Law Insider India

Legal News, Current Trends and Legal Insight | Supreme Court of India and High Courts

Unfair Trade Practices Unfair Contracts Explained

7 min read


Vidhi Agarwal

The Industrial Revolution and the growth of trade led to business expansion. This development has given birth to new groups of well-informed producers and traders. It was quite easy for the sellers to exploit the buyers in that era, when there was no control over the traders and their trade practices. Sellers have used various unfair trade practices, such as misrepresentation of goods and services, false advertising, non-compliance with production standards, misleading pricing, adulterated goods sales, black marketing, etc. A new law, known as the Consumer Protection Act of 1986, came into being to regulate these unfair trade practices. The Law marked a period of progression in the history of Trading in India.

According to the Consumer Protection Act, 2019:

(47) “unfair trade practice” means a trade practice which, for the purpose of

promoting the sale, use or supply of any goods or for the provision of any service,

adopts any unfair method or unfair or deceptive practice including any of the following

practices, namely:—

(i) making any statement, whether orally or in writing or by visible

representation including by means of electronic record, which—

(a) falsely represents that the goods are of a particular standard,

quality, quantity, grade, composition, style or model;

(b) falsely represents that the services are of a particular standard,

quality or grade;

(c) falsely represents any re-built, second-hand, renovated,

reconditioned or old goods as new goods;

(d) represents that the goods or services have sponsorship, approval,

performance, characteristics, accessories, uses or benefits which such

goods or services do not have;

(e) represents that the seller or the supplier has a sponsorship or

approval or affiliation which such seller or supplier does not have;

(f) makes a false or misleading representation concerning the need

for, or the usefulness of, any goods or services;

(g) gives to the public any warranty or guarantee of the performance,

efficacy or length of life of a product or of any goods that is not based on

an adequate or proper test thereof

Also, after the replacement of the 1986 Act by 2019, the scope of unfair trade was expanded and the following was also added as unfair trade practice:

Failure to issue or not to issue a bill or a cash memo;

Refusal to withdraw or withdraw faulty goods or removal or discontinuance of faulty services or refusal to refund the amount of consideration paid within the time stated in the bill or cash memo or receipt or, in the absence of such clause, refusal to withdraw or refund goods or services within thirty (30) days;

It becomes important to decide if the products or defective services were given before deciding if this amounts to unfair trade practice. The section as drawn up in its present form predetermines the presence of a faulty product or faulty service

Separately, even if removed or discontinued, under ‘product liability’ or ‘lack of services,’ businesses may also be held liable.

Disclosure of customer personal information to any other person, unless such disclosure is made for the time being or in the public interest, in compliance with the rules of any statute.

The provision fails to offer any clarification as to whether data can be exchanged if user consent is obtained. Dependence would have to be imposed on the current data protection regulations. India’s new data security legislation does not require any strict compliance with data sharing in the event that information is not confidential information in nature in relation to (i) passwords; (ii) financial information; (iii) physical, physiological and mental health conditions; (iv) sexual orientation; (v) medical records and history; (vi) biometric information; (vii) any data relating to the above, as provided for in the provision of services by the corporate entity; and (viii) any of the information collected by the corporate entity referred to above for processing or storage;

In lines with the Consumer Protection Act, 2019 under Unfair Trade Practice, NCDRC decided the landmark case of the Carry Bag Case of Big Bazaar.

Also read:

The National Consumer Disputes Redressal Commission (NCDRC) has ordered Big Bazaar to cease its unfair business practice of arbitrarily imposing the additional costs of carrying bags at the time of payment to the consumer. Withdrawing the revision petition lodged by it, the Commission noted that the user is entitled to know that there would be a higher cost of transporting and paying for luggage. The question before the NCDRC was whether it can be argued that the additional costs (Rs. 18/- in this case) for carrying bag(s) to house the goods purchased by the complainant were paid for deficiency and unfair trade practise.

The District Forum and the State Commission were opposed to the Big Bazaar. The Commission noted that the usual practice at retail outlets is to include carry-on bags at no extra cost in order to enable the goods purchased to be transported comfortably. Thus, Dinesh Singh, the President, observed:

The notice or information should not be made at the time of payment after the client has exercised his right to patronise his retail store and after he has made his choice of goods for purchase. Such warning or information not only causes inconvenience and abuse for the client at the time of payment and imposes unnecessary costs on him. But it also affects his unconditional right to make an informed decision at the initial stage itself and before making his choice of products for purchase, to patronise or not patronise a particular source.

In a nutshell, unfair trade practice includes the following:

Misrepresentation of goods – In this, a seller makes a false statement in order to make a sale about the product or a service. The gullibility of a buyer confides in the words of the seller and makes a purchase.

Adulterated goods – The seller mixes one substance with another, say liquids, compromising the quality of goods to increase the quantity of goods. It results in non-compliance of health and safety standards.

Hoarding and Black Marketing – The word “hoarding” is the purchase of a large quantity of product with the intention of selling it in the future at a higher price when it is under stocked or not available on the market.

We may claim this as a kind of market monopoly, when consumers do not have any option to buy the same product with other customers because of the same scarcity. The notion of hoarding is somehow connected to the black market in this way, since this form of transaction is often prohibited by statute. People engaged in the hoarding industry in the same way as black marketing to increase their benefit through the unjust means of company. This commodity is typically a basic commodity used by large numbers of individuals in exchange.

Misleading Advertisements: This is very common and prevalent in today’s time where the producers misrepresent or conceal facts in order to boast his product for greater reach and marketing.

“Fair and lovely” is a classic example of such an advertisement.

Unfair Contracts

This is a new section which has been included in the Consumer Protection Act 2019 and gives the consumer the benefit of suing the producers or manufacturers against their unilateral/unfair/unreasonable contracts and widens the ground which was narrowed to only unfair trade practices and restricted trade practices.

The Consumer Protection Act,2019 describes Unfair Contract as:

“Unfair contract has been defined to include contracts between a manufacturer or trader or service provider on one hand, and a consumer on the other, having such terms which cause significant change in the rights of such consumer, including the following-”

  1. To require the consumer to pay manifestly excessive security deposits for the performance of contractual obligations;
  2. Imposing any penalty on the user for an infringement of the contract which is wholly disproportionate to the damage suffered by the other party to the contract as a result of such infringement; or
  3. Refusing to allow early repayment of debts upon payment of the penalty in force; or
  4. entitling a party to the contract to terminate the contract unilaterally, for no fair reason; or entitling a party to the contract to terminate the contract unilaterally;
  5. Allowing or having the effect of allowing one party, without his permission, to delegate the contract to the detriment of the other party, who is a consumer; or
  6. Any unfair fee, duty or condition that places such a customer at a disadvantage is imposed on the consumer.

The 1986 Act did not include a single platform for customers to challenge such contracts. For example, homebuyers of DLF Ltd.’s residential project in Gurgaon complained to the Competition Commission of India in 2018, alleging that in the buyer’s agreement, DLF placed unfair and arbitrary contractual terms. However, the CCI rejected the argument on the basis that the DLF was not dominant in the particular case. Now such cases and justice for homebuyers can be done under the same.

However, the jurisdiction of unfair contracts is restricted to national and state commissions.

The above provisions would have a direct effect on financial institutions such as banks, as the Supreme Court has already clarified that the banks are already included in the Act. This would clearly take account of contracts entered into with banks, e-commerce platforms where parties are left with no choice but to agree to the standard terms to use the services. With such a widened scope, the interpretation by the courts in the case of online contracts will play a major role.