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Neither a buyer nor a seller be – With apologies to William Shakespeare

With the passing of the Consumer Protection Act 2019 on 9 August and previously the Consumer Protection Act 1986, we are moving closer and closer to realising the goal of a country in which “ Consumer is King ”. The Consumer Protection Act 2019 has introduced stricter safeguards against Unfair Contracts and provisions regarding Product Liability and Penal Consequences. However, in the midst of all this, it would be very easy to get a little carried away and we could soon get to that unfortunate hour when the pendulum swings just a little too far.

The Long Title ( main purpose ) of the Consumer Protection Act 2019 reads as follows:

“ An Act to provide for the protection of the interests of consumers and for the said purpose, to establish authorities for timely and effective administration and settlement of consumers’ disputes and for matters connected therewith or incidental thereto. ” [i]

Consumer protection is good, nay imperative. The Legislature has evidently taken cognisance of the need for consumer protection by stating “ for protection of the interests of consumers ”. However, we must not forget where the wheel started turning. Not very long ago, things were very different. Not “caveat venditor ” ( Let the seller beware ), but “ caveat emptor ” was the law of the land. Caveat emptor is a Latin expression which means “ let the buyer beware ” and is synonymous with the phrase  “ sold as is ”.

This maxim is part of a longer statement: “Caveat emptor, quia ignorare non debuit quod jus alienum emit” (Let a purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party.). Caveat emptor means that the buyer purchases at his own risk in the absence of an express warranty in a contract between a buyer and a seller. Caveat emptor is synonymous to the phrase ” sold as is ” which means that the buyer assumes the risk that a product may fail to meet his expectations or have flaws. The principle of caveat emptor serves as a word of caution to the buyer that he/she has no recourse in the event that the product does not meet his / her expectations. The buyer must inspect the product thoroughly before purchasing it.

To put it simply, a lawyer who purchases a gown and later discovers that it has a hole at the back has no recourse with regard to the defective gown. It was his duty to carefully inspect the gown before purchasing it.

However, make no mistake, this maxim does not give the seller carte blanche to engage in fraudulent transactions. To take shelter under the umbrella of this maxim it is mandatory that there should be no fraud on behalf of the seller and there should be no demand for an express warranty on behalf of the buyer.

Originally, the principle behind the maxim of caveat emptor was the reliance placed by the buyer on his own skill or acumen. Once a buyer is sure as to the suitability of the product for his / her use, he/she would subsequently have no right to reject the same. The buyer must be extremely diligent in inspecting the goods before purchasing them. Here, Section 16 of the Sale of Goods Act 1930 must be considered along with suitable explanations:

16. Implied conditions as to quality or fitness.— Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:—

  • Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that, in the case of a contract for the sale of a specified article under its patent or other trade names, there is no implied condition as to its fitness for any particular purpose.

EXPLAINATION: A layman approaches a fairly reputed firm dealing in watches and purchases a watch from them, not for any special purpose, but for the common purpose of ascertaining the correct time. Subsequently, the watch was found to be defective. In such a case, the buyer makes known to the seller, by implication, the purpose for which he purchases the watch and also relies on the seller’s skill or acumen to provide him with the correct product which shows the correct time. Moreover, the goods, namely the watches, are of a description which it is in the course of the seller’s business to supply.

  • Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.

EXPLAINATION: As mentioned earlier, a layman approaches a fairly reputed firm dealing in watches and purchases a watch from them, by description. The defect detected in the watch was not one which could have been found out by examination, and a watch which does not keep correct time cannot be said to be of merchantable quality.

  • An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.

EXPLAINATION: In the case of Peter Darlington Partners Ltd v Gosho Co Ltd [ii], a contract for the sale of canary seed was held subject to the custom of the trade that for impurities found in the seed, the buyer would get a rebate on the price, but would not reject the goods.

  • An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith. ’’

EXPLAINATION: In Bombay Burmah Trading Corpn Ltd v Aga Mohamed [iii], sleepers supplied to a railway company were required to be approved by its experts before they were purchased. Subsequently, when there was an issue with the sleepers, it was held that it did not exclude the implied condition of the goods being merchantable.

Barring the exceptions elaborated upon above, it is the responsibility of the buyer to ensure that he/she is buying the correct product in a usable condition. The buyer cannot, at a later stage, hold the seller accountable for selling him faulty or inadequate goods.

MSTC Limited vs M/S Jain Traders & Ors [iv]

In this case, the Delhi High Court upheld the principle of Caveat Emptor. The petitioner, MSTC Ltd. had floated a tender on behalf of U.P. Rajya Vidyut Utpadan Nigam Ltd., for the sale of a “lot” of scrap. The gross weight of each set of the coil was stated as 13.5 tons. The “lot” was to be sold on “as is where is” basis. The tenderer(s) were required to submit a certificate along with their bid, declaring that the material has been inspected and that they are satisfied with the material’s condition. M/S Jain Traders & Ors, in response, submitted its bid and was declared the highest as well as the successful bidder. The respondents collected the first coil and subsequently raised a dispute about the weight of the coil, claiming that the weight of the coil was 9.46 tonnes, instead of 13.5 tonnes as stated in the tender. The respondent asked the petitioner to reduce the price of the coil which had been delivered. As the petitioners did not comply with the respondent’s request, the respondent invoked the arbitration clause. The petitioners submitted that the goods were sold on “lot” basis and not on the unit, number and quantity basis; the weight was purely indicative, and; the owner was not to be held liable for any complaint from the buyer regarding any deficiency in quantity, quality, size etc. However, the learned Arbitrator rejected the defence of the petitioners and awarded to the respondents their claim. The Delhi High Court held the decision of the Arbitrator as flawed. It was held that Clause 5.1 of the General Terms and Conditions of the Tender explicitly states that the goods will be sold on “as is where is” basis in so far as the physical condition of the same is concerned. That is to say, the tenderer(s) will be deemed to have made themselves aware of the physical conditions, dimensions, size, weight, working conditions etc. by inspecting the material before submitting their tender and no complaint/claim in this regard will be entertained by MSTC Limited after the submission of the tender. Also, the Court held that Clause 5.3 of the General Terms and Conditions of the Tender explicitly states that where the sale is by “lot” there will be no subsequent complaints regarding the weight of the goods sold. It was held that the bidders were clearly, experienced scrap dealers well accustomed to this trade and who have the expertise to assess the worth of the “lot” that they bid for. The Court set aside the award.

M. Eswari vs The Regional Manager [v]

The petitioner, M. Eswari participated in the e-auction held by MSTC Limited and was declared as the purchaser of “Film Solar Photovoltaic module” for an amount of Rs.35,00,114/-. M. Eswari was asked to pay an Earnest Money Deposit ( EMD ) amount of Rs.8,75,029/- to The New India Assurance Company Limited ( NIACL ). The Petitioner paid the said EMD amount on 10th July 2012 and was asked to pay the remaining amount within six days.

The petitioner claimed that he made a representation on 10th July 2012 demanding sample pieces and extension of time, for which, NIACL issued a letter on 12 July 2012 to Larson & Toubro Limited, directing it, to hand over 10 numbers of samples, of which only 9 numbers of solar panels were given as samples.

Upon processing, the petitioner was cautioned by the Pollution Control Board officials for carelessly handling the waste and the PCB gave a direction regarding disposal of wastes i.e. only through factory outlet processing method and under their supervision.

On 21st August 2012, the petitioner addressed a letter to NIACL explaining the difficulties as well as the oral instructions given by the PCB. The petitioner demanded 500 numbers of solar panels from NIACL and processed 100 numbers as per the instructions given by the PCB.

While the processing was going on, the PCB stopped the process and demanded an E-Waste Certificate and an E-Waste Disposal License. The Petitioner was instructed to cease further processing until the certificate was obtained. The petitioner stopped work and informed NIACL and requested it to return the EMD.

NIACL replied that due to failure of payment of balance amount, the complete process of disposing of the material was transferred to L & T. Also the EMD amount of Rs.8,75,029/- was transferred to L & T and the Petitioner was instructed the to contact L & T for payment, but the same was denied with a direction to meet NIACL officials.

The petitioner despite multiple attempts was unable to recover the EMD. In court, it was argued that the petitioner has chosen to participate in the e-auction, on the basis of the explicit “as is where is’’ clause, is not entitled to now state that he was not aware of the licence to be obtained. Moreover, applying the Principle of Caveat Emptor, the petitioner was not entitled to demand refund of EMD along with any further relief. The Madras High Court ruled that it was incumbent upon the petitioner to obtain consent from the PCB prior to bidding.

However, with time they need for Consumer Protection has arisen. It was felt that the doctrine of Caveat Emptor, had often given the upper hand to fraudulent and unscrupulous sellers. This bought in the doctrine of ‘Caveat Venditor’ (Let the seller beware). This doctrine forces the seller to take full responsibility for the product and discourages the seller from selling inadequate products or products of inferior quality.

Keeping this in mind, the Consumer Protection Act of 1986 was enacted. The Act provides for three-tier quasi-judicial machinery at the district, state and national level. It is a redressal mechanism formulated only for consumers. This quasi-judicial machinery has bought justice within the reach of innumerable consumers. Landmark judgements have been delivered post this Act which has created great wonders in the history of consumerism in India. In order to augment this consumer movement, the Consumer Protection Act 2019 was passed as well.

One of the classes of consumers who have reaped the benefits of the Consumer Protection Act of 1986 is homebuyers. Homebuyers are often taken for a ride by the builders and developers who delay in handing them over possession of their flats within the promised time period. In Amrapali Sapphire Flat Buyers Welfare Association v. Amrapali Sapphire Developers Pvt. Ltd. [vi], the National Consumer Disputes Redressal Commission had allowed multiple individuals, who bought flats from the real estate developer, Amrapali Sapphire Developers Pvt Ltd, to club their cases to cross the Rs.1 crore ceiling to bring the matter within the jurisdiction of the National Consumer Disputes Redressal Commission. This move was challenged before the Hon. Supreme Court of India, which subsequently rejected the appeal[vii]. The National Consumer Disputes Redressal Commission vide its order dated July 1, 2019 in the matter of M/S. Country Colonisers Pvt. Ltd. V/S Harmit Singh Arora & Others And Other Connected Matters [viii], ordered that homebuyers must be refunded for delays with interest which is equal to the home loan rate of nationalized banks. It stated as follows:

“ In our considered view, bearing in mind that the subject unit in question is a residential dwelling unit, in a residential housing project, the rate of interest for house building loan for the corresponding period in a scheduled nationalized bank (take, State Bank of India) would be appropriate and logical, and, if ‘floating’ / varying / different rates of interest were/are prescribed, the higher rate of interest should be taken for this instant computation. ”

In addition to the above judgements, there is a panoply of judgements in which the Apex Court, High Courts and the Consumer Forums, have pulled the rug from under unscrupulous sellers/merchants.

In conclusion, it can be said that that the maxim that seems to be more relevant today is ‘ Caveat Venditor ’ ( Let the seller beware ) and the impetus provided to the consumer movement via the Consumer Act has definitely carved out the way for a brighter future for consumers.  A healthy economy needs a good balance between consumer and seller interests. Very much like the chicken and the egg, there is much debate over which came first – The Consumer ? or the Seller?

[i] The Gazette of India: The Consumer Protection Act, 2019

[ii] [1964] 1 Lloyd’s Rep. 149

[iii] (1911) 13 BOMLR 813

[iv] O.M.P. 108/2008 and other connected matters.

[v] Writ Petition No. 7905 of 2013

[vi] CC No. 816 of 2016

[vii] Civil Appeal No.10882 Of 2016

[viii] First Appeal No. 542 Of 2017

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