3
Apr

Evolution of Consumer Protection Laws in India – Part 2

By Jayanth Srinivasan, IFMR Mezzanine

In our series of posts on Consumer Protection, this post represents the second part in a two part series that charts out the historical evolution of the various sources of consumers’ rights in India today.

Historical Evolution

As discussed in the first part of this blog entry, it is useful to disaggregate the study of the evolution of the different sources of consumer protection laws into four timeframes:

a. pre – 1950
b. 1950 – 1986
c. 1986
d. 1986 – present

Recent developments occurring in the past twenty five years may now be considered.

1986 – present

Apart from the remedies available through the courts of law and consumer courts, consumer in India of financial products and services may also resort to mechanisms set up by product specific regulators.

Credit

The central bank, the Reserve Bank of India, is also the regulator of the banking system – and consequently oversees the consumer protection regime for credit products in India. The RBI issues guidelines from time to time covering various aspects of consumer protection.

While the RBI was set up in 1934, it has become far more active in protecting the interests of end-consumers primarily in the past two decades – reflecting, in some senses, the creation of the SEBI in 1992 and the IRDA in 1999 to protect the interests of investors and purchasers of insurance products.

The matrix of consumer protection for aggrieved consumers of credit today is as follows:

a. Information dissemination to customers mandated by the Banking Codes and Standards Bureau of India (BCSBI) / Fair Practices Code adopted by banks
b. In-house grievance redressal mechanisms set up by banks
c. Office of the Ombudsman, created by RBI in almost every state of the country, that could enquire into complaints not properly resolved by the concerned bank
Banking Ombudsman Scheme is fully funded and managed by India’s central bank – bank customers can lodge a complaint with any of the 15 offices of the Banking Ombudsman situated across the country, on 27 different grounds of “deficiency in banking services”.
d. Consumer Courts under COPRA
e. Courts of law

The roles and functions of the different institutions overlap at times. Ease of access to these bodies depends on the location and profile of the customer. Further, rules of procedure may stipulate that aggrieved consumers move or consult another forum before approaching that particular body (for ex. the Ombudsman may insist that in-house banking redressal mechanisms be pursued as the forum for first relief).

Securities

Aspects of consumer protection relating to securities in India are regulated by the Securities Exchange Board of India. Set up by an Act of Parliament in 1992, the SEBI was set up “..to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market…”. The SEBI has three functions rolled into one body: quasi-legislative (ie. drafting regulations), quasi-executive (ie. enforcement of applicable rules and regulations to its constituents) and quasi-judicial (conducts hearings and passes orders on various disputes, with in-house appellate forum).

The matrix of consumer protection for aggrieved consumers of securities in order of access is as follows:

a. SCORES
SEBI Complaints Redress System – an online portal for investors to register their complaints against listed companies and intermediaries.
b. SEBI Tribunal
SEBI Tribunal has exclusive jurisdiction in matters falling under the scope of the SEBI Act to the exclusion of courts of law and by extension, consumer courts
c. Securities Appellate Tribunal (SAT)
Forum for first appeal from decisions of the SEBI Tribunal
d. Supreme Court
Second appeal lies directly to the Supreme Court but only on “questions of law”

Various details – primarily procedural but also substantive – as regards the functioning of the SEBI Tribunal as well as the Securities Appellate Tribunal are dealt with by the SEBI Act referred to earlier as well as rules framed thereunder.

Insurance

The insurance sector in India (both life insurance and general) is governed by the Insurance Regulatory and Development Authority, set up by an Act of Parliament in 1999 “…to protect the interests of the holders of insurance policies, to regulate, promote, and ensure orderly growth of the insurance industry…”.

Quasi-legislative powers, in the form of regulation and rule-making authority, are conferred upon the regulator, subject to Parliamentary oversight. The IRDA also passes regulations from time to time regulating both substantive as well as procedural aspects of the above consumer protection structure.

The matrix of consumer protection for aggrieved consumers of insurance in order of access is as follows:

a. Grievance redressal cell within each of the life and non-life companies
Mandated by IRDA (Protection of Policyholders’ Regulations), 2002.
b. IRDA Grievance Cell / Director of Public Grievances (only for public sector insurance companies)
These remain the second port of call, coming into play in practice only after the consumer has sought redress through the in-house grievance cells. The latter, the Director of Public Grievances entertains complaints against the public sector insurance companies (including LIC, GIC, United India, National, New India, Oriental) and is based within the Cabinet Secretariat of the Government of India.
c. Insurance Ombudsman
First created by Government of India notification in 1998. There are 12 such ombudsman in India. Insured is necessarily required to first approach the concerned insurer, failing which he may approach these ombudsman.
d. Consumer courts under COPRA
e. Civil courts

Pensions

The pension sub-sector of the financial products and services sector falls under the regulatory ambit of the Pension Fund Regulatory and Development Authority (PFRDA), established “to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto”.

However, from the point of view of consumer protection, uncertainty still pervades this sub-sector as even though the PFRDA was first established through an executive Government of India order dated 10th October, 2003, the PFRDA Bill providing statutory legitimacy to the same has yet to be passed by Parliament. Till date, no consumer grievance redressal mechanism in the pension sphere analogous to those existing in the insurance, credit and securities’ spheres has been set up by the PFRDA, on account of its lack of statutory legitimacy.

Future Outlook

The overall architecture as detailed above stands at a critical juncture. The government of India has recently up set up the Financial Sector Legislative Reforms Commission (FSLRC) to examine, amongst other things, the architecture of the regulatory system governing the financial sector in India. Considering that consumer protection constitutes an integral facet of the laws governing the sector, structural changes to this regime may be expected.

23
Mar

Evolution of Consumer Protection Laws in India – Part 1

By Jayanth Srinivasan, IFMR Mezzanine

Continuing our series of posts on Consumer Protection, this post represents the first part in a two part series that charts out the historical evolution of the various sources of consumers’ rights in India today.

Overview

The consumer protection regime in India may be said to rest on four individual “pillars” – namely, (a) the common law; (b) assorted statutes; (c) the Consumer Protection Act, 1986; and (d) financial product specific regulations; each of whose means of enforcement ultimately tie together in the formal courts of law.

An overview of all applicable categories is depicted below, with timelines indicating their development:

Jurisprudence

Before delving into the concrete pillars of the consumer protection legal regime, it is worth noting that certain principles underlie all aspects of consumer protection by virtue of India’s legal system having its historical basis in the “common law” – an organically built up body of legal rules and principles in England from the 12th century onwards. Specifically these are:

a. Caveat emptor

Age-old principle of law where buyers in commercial transactions are “to beware” ie. the onus lies upon them to ascertain the sanctity of the product. This rule has, over the years, become subject to disclosure requirements imposed on sellers, as well as to any other warranties / guarantees the seller may provide

b. “Justice, equity and good conscience”

In the words of one legal commentator, “its meaning is obscure and is as variable as the colour of a chameleon. It is the convenient phrase to put into a statute to fill the gaps in the law. Thus, if, in deciding cases, the courts can obtain no help or guidance from legislative enactments or religious law books or other authorities, the Judges are expected to act in accordance with justice, equity and good conscience. This usually means what each judge thinks best to do in the particular case.”

However, as of this writing, there is no “white paper” or “state of the sector position paper” or any such analogous document authored by any of the wings of government in India summarising the existing legal position on the applicability of these generic legal principles to specific questions of consumer protection.

Historical Evolution

It is useful to disaggregate the study of the evolution of the different sources of consumer protection laws into four timeframes:

a. pre – 1950
b. 1950 – 1986
c. 1986
d. 1986 – present

Pre-1950

Prior to 1950, issues of consumer protection (albeit not dealt with as “consumer protection” but under the relevant legal heads) were dealt with under the technical rules built up in the English common law. The common law evolved at least three distinct heads of law that are relevant to consumer protection in India even today: (a) tort; (b) contract; and (c) fiduciary laws. Enforcement takes place through suits filed in courts of law.

Torts are “civil wrongs”. There exists several types of torts, each with a “test” laid down and refined by courts of law in England (and subsequently in India) over the years. Torts typically open to aggrieved customers include “deceit”, “fraud”, “misrepresentation” and “negligence”, depending upon the facts of the matter. Any individual may sue a provider under these heads in trial court, with relief granted usually in the form of restitution or monetary damages. A customer may also potentially sue the manufacturer or main service provider himself under the vicarious liability rule (“master servant” rule).

Contracts are agreements between two or more parties, setting out their respective rights and obligations in exchange for “consideration” (ie. payment or such). Contracts may be written or verbal, and include express as well as “implied” terms (including the commercial principle of caveat emptor). Consumers aggrieved during the purchase of any goods or services may seek redress in trial court, with relief granted usually in the form of monetary damages. A customer may also potentially sue the manufacturer or main service provider himself under the vicarious liability rule (“principal agent” rule).

Fiduciary responsibilities arise in specific situations where sellers are deemed to be in a position of trust with respect to consumers (for instance, wealth management advisors and consumers), consequently becoming answerable to a higher set of responsibilities. Consumers may sue sellers who owe them a fiduciary responsibility in trial court.

The structure of the system of courts is as follows:

1950 – 1986

In the years since its creation in 1950 by the Constitution of India, the Union Parliament has passed several legislations that include consumer protection provisions in their body. The ambit of these provisions is restricted to the subject matter of these statutes, and they are enforceable through the trial courts. Failure on the part of any customer to show the statute was applicable meant that he had to then resort to tort / contract / fiduciary law for relief.

An illustrative list of product specific legislations with consumer protection components is as below:

a. Drugs Control Act, 1950
b. Prevention of Food Adulteration Act, 1954
c. Essential Commodities Act, 1955

1986

In 1986, the Union Parliament passed the landmark Consumer Protection Act [“COPRA”] which not only was the first generic customer protection law enacted in India covering goods and services falling under all categories (as opposed to the earlier set of individual statutes covering specific products) but also set up a separate chain of courts specifically for their enforcement.

The structure of the system of consumer courts is as follows:

The proceedings at these courts are summary in nature and statutorily applicable penalties includes punitive damages. Further, they decide the case within 3 months from the date of receipt of notice by opposite party. Amendments made to the COPRA in 1991, 1993 and most importantly in 2002 have strengthened the powers of these courts – under the last amendment, provision now exists for attachment and sale of property of a person not complying with the order.

Recent developments in the historical evolution of India’s consumer protection regime, specifically the creation of product-specific regimes for regulation of financial products and services, and the attendant consequences for consumers falling in those categories, as well as on going regulatory overhauls shall be considered in the second part of this two-part blog entry.