Business Law - Unit 4

Mr.T.SOMASUNDARAM
DEPARTMENT OF
MANAGEMENT
KRISTU JAYANTI COLLEGE
BENGALURU
Unit 4 – Competition and Consumer Laws 1
UNIT 4
COMPETITIONS AND CONSUMER
LAWS

UNIT 4
COMPETITIONS AND CONSUMER
LAWS
The Competition Act 2002: Objectives of Competition Act, the
features of Competition Act, Components of Competition Act,
CCI, CAT, Offences and Penalties under the Act.
Consumer Protection Act 1986: Definition of the terms
consumer, consumer dispute, defect, deficiency, unfair trade
practices and services, Consumer Protection Act, Redressal
Agencies, District Forum, State Commission, National
Commission, any two landmark judgments of the Supreme
Court.
2Unit 4 – Competition and Consumer Laws

COMPETITION ACT, 2002
Introduction:
➢ In 1947, after independence, India adopted and followed
policies comprising command – and – control laws, rules,
regulations and executive orders.
➢ It is also known as Monopolies and Restrictive Trade
Practices Act, 1969 (MRTP Act).
➢ In 1991, the economic reforms were undertaken and
consequently the march from command – and – control
economy based more on free market principles.
➢ Economic liberalization has taken root in India and need
for an effective competition regime has also been
recognized. 4Unit 4 – Competition and Consumer Laws

➢ India has chosen to enact a new competition law called
Competition Act 2002 under new economic policy
paradigm, which is designed to repeat extent MRTP Act.
➢ Few provisions of new law have been brought into force
and process of constituting the regulations and authority,
namely, competition commission of India under new act.
➢ The first Indian Competition law was enacted in 1969 and
was christened the MRTP Act.
➢ Article 38 & 39 of constitution of India, that state shall
strive to promote welfare of people by securing and
protecting effectively.

Every state shall, direct its policy towards securing –
a) the ownership and control of materials resources of the
community are distributed as best to sub – serve common
good.
b) the operation of economic system does not result in
concentration of wealth and means of production to common
detriment (damage).
➢ In October 1999, Government of India appointed a High
Level Committee on Competition policy and competition
law to advise a modern competition law for country in line
with international developments to suggest a legislative
framework.

➢ The committee presented its competition policy report to
the Government in May 2000.
➢ The draft competition law was drafted and presented to
Government in November 2000.
➢ After some refinements from extensive consultations and
discussions with all interested parties, Parliament passed in
December 2002 the new law, namely, The Competition Act,
2002.

Objectives of Competition Act, 2002:
The Competition Act, 2002 was enacted in January 2003. Its
main objectives are to –
1. Ensure fair competition in India, by prohibiting trade
practices that have an adverse effect on competition.
2. Promote and sustain competition.
3. Protect the interests of consumers.
4. Ensure freedom of trade for other participants in incidental
and connected markets.
5. It aims at curbing negative aspects of competition through
the establishment of competition commission of India (CCI).

Features of Competition Act, 2002:
The main features of Competition Act are –
• Prohibition of anti – competition agreements.
• Prohibition of abuse of dominant position.
• Regulation of combinations.
• Establishment of the competition commission of India.
• Penalties for contravention and non – compliance.
• Competition advocacy.
• Constitution of the competition fund.

Difference between MRTP Act and Competition Act:
10
MRTPAct, 1969 Competition Act, 2002
1. Based on the pre – reforms
scenario.
1. Based on the post – reforms
scenario.
2. Based on undertaking’s size as
a factor.
2. Based on undertaking’s
structure as a factor.
3. Competition offences are
implicit or not defined.
3. Competition offences are
explicit and defined.
4. Complex in arrangement and
language.
4. Simple in arrangement and
language and easily
comprehensible.
5. 14% offences negating the
principles of natural justice.
5. 14% offences and all the rest
subjected to rule of reason.
Unit 4 – Competition and Consumer Laws

11
6. Frowns upon dominance. 6. Frowns upon abuse of
dominance.
7. Registration of agreements
compulsory.
7. No requirement of registration
of agreements.
8. No combination regulation. 8. Combinations (mergers and
amalgamations) beyond a high
threshold limit are regulated.
9. MRTP commission appointed
by the Government
9. Competition commission
selected by a collegiums (search
committee).
10. Very little administrative and
financial autonomy for
competition commission.
10. Relatively more autonomy for
the competition commission.

12
11. No competition advocacy role
for the MRTP commission.
11. Competition commission has
competition advocacy rule.
12. No penalties for offences. 12. Penalties for offences.
13. Reactive and rigid 13. Proactive and flexible.
14. Unfair trade practices (UTPs)
covered.
14. Unfair trade practices are
omitted.
15. Doesn’t vest MRTP
commission to inquire into
cartels of foreign origin in a
direct manner.
15. Competition law seeks to
regulate cartels of Indian and
Foreign origin of India.

Components of Competition Act, 2002:
CCI recommended the following four components of
Competition Act, 2002:
1. Anti – Competition Act: (Agreement among enterprises)
▪ No enterprise or association of enterprises or person or
association of persons shall enter into any agreement in
respect of production, supply, distribution, storage, or
control of goods, which causes adverse effect on
competition within India.
▪ Any agreement entered into in contravention of provisions
contained in sub-section (1) shall be void.

▪ Any agreement entered into between enterprises or association
of enterprises or persons or association of persons or practice
carried on or decision taken by, engaged in identical or similar
trade of goods or services which –
– directly or indirectly determines purchase or sale prices.
– limits or controls production, supply, markets, investment or
provision of services.
– share the market or source of production or provision of
services by allocation of geographical area of market.
– directly or indirectly results in bid rigging, shall be presumed
to have adverse effect on competition.

▪ Any agreement amongst enterprises or persons at different
stages or levels of production chain in different markets,
respect of supply, distribution, storage, or trade in goods or
services, exclusive supply agreement, distribution
agreement, resale price maintenance.
▪ Nothing contained in this section shall restrict –
i) Right of any person to restrain any infringement, or to
impose reasonable conditions, necessary for protecting any
of its rights which may be conferred upon him under -
• Copyright Act, 1957 (Sec. 14 of 1957)
• Patents Act, 1970 (Sec. 39 of 1970) 15

• Trade and Merchandise Marks Act, 1958 (Sec. 43 of
1958)
• Geographical Indications of Goods (Registration and
Protection Act), 1999 (Sec. 48 of 1999)
• Designs Act, 2000 (Sec.16 of 2000)
• Semi – conductor Integrated Circuits Layout design Act,
2000 (Sec. 37 of 2000)
ii) Right of any person to export goods from India to extent
to which agreement relates exclusively to production, supply,
distribution or control of goods or services for such export.

2. Abuse of Dominant Position (Sec.4):
▪ No enterprise shall abuse its dominant position.
▪ If there shall be an abuse of dominant position under sub – sec.
(1), if enterprise, or group –
a) directly or indirectly, impose unfair or discriminatory –
i) condition in purchase or sale of goods or services.
ii) price in purchase or sale or goods or services.
b) limits or restricts –
i) production of goods or provision of services or market.
ii) technical or scientific development relating to goods or
service to rejudice of consumers. 17

c) Indulges in practices resulting in denial of market access.
d) Makes conclusion of contracts subject to acceptance by
other parties of supplementary obligations, according to
commercial usage, have no connection with contracts.
e) Uses its dominant position in one relevant market to enter
into or protect, other relevant market.
3. Combination (Sec.5):
▪ The acquisition of one or more enterprises by one or more
persons or merger or amalgamation of enterprises shall be
combination of such enterprises, if –

a) Any acquisition where –
i) parties to acquisition, being acquirer, whose control, shares,
voting rights have been acquired –
• either in India, assets of value of more than rupees one
thousand crore or turnover more than Rs.3,000 crore.
• in India or outside India, assets of value of more than
500 million US dollars including at least Rs.500 crore in
India or turnover more than 1500 million US dollars or
including at least Rs.15,000 crores in India.

ii) the group, to which enterprise whose control, shares,
assets or voting rights have been acquired, after acquisition,
would jointly have -
• either in India, assets of value of more than Rs.4000
crore or turnover more than Rs.12000 crore.
• in India or outside India, in aggregate, assets of value of
more than 2 billion US dollars including at least Rs.500
crore in India or turnover more than 6 billion US
dollars, or including at least Rs.15,000 crores in India.

b) Acquiring of control by a person over an enterprise when such
person has already direct or indirect control over another enterprises
engaged in production, distribution or trading of similar or
substitutable goods or provision of similar or identical, if –
i) enterprise over which control has been acquired along with
enterprise over which acquirer already has direct or indirect control
have -
• either in India, assets of value of more than Rs.1000 crore or
turnover more than Rs.3000 crore.
• in India or outside India, in aggregate, assets of value of more
than 500 million US dollars or turnover more than 1500 million
US dollars.

ii) The group, to which enterprise whose control has been
acquired jointly have -
• either in India, assets of value of more than Rs.4000
crore or turnover more than Rs.12000 crore.
more than 2 million US dollars or turnover more than 6
million US dollars.
c) any merger or amalgamation –
i) enterprise remaining after merger or amalgamation have -
• either in India, assets value – Rs.1000 crore or turnover more
than Rs.1500 crore. 22

more than 500 million US dollars or turnover more than
1500million US dollars.
ii) group, which enterprises remaining after merger or
amalgamation have –
• either in India, assets value – Rs.4000 crore or turnover
more than Rs.12000 crore.
• in India or outside India, assets value – more than 2
billion US dollars or turnover more than 6 billion US
dollars.

Regulation of Combinations:
a) No person or enterprise enter into combination which cause
adverse effect on competition in relevant market in India and such
combination shall be void.
b) Subject to provisions as per sub section (1), any person or
enterprise, who proposes to enter into combination should give
notice to Commission, in proper format along with fee within 30
days –
• approval of proposal related to merger or amalgamation refer to
clause (c) of Sec.5.
• execution of agreement or other document for acquisition refer
to clause (a) of Sec.5 24

c) No combination shall come into effect until 210 days have
passed from day which notice has been given to commission as per
sub. Sec (2).
d) Commission after such notice deal with that in accordance with
provisions as per Sec. 29, 30 & 31.
e) Provisions of this section shall not apply to share subscription or
financing facility, by public financial institution, foreign
institutional investor, bank or venture capital fund.
f) Financial institution, bank or venture capital fund as per sec.(4),
shall within 7 days from date of acquisition, as per regulations,
Commission provide with the details of control and consequences
of agreement. 25

Competition Commission of India (CCI):
Establishment of Commission:
▪ In 1st year, CCI engaged in competition advocacy.
▪ In 2nd year, it related to anti – competitive practices other
than mergers and acquisitions.
▪ Function of CCI has been affected by a petition filed in
Supreme court, which challenged the appointment of non –
judicial person as its Chairman, asserting doctrine of
separation of powers of executive and judiciary.
▪ Government of India suggested the Act with modification
and CCI split into two bodies – i) regulatory body headed
by expert, ii) appellate body headed by judge. 26Unit 4 – Competition and Consumer Laws

Powers of CCI:
CCI has the power to :
▪ Issue cease and desist orders.
▪ Grant interim relief.
▪ Award compensation.
▪ Impose fines.
▪ Order the division of dominant undertakings.

Composition of Competition (CCI):
✓ Commission shall consist of a Chairperson and not less
than 2 and not more than 6 members to be appointed by
Central Government as per Sec.8.
✓ Chairperson and other member shall be a person of ability,
integrity and standing and who has special knowledge,
professional experience not less than 15 years in
international trade, economics, business, finance,
accountancy, management, public affairs, useful to the
commission.
✓ Chairperson and other members are whole – time members.

Selection of Committee for Chairperson and members:
A panel of names recommended by selection committee
consists of –
a) Chief Justice of India or his nominee – Chairperson.
b) Secretary in Ministry of Company Affairs – Member.
c) Secretary in Ministry of Law – Member.
Term of office of Chairperson and members:
❖Term for Chairperson and members are 5 years from the
date on which they enters the office.
❖They shall not hold office after attaining age of 65 years.

Director General:
CCI appoints Director General, but will not have any Suo
motu powers for investigation.
Appointment of Director - General:
❖Central government appoints a Director – General for
purpose of assisting the commission for conducting inquiry
of any provision of act.
❖Number of other additional members like Joint, Deputy or
Assistant Directors general for the office of Director –
General as prescribed.

Appointment of Director - General:
❖Every additional, Joint, Deputy and Assistant Directors of
office shall exercise his powers and discharge his functions,
subject to general control, supervision and direction of Director
– General.
❖Salary, allowances and other terms and conditions of service of
Director – General, other members like Joint, Deputy, Assistant
Directors as prescribed.
❖Director – General, other members like Joint, Deputy, should be
integrity, outstanding ability and experience in investigation,
knowledge of accountancy, business, trade and other
qualifications as prescribed. 31Unit 4 – Competition and Consumer Laws

Duties of Director - General:
1. He should assist the Commission in investigating into any
contravention of provisions of this act or any rules or
regulations.
2. All the powers are conferred upon the Commission under
sub. Sec (2) of Sec.36.
3. As per the provisions of sub. Sec (2), Sec.240 and 240A of
Companies Act, 1956, it is applied to investigation made by
Director – General or any other person investigating under his
authority appointed under the Act. (Sec.41).

Registrar and Officers and Other Employees of Commission:
1. Commission may appoint Secretary and officers and other
employees as it is necessary for efficient performance of its
functions.
2. Salaries and allowances payable to and other terms and
conditions of service of secretary, officers and other
employees of commission as prescribed.
3. Commission may engage in accordance with procedure
specified by regulations such as number of experts and
professionals of integrity, ability, special knowledge,
experience related to competition and assist the commission.

Duties, Powers and Functions of Commission:
Duties of Commission:
➢ To eliminate practices having adverse effect on
competition, promote and sustain competition, protect
interests of consumers, ensure freedom of trade carries in
Indian market.
➢ For the purpose of discharging its duties or performing its
functions under this act, enter into any memorandum or
agreement, with any agency from any foreign country, with
prior approval of Central Government.

Inquiry into certain agreements and dominant position of
Enterprise:
1. Commission may inquiry into any alleged contravention of
provisions on receipt of information from any person or consumer or
association as per regulations, made to it by central or state
government or statutory authority.
2. Without prejudice to provisions, powers and functions of
commission include the powers and functions specified in sub.
Section (3) & (7).
3. Commission shall determine whether an agreement has adverse
effect regards to any factors like barriers to new entrants, existing
competitors, accrual benefits to consumers related to goods or
services. 35Unit 4 – Competition and Consumer Laws

4. Commission shall inquiring whether an enterprise enjoys a
dominant position under Sec.4, regard to factors like market
share, size and resources, economic power of enterprise, vertical
integration, dependence of consumers on enterprise, monopoly
or dominant position and any other factor.
5. Commission shall regard to ‘relevant geographic market’ and
‘relevant product market’ for determining whether market
constitutes a ‘relevant market’.
6. Commission shall determine relevant geographic market
regard to any factors like regulatory trade barriers, local
specification requirements, procurement policies, distribution
facilities, regular supplies or after-sales services. 36

Meetings of Commission: (Benches of Commission)
a) Commission shall meet at such times and places, shall
observe rules of procedure in regard to business transaction
at its meetings provided by regulations.
b) Chairperson, for any reason, unable to attend a meeting of
Commission, Senior most member present at meeting shall
preside at the meeting.
c) All questions which come up before any meeting of
commission shall be decided by majority of members present
and voting, in event of equality votes, absence of Chairperson,
member presiding shall have second or casting vote.

Procedure for Inquiry on Complaints:
1. On receipt of a reference from Central or State government or
statutory authority, on its own knowledge or information received
under Sec.19, shall direct the Director General to cause an
investigation to be made.
2. Once receipt of references received, send a copy of its order to
Central or State government or authority, as case may be.
3. On receipt of direction under sub. sec (1), should submit a
report on his findings within such period specified by
commission.
4. Commission may forward a copy of report to parties as per
Sub. Sec (3).

5. If report of Director General recommends that there is no
contravention of provisions of this act as per Sub.Sec (3),
Commission shall invite objections or suggestions from
Central or State government.
6. After consideration of objections & suggestions,
Commission agrees with recommendations of Director
General, shall close the matter and communicate the order to
concerned parties.
7. If commission have any opinion after consideration of
objections & suggestions, then further investigations are
called for and further enquiries are made for the matter.

Procedure for Investigation on Combination:
1. Any combination that cause adverse effect on competition
within relevant market in India, it shall issue a notice to show
cause to parties to respond within 30 days.
2. After receipt of response of parties, commission shall call for
report from Director General and such report should submitted
by Director General within 60 days.
3. Once there is adverse effect on competition, commission shall
response the parties with 7 working days from date of receipt,
direct the parties to publish details of combination within 10
working days, in such manner, as it thinks appropriate, for
bringing combination to knowledge or information to public.

4. Commission may invite any person or member of public,
affected or likely affected by combination, to file his written
objectives, before Commission within 15 working days from
date on which details of combination are published.
5. Commission within 15 working days from expiry of period
specified in Sub. Sec (3), call for additional or other
information from parties related to combination.
6. Additional or other information called by commission shall be
furnished by parties within 15 days from expiry of period.
7. After receipt of all information and within 45 working days
from expiry of period, commission shall proceed to deal with
case in accordance with provisions contained in Sec.31. 41

Power of Commission to Regulate its own procedures:
1. Commission shall be guided by principles of justice and
subject to provisions of act and rules, commission shall have
powers to regulate its own procedures.
2. Commission, for purposes of discharging its functions
under act, same powers are vested in Civil Court under code
of civil procedure, 1908 in following matters –
• summoning and enforcing attendance of any person and
examining him.
• requiring the discovery & production of documents.
• receiving evidence on affidavits. 42

• issuing commissions for examination of witnesses or
documents.
• subject to provisions of Sec.123 & 124 of Indian
Evidence Act, 1872, any public record or document
or copy from any office.
3. Commission may call upon experts, from field of
economics, commerce, accountancy, international trade
or any other discipline as it is necessary, to assist
commission in conduct of any inquiry by it.

4. Commission may direct any person –
a) To produce before Director General or Registrar or an
officer authorized by it, such documents under control of
such person so directed may be specified or described in
direction, documents related to trade, examination may be
required for purpose of this act.
b) To furnish to Director General or Registrar or any officer
authorized by it, trade or other information as may be in
possession in relation to trade carried on by such person,
required for purposed of this act.
44

Competition Appellate Tribunal (CAT):
✓Central Government through notification is
proposed to establish an Appellate Tribunal called
‘Competition Appellate Tribunal’ (CAT).
✓It is to hear and dispose of appeals against any
decision made or passed by CCI.
✓To adjudicate on claim for compensation that may
arise from findings of CCI and pass orders for
recovery of compensation.
28

Composition of Appellate Tribunal:
✓ Appellate Tribunal consists of a Chairperson and not more
than 2 other members to be appointed by Central
Government.
✓ Qualifications of appointment of Chairperson, who is,
judge of Supreme Court or Chief Justice of High Court.
✓ Member of Appellate Tribunal shall be person of ability,
integrity and having special knowledge, professional
experience, not more than 25 years in international trade,
business, law, commerce, accountancy, any other matters
in opinion of Central Government. 46

Selection Committee:
✓ Chairperson and members of Appellate Tribunal shall be
appointed by Central Government from panel of names
recommended by selection committee, composition which has been
specified for CCI.
Terms of Office of Chairperson and Members of Appellate Tribunal:
✓ Chairperson or member of Appellate Tribunal shall hold office for
a term of 5 years from date on which they enters and eligible for re-
appointment.
✓ No Chairperson or other member should hold office –
• in case of chairperson, age of 68 years.
• In case of any other member, age of 65 years. 47

Appeal to Appellate Tribunal: [Sec.53(b)]
1. Central or State Government or local authority or
enterprise or person, aggrieved by any direction, decision or
order referred to clause (a) of Sec.53A may prefer appeal to
Appellate Tribunal.
2. Every appeal shall be filled within a period of 60 days from
date on which a copy of direction or decision under made by
commission is received by Central or State Government in
such form and accompanied by such fees as prescribed.

3. On receipt of appeal, Appellate Tribunal may, after giving
parties to appeal, opportunity of being heard, pass such
orders, confirming, modifying or setting decision or order
appealed against.
4. The Appellate Tribunal shall send a copy of every order
made by it to commission and parties to appeal.
5. The appeal filed before Appellate Tribunal under sub. Sec
(7) and shall be made by it to dispose of appeal within 6
months from date of receipt of appeal.

Offences and Penalties under Competition Act, 2002:
✓Any company or person or firms deals in
competition agreements, abuse by way of
dominance, through mergers, amalgamations,
acquisitions, which are detrimental to general public
causing downfall of competition, Central or State
government can refer the matter to CCI.
✓Commission, has power of civil court under process
of law and principles of natural justice and pass
appropriate orders. 50

The offences & penalties under the act are –
1. If a person fails to pay any monetary penalty imposed on
him under this act, commission shall process to recover such
penalty as specified by regulations.
2. In case, where commission would be expedient to recover
penalty imposed under act with provisions of Income Tax Act,
1961, make reference to Income Tax Authority under the act
to recover penalty as tax due under the act.
3. Where reference made by commission for recovery of
penalty as tax due, person upon whom penalty imposed shall
be deemed to assesse in default under Income Tax act, 1961.51Unit 4 – Competition and Consumer Laws

4. Without prejudice to provisions of this act, if any person violates
any directions issued without any reasonable ground, or order issued
under Sec.27, 28, 31, 32 & 33 or any condition subject to approval,
sanction related to any matter, made or granted under this act, or fails
to pay the penalty imposed under this act, shall without prejudice to
any proceeding under Sec.39, liable for imposition of additional
penalty not exceeding Rs.120 lakh or imprisonment for a term up to
one year or both.
5. During inquiry, commission is satisfied that an act in contravention
of provisions of act has committed or about to be committed,
commission may, by order, grant temporary injunction restraining
any parties carrying on such act until conclusion of such inquiry,
without giving notice to opposite party, where it is necessary. 52

Penalty for failure to comply with directions of Commission
and Director – General:
▪ If any person fails to comply without reasonable cause,
which direction given by – a) commission under sub-section
(2) and (4) of Sec.36, b) Director – General while
exercising powers referred to Sub.Sec (2) of Sec.41.
▪ Such person shall be punishable with fine extend to Rs. 1
lakh, such failures may extend up to Rs.1 crore determined
by Commission as per Sec.43.

Power to impose penalty for non – furnishing of information
on combinations:
▪ If any person or enterprise who fails to give notice to
commission sub.sec (2a) of Sec.6, commission shall impose
on such person or enterprise a penalty which may extend to
1% of total turnover of assets, whichever is higher of such
combination of Sec.43.
Penalty for offences in relation to furnishing of information:
▪ Penalty may extend to Rs.10 lakhs as per Sec.45.

Penalty for making false statement or omission to furnish
material information:
▪ If any person being a party to combination – makes a
statement which is false in any material or knowing it to be
false or omits to state any material particular knowing it to
be material.
▪ Such person shall liable to a penalty which shall not be less
than Rs.50,00,000 but extend to Rs.1 crore as determined
by Commission as per Sec.44.

Power to impose lesser penalty:
▪ Commission, if it is satisfied that any producer,
seller, distributor, trade or service provider included
in any cartel, which is alleged to violated Sec.3,
made full and true disclosure in respect of alleged
violations, impose such producer, seller, distributor,
trader, a lesser penalty as it fit, than leviable under
this act or rules or regulations as Sec.46.

Contravention by Companies:
▪ Where a person committing contravention of any of
provisions of this act, or any rule or order made or
issued under company, every person, at time of
contravention was committed, and was responsible
to company to conduct of business, deemed to be
guilty of contravention and shall be liable to
proceeded against and punished accordingly.

▪ Notwithstanding anything contained in sub.sec (1),
where contravention of any provision of act, any
rule or order made under committed company and
proved that contravention has taken place with
consent or to neglect on part of any director,
secretary, other officer of company, such director,
secretary, shall also be deemed to be guilty of
contravention and shall be liable to be proceeded
against and punished as per Sec.48.

CONSUMER PROTECTION ACT, 1986
Introduction:
➢ The need for consumer protection is paramount in view of
that there is ever increasing population and supply of goods
and services are lacking.
➢ Buyers in sellers market have low bargaining power.
➢ Consumer doesn’t pursue his complaint against cheap quality
and high priced goods, because of more cost and time
consuming court process.
➢ Government enacted a no. of laws to protect interest of
consumers such as Essential commodities act, Trade and
Merchandise marks act, Drug Act, etc.
➢ It has law relating to consumer protection.

Introduction:
➢ Hence, Consumer Protection Act 1986 was enacted by the
Government, which marks growth of consumer movement
in our country.
➢ It provides simple, speedy and less expensive remedy to
consumer’s grievance.
➢ Central Government has established this act by notification,
this act shall apply to all goods and services.
➢ The act was last amended in 2002.
“Consumer Protection Act, 1986 marks the growth of
enlightened consumer movement in out country. It intends to
provide simple, speedy and inexpensive redressal to consumer
grievance, particularly against unfair trade practices”. 61Unit 4 – Competition and Consumer Laws

Objective of the Act:
The main objective of this act are -
a) To provide better protection to consumers.
b) To protect the rights of consumers regarding –
• marketing of goods & services.
• quality of goods
• price of goods and services.
c) To protect consumer against unfair trade practices.
d) To set up consumer protection council at centre and state level.
e) To provide simple, speedy & inexpensive redressal to consumer
grievances by giving reliefs & also compensation to consumers.
62

Features of the Act: (Rights of Consumer)
The salient features of this act are –
i) right to be protected against selling / marketing of goods
which are hazardous to life and property.
ii) right to inform about quality, quantity, price, standard,
services to protect consumer from unfair trade practices.
iii) right to be assured, access to variety of goods / services at
competitive prices.
iv) right to be heard & to be assured their interests.
v) right to seek redressal against unfair trade practices /
restrictive trade practices.
vi) right to consumer education. 63

Definition of various terms:
Sec.2 of Consumer Protection Act, 1986 define various terms
used in the Act –
a) Consumer:
“Consumer” means any person who buys any goods for a
consideration which has been paid or promised to pay or
system of deferred payment, for user of goods other than
person who buys goods for consideration of payment,
made with approval of such person, but doesn’t include a
person who obtains such goods for resale or for any
commercial purpose.
64

b) Consumer Dispute:
“Consumer Dispute” means a dispute where the person
against whom a complaint has been made, denies or
disputes the allegations contained in the complaint.
[Sec.2(1)(2)]
c) Defect:
“Defect” means any fault, imperfection or shortcoming in
quality, quantity, potency, purity which is required to be
maintained by or under any law for the time being in force
or under any contract, express or implied, claimed by
trader in any manner relation to any goods. [Sec.2 (1) (f)]
65

d) Deficiency:
“Deficiency” means any fault, imperfection, inadequacy in
quality, manner of performance which is required to
maintain or undertaken to performed by a person in
pursuance of contract or in relation to any service.
[Sec.2(1)(g)]
e) Unfair Trade Practice:
“Unfair Trade Practice” means a trade practice for the
purpose of promoting sale, use / supply of goods adopt any
unfair method (or) deceptive practice” like -
• false represents the goods, standard, Quality, grade,
composition, style of model.
66

• falsely represent goods are of particular standard, quality.
• it represent any re-built, second-hand, old goods as new
goods.
• represents goods or services have sponsorship, approval,
accessories, uses or benefits.
• represents the seller or supplier has a sponsorship or
approval or affiliation.
• makes a false or misleading representation for any goods
or services.
• warranty or guarantee of performance, length of life of
product which is not based on an adequate. 67

e) Service:
“Service” means service of any description which is
made available to potential users and includes
provision of facilities like banking, financing,
transport, electricity supply, boarding or lodging,
entertainment, or other information, but doesn’t
include rendering of any service. . [Sec.2 (1) (o)]
68

Complaint:
“Complaint” means any allegation in writing made by a
consumer that –
• an unfair trade practice has been adopted by trader.
• goods bought by him suffer from one or more defect.
• services hired or availed by him suffer from deficiency in
any respect.
Who can file a Complaint?
▪ A Consumer or any voluntary organization registered under
Companies Act, 1956.
▪ Central or State Governments or Union Territory
Administrations. 69

How to file a Complaint?
❑Procedures for filing complaints and seeking redressal are
simple and speedy.
❑There is no fee for filing a complaint before District Forum,
State Commission or National Commission.
❑Complaint can be sent by post to appropriate Forum.
Complaint should contain following information –
i) name, description and address of complainant.
ii) name, description and address of opposite party, as the case
may be.
70

iii) Facts relating to complaint and when and where it arose.
iv) documents, if any, in support of allegations contained in
complaint.
v) Relief which the complainant is seeking.
Relief available to consumers:
The following relief for the consumers are –
a) Removal of defects from goods.
b) Replacement of goods.
c) Refund of price paid.
d) Award of compensation for loss or injury suffered. 71

Procedure for filing the appeal:
❑Appeal against the decision of district forum can be filed
before State commission within a period of 30 days.
❑Appeal against the decision of state forum can be filed
before National Commission within a period of 30 days.
❑Similarly appeal against National commission can be filed
before Supreme Court within a period of 30 days.
❑There is no fee for filing appeal before State or National
Commission.
❑Procedure for filing the appeal is same as that of complaint,
but reasons for filing the appeal should be specified.
72

Time limit for deciding complaint / appeal:
❑It is obligatory on complainant or opposite parties to
appear before Forum commission on date of hearing.
❑District or State or National commission are required to
decide complaints, with period of 3 months from date of
notice.
❑Complaint which doesn’t require analysis or testing and
with 5 months, required analysis or testing is done.
❑National or State commission required to decide appeal, as
far possible within 90 days from first date of hearing.
73

CONSUMER PROTECTION
COUNCIL
There are two consumer protection council –
1. Central Consumer Protection Council (Sec.4 to Sec.8):
Constitution: Central Government by notification may form a
council, known as Central Consumer Protection Council (i.e.)
Central council).
Composition: It shall have 150 members –
i) Chairman - Central Minister in charge of consumer affairs.
ii) Vice Chairman – Minister of State in department of civil
supplies.
iii) 8 MPs (5 from Lok Sabha & 3 from Rajya Sabha).

iv) Commissioner for SC and ST.
v) 20 representative of Central Government departments
concerned with consumer interest.
vi) At least 20 representative of consumer (s) organization.
vii) At least 10 representatives of women.
viii) 20 representatives of farmers, trade and industries.
ix) 15 members capable of representing consumer interest.
x) Secretary in Department of civil supplies.
Meeting of the Central Council (Sec.5):
➢ Council meet at least once in every year and place and time
decided by Chairman. 75Unit 4 – Competition and Consumer Laws

Objects (Sec.6):
Central council objects shall be to promote and protect
different consumer rights. Such rights are –
a) Right against marketing of hazardous goods and services.
b) Right against unfair trade practices.
c) Right to get various goods and services at competitive
prices.
d) Right to be heard to ensure the consumer’s interest receives
due consideration at different forums.
e) Right to be redressed against unfair trade practices.

2. State Consumer Protection Council (Sec. 7 to Sec.8):
Constitution: State Government may also set up by
notification a council known as State Consumer Protection
council (i.e.) State Council.
Composition:
Chairman – State minister in charge of consumer affairs.
Members – nominated by state government.
Meeting: at least twice in a year, time & place decided by
Chairman.
Objects: to promote and protect the consumer rights within
the state (Sec.6)

CONSUMER REDRESSALAGENCIES
Structure of Consumer Redressal Agencies: (Sec.9 to
Sec.27):
Under the act, the three redressal agencies of consumer
disputes are -
1. Consumer Disputes Redressal Commission set up by central
government at national level – “National Commission”.
2. Consumer Disputes Redressal Commission set up by state
government at state level – “State Commission”.
3. Consumer Disputes Redressal Commission set by state
government at district level – “District Commission /
Forum”. 78Unit 4 – Competition and Consumer Laws

1. District Redressal Forum (Sec.10 to Sec.15):
Constitution: set up by state government at each district.
Composition: President and 2 members, one of whom must be a
women.
Appointment: appointed by state government.
Chairman – President of State commission.
Member – one member is secretary in law department of state
and another members is secretary of consumer affairs of
state.
Terms of Service: salary, terms and conditions as prescribed by
State Government. 79

Qualification:
President – qualified district judge.
Members – ability and integrity and have knowledge and
experience in economics, commerce, accountancy, law and
public affair.
Period of Office: 5 years and no re-appointment.
Jurisdiction / Compensation (Sec.11): up to Rs.20 lakhs.
Who shall give complaint? (Sec.12):
i) By consumer
ii) Any recognized consumer association.
iii) Central or State governments.
80

Treatment of Complaint (Sec.13):
a) Complaint regarding goods:
• After receiving complaint, district forum will send a copy of
complaint to opposite party mentioned in complaint.
• Opposite party must reply within 30 days, which may
extended to another 15 days.
• District forum receive a sample and fix charges from
complaint and seal it.
• Sample sealed may be sent to laboratory for a test.
• Laboratory must submit its report of test within 45 days from
date of receiving complaint. 81

• District forum shall send a copy of report to opposite party,
if any correctness, he must be given in writing his objection
to District forum.
Issuing order:
• District forum issue an order after giving reasonable
hearing to both parties by considering laboratory report.
b) Complaint regarding the services:
• After receiving complaint, district forum will send a copy of
complaint to opposite party and he shall give reply within
30 days, which may extended to another 15 days.
82

Powers:
• Order given by district forum shall be final.
• It has power like civil court under code of civil procedure
1908.
• Proceedings of district forum is equal to judicial proceeding
under Sec.193 & 228 of IPC.
• As per Sec. 14, it can issue order to opposite party on
following steps –
- to replace goods with new goods.
- to remove defect in goods or service pointed by lab
report.
83

- to repay price to complainant.
- to pay compensation to consumer for any loss.
- to discontinue unfair trade practices.
- to stop sale of hazardous goods.
Order of district forum shall be signed by President and
members.
Appeal (Sec.15):
• Any person aggrieved by order of District forum can go for
appeal, against such order in state commission with 30 days
from date of order.
84

2. State Commission Redressal Forum (Sec.16 to Sec.19):
Constitution: set up by state government by notification.
Composition: President and 2 members, one of whom must be a
women.
Appointment: appointed by State Government in consultation
with Chief Justice of High Court and recommendation of
selection committee of 3 persons.
Qualification:
For President – should be a Judge of High Court.
Members – qualification is same as in case of members in
District Forum. 85

Period of Office: 5 years and no re-appointment.
Terms of Service: as prescribed by state government.
Jurisdiction (Sec.17): limited to extent of compensation value of above
Rs.5 lakhs and up to Rs.1 crore and appeals against orders of any
District Forum in state.
Treatment of Complaint: As per Sec.12,13 & 14 and procedure
explained under District Forum applicable to state commission also.
Power: like powers of civil court and issue order to opposite party
directly to do one or more thing referred under Sec.14.
Appeal (Sec.19): aggrieved party can appeal against order of state
commission within 30 days from date of order in National
Commission.
86

3. National Commission Redressal Forum (Sec.20 to Sec.23):
Constitution: set up by Central government by notification.
Composition (Sec.20): President and 4 members, one of whom
must be a women.
Appointment: appointed by Central Government in consultation
with Chief Justice of India and recommendation of selection
committee with one chairman, who is judge of supreme
court and one member is Secretary in Department of Law
and other member is Secretary in Department of Consumer
Affairs.
Period of Office: same as in case of state commission. 87

Qualification:
For President – should be a Judge of Supreme Court.
Members – enough knowledge and experience in economics,
commerce, accountancy, law & public affairs.
Terms of Service: as prescribed by Central government.
Place of Office: Office of this commission must be in State of
Delhi.
Jurisdiction (Sec.21): limited to extent of compensation
value of above Rs.1 crore and appeals against orders of any
state commission.
88

Treatment of Complaint: same as in case of District Forum.
Power (Sec.22): like powers of civil court, it can call for
records and issue an appropriate order in any consumer
disputes pending decided by any district commission within
country and issue order to opposite party directly to do one
or more thing referred under Sec.14.
Appeal (Sec.23): any person aggrieved by order of National
Commission may appeal against such order in Supreme
Court within 30 days from date of order.
89

Prevention of action taken in Good faith (Sec.28): actions
taken in good faith by 3 members of District forum, state or
national commission cannot be challenged in any court of
law.
Power to remove difficulties (Sec.29): if any difficulties arise
in implementing the provisions of the act, central can
remove such difficulties by an order in official gazette
within 2 years from commencement of act.
Power to make rules (Sec.30): both central and state
government can make necessary rules for implementing the
provisions of this act by notification. 90

LANDMARK JUDGEMENT OF SC
New India Assurance Company Limited Vs Abhilash
Jewellery (2009):
Date of Decision: 22.01.2009
The complainant/respondent, who had taken a jeweller's
block policy, lodged a claim with the opposite party insurer
for loss of gold ornaments. The insurer repudiated the claim
on the ground that the loss occurred when the gold was in
the custody of an apprentice, who was not an employee
(because the policy stipulated that for indemnification of the
loss, the property insured had to be "in the custody of the
insured, his partner or his employee").

The National Commission allowed the complaint holding that
an apprentice was an 'employee' since section 2(6) of the
Kerala Shops and Commercial Establishments Act (as well
as some other statutes) defined an 'employee' to include an
'apprentice'. The Supreme Court, however, held that the word
'employee' in the contract of insurance mentioned had to be
given the meaning in common parlance. The definition in the
local Act, including an 'apprentice' in the category of
'employee', was only a 'legal fiction', which is a concept in
law and could not be applied to an insurance contract. The
Court, therefore, allowed the appeal.

Segha School of Competition Vs Dalbir Singh:
Date of Decision: 30.04.2009
The complainant sought refund from the opposite party's
coaching school after only one year of the two-year course on
the ground that the coaching was not up to the mark. The
District Forum directed refund of the fees and the opposite
party's appeal was dismissed. In revision, the petitioner
contended that payment of lump sum fees for two years was a
condition (of the contract) that and no part of the fees could
either be refunded or transferred under any circumstances. The
Commission held that this condition was one sided and biased
in favour of the opposite party, against natural justice and not a
fair trade practice. 93

The Commission also rejected the opposite party's plea that
in Homeopathic Medical College and Hospital, Chandigarh
v Miss Gunita Virk [I (1996) CPJ 37 (NC)] it was held that
Consumer Fora did not have jurisdiction to declare any rule in
the prospectus of any institution as unconscionable or illegal.
Referring to its recent decision in Nipun Nagar v. Symbiosis
Institute of International Business [I (2009) CPJ 3 (NC)], it
observed that the Commission had held that (under certain
circumstances) it was unjust to collect fees for the total period
of the course and dismissed the petition.

Business Law - Unit 4

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