Product Liability Law in India
Product liability, being a part of consumer protection laws, refers to the recourse available to the consumers of products who suffer injuries due to defective products. It governs the liability incurred by manufacturers, wholesalers, distributors and vendors upon injury caused to a person as a consumer or his property due to their defective or perilous products.
Product liability laws enable customers to protect themselves from the faulty products in the market, while making manufacturers, distributors and retailers liable for damages for the injury suffered due to products available in the market of which they had knowledge of.
Product liability laws arises from the common law theory of caveat venditor, which means “let the seller beware”. This theory places the onus on the seller for any injury suffered by the buyer due to the product or service sold by him. Therefore, the manufacturer and other involved parties are liable to compensate the buyer having suffered injury due to the defective or harmful product sold.
Product liability laws in India have evolved in the past few years by means of amendments and judicial interpretation, being carved into a powerful weapon under the umbrella of consumer protection laws to protect the interests of consumers and ensuring socio-economic justice.
Initially, the Product liability legislations in India were narrowly construed by the Indian Courts. However in the recent times, the Courts have adopted a consumer-centric approach. The Courts have moved to awarding punitive rather than compensatory damages in cases involving product liability. Certain legislations which protect the interests of consumers pertaining to defective products include:
- The Consumer Protection Act, 1986
- The Indian Contracts Act, 1872
- The Sale of Goods Act, 1930
Product liability includes both civil liability as well as criminal liability.
Civil product liability is a subset of personal injury law involving strict liability and negligence, which is concerned with the design, manufacture, distribution and sale of goods and services. Such a claim can be raised against one or more companies and businesses such as retailers, marketers and manufacturers. Further, product liability arises as per the provisions of warranty under the Contract law.
Criminal product liability arises when the concerned parties fail to comply with the provisions of certain Acts which protect the interests of consumers for different products. Such criminal action can be instituted in addition to a claim under civil law simultaneously in accordance with the Indian Penal Code, 1860.
Certain specific statutes pertaining to specific products such as the Foods Adulteration Act, 1954, the Food Safety and Standards Act, 2006, the Drugs and Cosmetics Act, 1940, the Prevention of Food Adulteration Act, 1954, the Legal Metrology Act, 2009, the Bureau of Indian Standards Act, 2016, the Motor Vehicles Act, 1988 and the Agricultural Produce (Grading and Marking) Act, 1937 provide for product liability to protect consumer’s interests.
PRODUCT RECALL
Recall refers to the process of formally ordering a person or an item back to the source of origin. Product recall is undertaken by the manufacturer of a product requesting the return, exchange or replacement of the product upon discovery of substantial defect in the product which could hamper its performance or cause injury to the consumers, resulting in legal claims against the manufacturers and sellers.
The act of recalling a product is done to restrict the liability arising out of corporate negligence and to protect the reputation of the firm. A company undertaking product recall has to incur extensive costs for the entire recall process, ranging from recalling the actual product to replacing or refunding the price of the product along with financial consequences of recalling the product on the business. However, such costs are significantly lesser than the costs and damages payable by the company when it fails to recall a harmful or defective product from market, being subject to various litigations.
In India, certain consumer protection laws require products to be recalled in different circumstances for various industries on a voluntary basis. The Consumer Protection Act, 2019 requires a company to recall products from the market when the competent authority passes an Order for the same.
Failure to recall such products attracts civil liability and may involve criminal actions as well. Few companies also indulge in voluntary product recall as a preventive measure to ensure consumer safety and maintain ethical image in the market.
PRODUCT LIABILITY UNDER CONSUMER PROTECTION ACT, 2019
The Consumer Protection Act, 2019 (hereinafter “2019 Act”) replaced the erstwhile Consumer Protection Act, 1986 after receiving presidential asset and being notified in the Official Gazette of India on 09.08.2019. The provisions of the 2019 Act came into effect on 20.07.2020.
The 2019 Act has made significant amendments to the erstwhile Act, along with addition of new provisions. The 2019 Act inculcates product liability theory as a statutory provision for the first time in India under Chapter VI of the Act.
Under Section 2(34) of the 2019 Act, product liability is defined as:
“the responsibility of a product manufacturer or product seller, of any product or service, to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services relating thereto.”
Therefore, the 2019 Act imposes product liability not only on the manufacturer, but also on the seller of the product, subject to certain conditions under the Act.
Further, the 2019 Act enables a person to raise product liability claim by filing a complaint before the District Commission or State Commission or National Commission against the manufacturer or seller of defective product through product liability action under Section 2(35).
The 2019 Act also defines harm in relation to product liability, which includes the following:
i. damage to any property, other than the product itself;
ii. personal injury, illness or death;
iii. mental agony or emotional distress due to personal injury or illness or damage to property; and
iv. any loss of consortium or services or other loss resulting from a harm referred above;
v. It does not include any harm caused to a product itself or any damage to the property due to breach of warranty conditions or any commercial or economic loss, including any direct, incidental or consequential loss related to it.
The 2019 Act also sets out liability for different parties involved selling a product:
1. Manufacturer Liability
Section 84 of the Act provides that a product manufacturer shall be liable in a product liability action if the product meets any of the following criteria:
- Contains a manufacturing defect;
- Is defective in design;
- Has deviation from manufacturing specifications;
- Does not conform to the express warranty;
- Does not contain appropriate instructions for proper usage to prevent any harm, or any warning against improper or incorrect usage.
Further, a product manufacturer shall be held liable for defective products even if it is proved that they were not negligent or fraudulent in making the express warranty of a product.
2. Product Service Provider
A product service provider shall be liable in product liability action in any of the following circumstances:
- Providing faulty or imperfect or deficient or inadequate quality, nature or manner of performance of service, which is required to be provided by him as per any law in force, or as per the contract;
- Act or omission or commission or negligence or conscious withholding of any information which caused harm;
- Failure to issue adequate instructions or warning to prevent harm;
- Non-conformity of the service with the express warranty or terms and conditions of the contract
3. Product Seller
A product seller, not being a product manufacturer, shall be liable in a product liability action if the seller:
- Exercises substantial control over the design, testing, manufacturing, packaging or labelling of the product that caused harm;
- Altered or modified the product, where such alteration and modification is the substantial factor for harm caused;
- Has made an express warranty of the product independent of the manufacturer’s express warranty and the product fails to conform to the seller’s express warranty, causing harm;
- Has sold a product causing harm, where the identity of the manufacturer is not known, or such manufacturer cannot be served notice or process or warrant, or is not subject to the law in force in India or the order passed cannot be enforced against him;
- Failed to exercise reasonable care in assembling, inspecting or maintaining such product or failed to pass on the manufacturer warnings or instructions concerning dangers involved or proper usage of the product while selling such product which proximately resulted in the harm caused.
EXCEPTIONS TO PRODUCT LIABILITY
A product liability action cannot be instituted against the product seller and manufacturer in the following circumstances:
i. If the product was misused, altered or modified at the time of harm, the seller cannot be held liable.
ii. The manufacturer shall not be liable if:
- The product was purchased by employer for use at workplace and the manufacturer had provided warning and instructions to the employer;
- The product was sold to be used as a component in another product along with warnings and instructions, but harm was caused due to end product which contains such component;
- The product is legally meant to be used or dispensed only under supervision of expert(s);
- The complainant was under influence of alcohol or drug not prescribed by medical practitioner at the time of using such product;
- Such instructions or warnings about a danger are obvious or commonly known to the user, or which the user ought to have known taking into account the characteristics of the product.
CONSEQUENCES OF PRODUCT LIABILITY
The 2019 Act empowers the District Commissioner under Section 39 to investigate the product and manufacturer/seller regarding defective products which harm the consumers and determine whether such liability actually arises or not.
Upon satisfaction of the same, the central authority may order for:
i. Recall of goods or withdrawal of such products;
ii. Replace goods with new goods of similar description free from any defects;
iii. Return the price or charges paid by the complainant along with interest for such defective product;
iv. Removal of defect in the goods or deficiency in services;
v. To pay amount as awarded by the District Commission as compensation to the consumer for loss or injury suffered by the consumer due to the manufacturer’s negligence.
The District Commissioner also has powers to grant punitive damages according to the facts and circumstances.
vi. To pay compensation in product liability action;
vii. To discontinue offering the hazardous goods for sale and withdraw them from being offered for sale; and
viii. To cease manufacture of such goods and desist from offering services which are hazardous in nature.
Therefore, the new 2019 Act has cautiously affixed responsibility to the manufacturers and sellers for product liability.
PRODUCT RECALL UNDER VARIOUS LAWS
In India, legislations pertaining to specific sectors envisage and provide for product recall in case of defective products. However, a single regulatory body in India dealing particularly with product safety reports or recalls is not yet established.
However, various legislations mandatorily provide for recall of defective products under certain circumstances.
1. Consumer Protection Act, 2019
The 2019 Act empowers consumers to file a complaint against a defective product and protect their interests with the central authority. Under the Act, a Central Consumer Protection Authority (CCPA) is to be set up which has the powers to regulate and investigate matters pertaining to violation of rights of consumers which affect the interests of public and consumers and to ensure the promotion, protection and enforcement of consumer rights.
The CCPA is empowered to pass an order for recall of goods or withdrawal of services which are dangerous, hazardous and unsafe after conducting investigation and satisfying themselves of the harmful nature of such products.
2. Motor Vehicles Act, 1988
The 2019 amendment of Motor Vehicles Act introduced provisions for mandatory recall of defective motor vehicles in India. Prior to this amendment, motor vehicle manufacturers would often recall defective vehicles voluntarily to reduce potential liability over such products, pursuant to the Voluntary Code of Vehicle Recall, issued by the Society of Indian Automobile Manufacturers.
Through the amendment, the Ministry of Road Transport and Highways was empowered to order for recall of a particular type of motor vehicle by the manufacturer in case a defect is identified in the vehicle which is harmful to the driver, occupants, other users or the environment, or on report of a defect to the Ministry.
In case of identification of a defective component, the Ministry is empowered to order the manufacturer to recall all motor vehicles consisting of such component. The manufacturer becomes liable to either compensate the buyers, replace or repair the defective component in the motor vehicle or pay fines as prescribed by the Government.
Further, the Act does not prescribe any additional fines to be paid by the manufacturer in case of voluntary recall of defective vehicles.
3. Bureau of Indian Standards Act, 2016
The Bureau of Indian Standards, established under the BIS Act, 2016 is empowered to direct the certified body or licence holder to withdraw the supply and sale of goods or articles which do not conform to the relevant standards and further order for recall of non-conforming goods or articles.
The Act further stipulates penal liability including fine and imprisonment for non-conformance with the standards and non-compliance of orders.
4. Drugs and Cosmetics Act, 1940
Licenses granted under the Act for manufacture and distribution of drugs and medical devices are subject to certain conditions prescribed in the Act, which includes recall of devices not satisfying the specific conditions. The concerned licensing authority is empowered to order for recall of devices which do not comply with the standards prescribed in the Act.
Further, the Medical Devices Rules, 2017 which came into force on 01.01.2018 applies to specific devices as mentioned in the rules and notified under the Drugs Act. It stipulates that manufacturers and authorised agents are under a general obligation to recall manufactured or imported drugs and medical devices which pose or are likely to pose significant risk to users’ health and to state the reasons for recall.
Further, they are obligated to inform the Central Drugs Standard Control Organisation (CDSCO) regarding the recalled device and relevant information. In case of failure to comply with the provisions, the manufacturer or distributor may attract penal liability of fines, imprisonment, suspension, cancellation or debarment of license holder.
5. Food Safety and Standards Act, 2006 (FSSA)
The Food Safety and Standards (Food Recall Procedure) Regulations, 2017 framed under the FSSA specifically deals with the provisions and procedure for recall or removal of unsafe food products. Further, the Regulations mandates all food business operators (FBOs) engaged in the manufacture, import or wholesale supply of food to formulate an up-to-date recall plan to be enforced when a recall is necessary.
The Food Safety and Standards Authority of India (Food Authority) is tasked with supervision and monitoring the process of recall and to ascertain the effectiveness of FBO’s actions. It has issued guidelines to assist FBO’s in formulating a food recall plan, along with requiring the FBOs to establish a recall management team.
Previously, the Food Authority, through its inherent powers under the FSSA, would recall food products being defective or unsafe. The FSSA prohibits the manufacture, storage, sale and distribution or import of food unsafe for human consumption and the same is punishable by imprisonment and fines.
The 2017 Regulation empowers the Food Authority to:
- Ensure that food under recall is removed from all stages of food chain;
- Circulation of accurate information to all consumers and consumer; and
- Retrieve, destroy or reprocess food under recall.
RECENT DEVELOPMENTS
In the previous year, the theory of product liability and product recall has seen vast development in the form of legislations. The enactment of the Consumer Protection Act, 2019 is considered to be the milestone for development of product liability laws in India as it has inculcated the concept of product liability and dedicated a chapter for the same.
Further, the 2019 Amendment to the Motor Vehicles Act has provided a statutory framework for recall of defective motor vehicles. This comes at a time when vehicles are being recalled voluntarily by major manufacturers and dealers to avoid or restrict liability. Hence, the Amendment strengthens the position of product liability and product recall of defective items.
The pharmaceutical sector has seen recall of several drug-related products in 2019, on voluntary basis as well as on orders of CDSCO for not meeting the standards prescribed by the Drugs and Cosmetics Act, 1940.
Further, the 2017 Rules concerning Medical Devices has been amended to include all medical devices, with effect from 01.04.2020 and establishment of an online mode to register medical devices.
PRODUCT LIABILITY CASE STUDIES
1. Johnson & Johnson’s Hip Replacement Device
The import license of hip replacement device by J&J was cancelled in 2013 due to them being faulty, along with the Ministry of Health directing the company to pay compensation to the patients who received the faulty hip implant, ranging from Rs. 3 million to Rs. 12.3 million as calculated by the Ministry’s committee.
The company challenged this decision of the committee on the grounds of lack of transparency and opportunity to be heard. This matter is pending before the High Court of Delhi and the company has agreed to pay Rs 2.5 million as compensation to each identified patient as interim compensation, while the judgment is pending.
The Government has constituted a sub-committee to review and appropriately recommend provisions for compensation in case of faulty devices under the Devices Rules. The CDSCO has also proposed to include all medical devices under the regulations specified under the Medical Devices Rules, 2017.
2. Nestle’s Maggi
The Food Authority ordered Nestle India to withdraw all the variants of Maggi instant noodles from Indian markets throughout the country. The Food Authority investigated the product based on reports from all over India concerning the lead and monosodium glutamate (MSG) contents in Maggi Noodles.
The Food Authority noted three major violations:
i. It contained lead in excess of the maximum permissible level of 2.5 ppm.
ii. The package information stating ‘no added MSG’ was misleading the consumers.
iii. The company had released a non-standardized food product, i.e. ‘Maggi Oats Masala Noodles with Tastemaker’ without proper risk assessment and grant of product approval.
Resultantly, Nestle had to recall all Maggi noodle products from the market and had burnt $50 million worth of Maggi noodles in concrete incinerators. Later, the company began restarting production after acquiring the necessary permissions and clearing laboratory tests as required.
3. Amway
The Food Authority had ordered to recall seven Amway products after conducting laboratory tests on these products. They were found to contain minerals and vitamins in excess to the permissible quantity, as per studies conducted by Indian Council of Medical Research (ICMR) and National Institute for Nutrition (NIN).
Further, these products did not have the necessary licenses and n-objection certificates or product approval from the food authority. The Authority had previously rejected the NOC on the ground that it contained ingredients such as protein, vitamins and minerals beyond the permissible limit.
4. Sanofi
The CDSCO had ordered the recall of a painkiller drug Combiflam, manufactured by Sanofi. Combiflam, being a combination of Paracetamol and Ibuprofen, was found to not meet the specifications for disintegration tests.
A “disintegration test” refers to the test of measuring the time taken by tablets and capsules to disintegrate inside the body, which is used as a quality assurance action by pharmaceuticals.
It was found that the drug Combiflam took excessive time to disintegrate beyond the permissible limits, and hence was recalled from the market.
JUDICIAL TREND
Courts in India have not recognized the doctrine of product liability to be enforced in India and have awarded compensation to the complainants on the basis of facts of each case.
In the case of Airbus Industries v. Laura Howell Linton 1994 (5) Kar LJ 63, the High Court of Karnataka noted that the doctrine of Strict Product Liability does not exist in India and hence a matter for enforcement of Strict Product Liability could be better instituted in the United States Courts.
The concept of product liability can be said to arise from the theory of Strict liability, which developed from the case of Rylands v. Fletcher L.R. 3 H.L. 330. In this case, the Defendant’s reservoir broke through the Plaintiff’s abandoned mine and flooded an active mine. The mine owners sued for damages and the Court held that:
“if a person for his own purpose brings on his land and collects and keeps there anything likely to do mischief if it escapes, must keep it at his peril, and if he does not do so, is prima facie answerable for all the damage which is natural consequence of its escape”.
The theory of strict product liability was evolved based on the same concept, for protecting consumers when the liability for personal injury or property damage to consumers, users, and by-standers caused by the goods clearly lied on the manufacturer, seller, or lessor of good irrespective of intent or exercise of reasonable care.
The Supreme Court of California in Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57 [13 A.L.R.3d 1049] for the first time held that the manufacturer is liable for injury caused to an ultimate consumer by a defective power tool. It held that even in the absence of privity of contract and notice of breach of warranty, the manufacturer stands liable. It noted that:
“Strict liability does not rest on a consensual foundation but, rather, on one created by law. The liability was created judicially because of the economic and social need for the protection of consumers in an increasingly complex and mechanized society, and because of the limitations in the negligence and warranty remedies. The court’s avowed purpose was to ensure that the costs of injuries resulting from defective products are borne by the manufacturer that put such products on the market rather than by the injured persons who are powerless to protect themselves.”
However, the Courts of USA have duly held that strict product liability can be enforced when the plaintiff has suffered only economic loss, without any physical injury or damage to his property.
The Supreme Court of California in Seely v. White Motor Co. (1965) 63 C2d 9, 18 held that the doctrine of strict product liability in torts cannot be appended to a case when “no blood has been spilled”.
Further, in Indelco Inc. v. Hanson Industries 14-97-00236-CV the Texas Court of Appeals held that a cause of action in strict product liability cannot be maintained where the plaintiff has suffered economic loss only.
In Jim Walter Homes, Inc. v. Reed 711 S.W.2d 617, 618 (Tex.1986) the Texas Supreme Court held that “the nature of the injury most often determines which duty or duties are breached, when the injury is only the economic loss then doctrine of Product liability would not be attracted.”
INTERNATIONAL PERSPECTIVE
In the United States, the Consumer Product Safety Commission (CPSC) is established to regulate the consumer products in US. It works in coordination with other regulatory and government agencies for protecting the public from risks pertaining to personal injury, death or destruction of property arising out of faulty consumer products. The CPSC has jurisdiction over approximately 15,000 varieties of products, ranging from household products, school, recreation and other items.
The CPSC also has a Fast-Track Recall Program which initiated in 1997 to quickly and efficiently recall and withdraw potentially dangerous products from consumer market. Companies in the US rely on fast-track recall program to withdraw products from the market voluntary and to reduce liability.
Other agencies include the Food Safety and Inspection Service (FSIS) of the United States Department of Agriculture (USDA) which regulates food products concerning meat, poultry and egg.
The Food and Drug Administration (FDA) of the United States Department of Health and Human Services (DHHS) is concerned with regulating all other food, including fruits, vegetables, and dairy products.
The National Highway Traffic Safety Administration (NHTSA) is the regulatory authority which regulates automobiles, issues standards for vehicle safety and directs manufacturers to recall vehicles which have compromised safety or defects or which do not comply with Federal safety standards.
In the United Kingdom, product liability laws developed through the EU Product Liability Directive as implemented primarily in Part I of the Consumer Protection Act, 1987. The Act provides for regulating defective products as strict liability. It is supplementary to other laws such as contract and torts.
Further, the General Product Safety Regulations provide for protection of consumer rights for general products and enforce product liability. These Regulations provide for obligations to be followed by manufacturers of consumer products to provide only safe products in the market.
The Regulations provide for recall of product as a last measure and corrective measure to protect the consumer’s interests. It requires the carrying out of appropriate risk assessment prior to product recall.
WAY AHEAD
The establishment of the Consumer Protection Act, 2019 has provided for a simple mechanism to file consumer complaints, including e-filing facilities and filing complaints in the jurisdiction where complainant resides or works for gain. Therefore, proper implementation of the Act will improve the consumer protection law in India and further enforce substantial rights of the consumer.
Along with the proper establishment of Central Consumer Protection Authority, the Authority should aim to function in an effective manner, similar to the functioning of United States’ CPSC, which publishes the names of all brands and products being recalled from the market, including information of the brand, its performance and reason for recall on its official website.
The consumers can keep a check on such products and thereby increase consumer awareness. The CCPA can implement a similar method in India to promote product liability laws and provide information regarding product recalls.
Further, there is a need to implement product safety certification for certain products, as followed in the US and UK. A product having passed safety certification would not have to be recalled, which makes it advantageous for manufacturers as well as consumers.
Additionally, the Government needs to establish a comprehensive recall policy so as to be on par with globally accepted standards of practice regarding product safety. Establishing a proper product recall mechanism will enable manufacturers to comply with the same and ensure proper product safety.
The government may also establish separate recall agencies to deal with distinct manufacturing industries, so as to enable enhanced supervision of manufacturers and their products.
CONCLUDING REMARKS
Product liability law and product recall policy have recently begun to emerge as a separate concept in law, with the introduction of the Consumer Protection Act, 2019. The 2019 Act provides for the regulatory framework to be followed for instituting a product liability claim against manufacturers and other related parties. Further, it recognizes the concept of product recall, enabling the District Commission and Central Consumer Protection Authority to pass an order for recall of products which are found to be defective or unsafe for use.
Thus, it can be seen that the Indian legislation has taken crucial measures to protect the rights and interests of consumers. It has paved the way for implementation of a stronger, reliable and consumer-friendly consumer protection laws in the means of enforcing product liability on manufacturers and necessitating product recalls wherever necessary.
These changes in law related to Product Liability Law & Product Recalls in India will result into various litigations and unforeseen liabilities in the coming days. Business entities should address their workings on an immediate basis before it is too late for them.
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