Consumer Protection Act, 2019 and Endorsers
Drastic amendments were introduced to the Consumer Protection Act, 2019 (“New Act”) which were notified in July 2020. These amendments, in effect, replaced the Consumer Protection Act of 1986 (“1986 Act”). The New Act has been introduced to strengthen consumer interests, with the establishment of regulatory authorities for the settlement of consumer disputes and provides for the timely and effective administration of such disputes.
Although the 1986 Act had gone through various amendments over the years, its implementation kept falling short of its objectives. The New Act enhances the scope and allows for a wider range of protections to be awarded to the consumers in the form of product liability, advertising claims and endorsements, keeping up with the changing technologies and trends that affect consumers today. The 1986 Act was not effective in preventing brands from engaging in misleading advertisements and the Government felt the need to address the issue of misrepresentation regarding consumable products seriously. In view of this, the 1986 Act has undergone these amendments. This article examines some key changes that the New Act brings in, with a specific focus on the liabilities of endorsers.
Expanded Scope of the Act
Firstly, the definition of “consumer” has been expanded[i] to include persons who “buys any goods” or “hire or avail any services” for offline or online transactions through electronic means, teleshopping, direct selling or multi-level marketing. With this amendment, the New Act extends the protection to consumers who are users of e-commerce platforms.
Secondly, the addition of product liability as a separate section under Section 2(35)[ii], allows a person to raise a claim against a manufacturer, seller, or service provider of the defective product. While the 1986 Act was limited to manufacturing and design defects, the New Act provides for separate liabilities for manufacturers, sellers, and service providers. The manufacturers[iii] will be liable if the product contains manufacturing or design defect, or if the product does not conform to an express warranty given by the manufacturer, etc. The sellers[iv] will be liable under the New Act if substantial control over the designing, manufacturing, packaging, labelling, or testing is exercised by the seller of the product, or if the identity of the manufacturer is not known, etc. The Service Provider[v] will be liable under the New Act if the services were faulty, imperfect, deficient or inadequate or if inadequate instructions and warnings were provided by the service provider to prevent harm, among others.
Establishment of the CCPA
Section 10(1) of the New Act establishes the Central Consumer Protection Authority (“CCPA”), “to regulate matters relating to violation of rights of consumers, unfair trade practices and false or misleading advertisements which are prejudicial to the interests of public and consumers and to promote, protect and enforce the rights of consumers as a class.”[vi]
The absence of any regulatory body in the 1986 Act led to the creation of the CCPA. As per the provisions of the New Act, the CCPA will have an investigation wing, headed by a director general for the purpose of conducting inquiry or investigation as may be directed.[vii] Further, the director general or any other officer authorized by him/her shall have the powers of search and seizure, after preliminary inquiry, if there is any reason to believe that any person has violated any consumer rights or committed unfair trade practice or caused any false or misleading advertisements.[viii] The CCPA has also been provided with penal powers which may be imposed on manufacturers of unsafe goods or endorsers or publishers of misleading advertisements.
As of July 24, 2020, the Central Government has established the CCPA with its headquarters at New Delhi.
Impact of the Act on Endorsers
The New Act defines “endorsement” as any message, verbal statement, demonstration or depiction of the name, signature, likeness, or other identifiable personal characteristics of an individual or depiction of the name or seal of any institution or organisation which makes the consumer believe that if it reflects the opinion, finding or experience of the person making such endorsement.[ix]
The CCPA has the power to bring the person advertising the product or service, i.e. the endorser, under the penal provisions of the New Act for false or misleading advertisements. An advertisement may be false or misleading if the advertisement falsely describes a product or service, or gives a false guarantee that misleads consumers as to the nature or attributes of the product or service, or if the advertisement deliberately conceals important information about the product or service.[x] In October 2017, the Consumer Complaints Council formed by the Advertising Standards Council of India (“ASCI”) found that the claims of Hindustan Unilever Ltd (HUL) for its Lever Ayush soap stating that it was “based on 5,000-year-old ayurved scriptures with 15 ayurvedic herbs”, besides other claims, were inadequately substantiated and were misleading. From time to time, false and misleading advertisements have been pulled up by the ASCI and manufacturers/sellers have been asked to modify or remove the advertisement from circulation to the public.
Liability of Endorsers under the New Act
Brands and companies look at engaging celebrities to attract target consumers, and for the consumers to have a top of the mind recall for the brand and its product. Celebrities have often become synonymous with the brands and products that they endorse. Social pressure on celebrities endorsing brands has also been building up for some time now. Several celebrities, including Shah Rukh Khan, John Abraham, Ileana D’Cruz and Deepika Padukone faced the heat recently for having endorsed fairness creams. The CCPA now holds the endorsers accountable in case of a misleading advertisement that features them. This enhanced scrutiny by the CCPA will lead to endorsers being cautious of the brands they endorse.
When the CCPA finds an advertisement to be false or misleading it may issue directions in the form of an order to the concerned manufacturer or endorser to discontinue the advertisement or to modify the same within the timeframe and manner specified in the order which is not prejudicial to the interest of the consumer or in contravention with the consumer rights.
The CCPA may levy a penalty of up to Rs. 10,00,000/- on the endorser of a false or misleading advertisement, at first instance. On further breach, the endorser may be liable for a further penalty of up to Rs. 50,00,000/-. In addition to the penalty, the CCPA may also prohibit endorsers from endorsing any other products or services for up to one year at first instance. On subsequent breach by the endorser, this period of prohibition may be extended to up to three years.
Prior to the New Act, certain guidelines for celebrities existed in ASCI’s Code for Self-Regulation of Advertising Content in India (“Code”), wherein celebrities were expected to have knowledge of the Code and had to conduct their own due diligence before endorsing a brand or service; while also reiterating that it was the duty of the advertiser and the advertising or other agencies to make the celebrities aware of such guidelines, including the Code. However, the Code being voluntary self-regulatory in nature, does not provide for any statutory penalties for celebrities appearing in misleading or false advertisements.
The New Act, when read with the ASCI Code on ‘Guidelines for Celebrity Endorsers’ covers the gap that previously existed with respect to false and misleading advertisements and the liabilities for the same.
Exclusions for Endorsers under the New Act
Although the New Act imposes stringent punishments on endorsers, it also provides for exclusions to the liability of the endorsers in the following instances:
If the endorser has exercised due diligence to verify the veracity of the claims made in the advertisement regarding the product or service being endorsed by him/her, the endorser will not be liable to any fines or prohibition from the endorsement of other products[xi].
If the endorser can prove that he/she had published or arranged for the publication of such advertisement in the ordinary course of his/her business, provided that such a defence shall not be available to the endorser if he/she had previous knowledge of any order for the withdrawal or modification of such advertisement.[xii]
Payment of fine as specified by the CCPA for compounding of the offence, the acceptance of such fine by the CCPA or an officer on behalf of the CCPA shall be deemed to amount to an acquittal[xiii].
Although stringent provisions have been introduced against endorsers under the New Act, when compared with the 1986 Act which included the direct imposition of punishments on the endorsers, the New Act provides for some grounds to the endorsers to fight the claims made against them. The New Act does not make endorsers vicariously liable for any claims on the product or services but creates a legal obligation for the endorsers to take all precautions and conduct due diligence on the product or service before accepting such endorsement. With these additional obligations and liabilities on celebrities, the standard of due diligence that will be exercised by celebrities and their representatives is likely to be enhanced in the coming years and may also lead to an alteration in the manner of drafting and negotiating of such celebrity endorsement agreements.
Due to such additional obligations and liabilities on the endorsers, their business advisors and lawyers will have to ensure that certain specific clauses that protect their celebrity clients from the additional liability imposed by the New Act are included in their brand endorsement agreements, for example, the company will have to ensure that the script of the advertisement does not contain any unsubstantiated reference to the quality or the benefit of the usage of the endorsed product which is not backed by sufficient scientific reports.
While the New Act has been well received by pro-consumer organisations and forums, it holds celebrity endorsers accountable for the products, services, which they often have little involvement with. For example, in the 2015 Maggi issue, where Nestle India’s product was found to have a high content of MSG, FIRs were filed against celebrity endorsers including Amitabh Bachchan and Madhuri Dixit. However, there was no way for the endorsers to know about the harmful content of MSG in Maggi, at the time of endorsement. Additionally, in 2016 several home buyers of the Amrapali Leisure Park in Greater Noida demanded that an FIR be lodged against MS Dhoni, as he was the celebrity endorser of the real estate project. Such litigation against celebrity endorsers for misleading or false advertising is only bound to increase with the introduction of liabilities under the New Act.
The empowerment of consumers under the New Act will compel companies to become quality conscious to avoid litigation and bad publicity. Increased investment in quality control and complaint redressal mechanisms is likely to follow suit, which is a step forward for the consumers, however with respect to the endorsers, the New Act will lead to increased scrutiny on the celebrity endorsement agreements.
[i] S. 2(7), The Consumer Protection Act, 2019.
[ii] S. 2(35),The Consumer Protection Act, 2019. –
[iii] S. 84, The Consumer Protection Act, 2019.
[iv] S. 86,The Consumer Protection Act, 2019.
[v] S.85, The Consumer Protection Act, 2019.
[vi] S. 10(1), The Consumer Protection Act, 2019.
[vii] S. 15(1),The Consumer Protection Act, 2019.
[viii] S. 22, The Consumer Protection Act, 2019.
[ix] S. 2(18), The Consumer Protection Act, 2019.
[x] S. 2(28), The Consumer Protection Act, 2019.
[xi] S. 21(5), The Consumer Protection Act, 2019.
[xii] S. 21(6), The Consumer Protection Act, 2019.
[xiii] S. 96(5), The Consumer Protection Act, 2019.
This post has been authored by Ms. Chandrima Mitra, Mr. Shantanu Shah and Ms. Diva Chanchani, Partner and Associates, DSK Legal. This blog is a part of the RSRR Excerpts from Experts Blog Series, initiated to bring forth discussion by experts on contemporary legal issues.