers. On the one hand, field workers are being thrown out of regular employment with impunity while, on the other hand, casualization of field workers is on the rise, accompanied by low wages as well as poor working and service conditions.⁹

Unethical Sales Practices

Apart from indulging in violation of basic trade union rights of employees, Wockhardt management also victimized the company’s field workers, who had to face medical practitioners, traders and the general public, when the company resorted to several unethical trade practices. Concerned with this problem, FMRAI wrote a letter to the company’s chairman and requested his personal attention in the matter of unfair sales and marketing practices indulged by the management and the terrible embarrassment faced by field workers. But the management resorted to derecognition of the union, discontinued its talk with FMRAI and went on victimising the field workers on a large scale. The field workers of Wockhardt-Merind who are affiliated to FMRAI, went on a strike protesting against the management’s anti-labour policies.¹⁰

Promoting Health Care System Through Improperly Labelled Samples

Infant food samples should conform to labelling requirements and every infant food should comply with section 6 and Rule 7 and 8 of the 1992 Act. However, Wockhardt distributes free samples of ‘Dexrice’ to doctors promoting it as delicious weaning food with enriched vitamins. Even though free samples of infant foods are permitted by law, sample packs of Dexrice, an infant food from Wockhardt do not conform to labelling requirements.

Wockhardt promotes ‘First Food’, an instant milk cereal weaning food with health claims and the product label is not in conformity with the IMS Act. Wockhardt’s ‘First Food’ comes with a health claim, “Every feed of First Food is fortified to provide protein, vitamins, minerals which are essential for your baby’s healthy growth”.

Wockhardt’s also promotes “Easum” weaning food baby cereal through doctors and the message on the label reads,“…Easum Rice Moong Dal Cereal is simple to digest first solid food for babies…”. The company uses a health claim to influence mothers. The labelling requirements are not complete as laid down in the IMS Act.¹¹

Harassing Competitors in Matters of Clinical Trials

A ‘non-existent’ NGO linked to a senior Wockhardt executive attempted to use the Public Interest Litigation (PIL) route in the Supreme Court to derail the launch of insulin by its rival, Biocon, and has focused the public’s attention on the business of clinical trials.

The biotech regulator, Genetic Engineering Approval Committee (GEAC), received a complaint against Hyderabad-based Shantha Biotechnics in 2003. A Bangalore-based non-governmental organization (NGO), Anikethan, alleged that eight people had died in the clinical trials of streptokinase conducted by Shantha Biotechnics.¹²

As part of its routine processes GEAC sent the complaint to Shantha to seek its comments. The query got splashed in newspapers thus defaming Shantha. Shantha’s comments on the issue were sent by the GEAC to the NGO. The mail was returned as “addressee unknown”.

The publication BioSpectrum, in an investigation some months later, revealed that the unsuspecting NGO was used by some of Shantha’s competitors to make wild accusations and delay the approval of the product.

The competitor’s name is still not known. The clinical trials data was apparently ‘procured’from some of the agencies involved in the study.

Wockhardt had introduced an insulin drug in 2003 and has had limited market success. Apparently, it feared the entry of another home-based competitor. Wockhardt has so far not refuted the connection and has also not clarified its use of such a ruse against a competitor.¹³

CONCLUSION

The above instances of unethical practices by one of India’s leading pharmaceutical companies Wockhardt, reveals the divergence that exists between precepts and practices. Unethical companies tend to use codes of business conduct and ethics as a mask to show a humane face to the outside world, while they adopt all kinds of unethical practices in their workplace. Consumers, employees, government and the society at large, get adversely affected by the malpractices of these corporations that want to promote themselves as the ‘most admired companies’ to the outside world, mainly with the intention of making fast money.

KEY WORDS

Unethical practices • Breast Feeding Promotion Network of India (BPNI) • Centre of Indian Trade Unions (CITU) • Genetic Engineering Approval Committee (GEAC) • Food and Drug Administration (FDA) • Federation of Medical and Sales Representatives Association of India (FMRAI) • International Labour Organization (ILO) • International Baby Food Action Network (IBFAN) • International Organization of Consumers Unions (IOCU) • Infant milk substitute (IMS) • Non-government organization (NGO) • Public interest litigation (PIL) • United Nations’ International Children’s Fund (UNICEF) • World Health Organization (WHO).

DISCUSSION QUESTIONS

1. Discuss Wockhardt’s business philosophy.
2. What are the alleged unethical practices of Wockhardt Ltd? How can you reconcile the wide divergences between the precepts and practices of the company?

REFERENCES

1. http://pd.cpim.org/2003/0518/05182003_fmrai.htm

2. www.babymilkaction.org/pages/history.html

3. www.dnaindia.com/report.asp?NewsID=1023596

4. www.dur.ac.uk/resources/sleep.lab/presentations/Campaign%20to%20Protect%20Infant%20Health.pdf

5. www.pharma-mkting.com/news/pmn38-article01.pdf

6. www.wockhardt.com/pdfs/

7. www.wockhardt.com/pdfs/W0CKHARDT%20C0DE%200F%20C0NDUCT.pdf