The Supreme Court on February 18, 2021 held that a manufacturer will not be held liable if the dealer is at fault, unless it can be proven that the manufacturer was aware of the deficiency of the dealer in cases where their relationship is on a “principal to principal” basis.[1]
Facts
In the present matter, the first respondent bought a car after paying the agreed total consideration price in 2011 to the second respondent, who is a dealer in cars. At the time of purchase, Respondent no. 1 availed bank credit. A 2009 model car which had run 622 kilometers was sold to him in place of a new car of 2011 make. Thereafter, the Respondent no. 1 requested for refund of the price paid or replacement of the care with one of 2011. The price was not refunded nor was the car replaced while he refused to take the delivery of the 2009 model car. Subsequently, he issued a legal notice to the dealer along with the appellant.
District Forum
The Forum determined ‘deficiency of service’ and held the dealer and the appellant who is the manufacturer of the car to be jointly and severally liable. The Order noted that the car had some defects. The Appellant denied the facts and alleged that the Respondent no. 1 had been informed that the car purchased by him was a 2009 model. This averment was not accepted by the Forum which opined that had the respondent agreed to such an offer, he would not have refused to take the delivery of the car which was even then with the dealer.
Finally, it held that there was deficiency in the service committed by the dealer and the appellant, and allowed the respondent no. 1’s complaint, holding the dealer and the appellant jointly and severally liable to replace the car with a new one of the same model or to refund the entire amount of the car with the interest ten per cent from the date given of delivery. Further, it was ordered that both were also jointly and severally directed to pay INR 20,000 to the Respondent no. 1 towards mental stress and agony in addition to costs of INR 5000.
State Commission
The manufacturer then preferred an appeal to the State Commission. However, the Commission dismissed the appeal with costs of INR 5000 and held that the Respondent no. 1 was a consumer as defined under the Consumer Protection Act, 1986 and that he was awaiting delivery of the car. Further, it added that an expert report was not necessary for cases where the facts speak for themselves, and the present case was one such. It also ruled that the appellant’s plea that its relation with the dealer was on a principal-to-principal basis was unsubstantiated according to the state commission, by ant material or evidence. The Commission concluded that the Appellant sold the defective car to the Respondent no. 1 manufactured by it and along with him, the dealer was liable for sale of the defective car.
National Commission
Two contentions were alleged by the Appellant. Firstly, that the Respondent no. 1 was not a “consumer” since he did not accept delivery of the car from the dealer, and secondly, that its relationship with the dealer was on principal-to-principal basis and that therefore, no liability could be fastened upon it.
The Commission noted that the appellant/manufacturer appointed dealers after its due diligence, and that such sale of its goods is undertaken by the manufacturer through its dealers, the manufacturer exercises superintendence over its dealers which includes the right to terminate their dealerships. The appellant’s subsequent conduct, which is the termination of the dealership, weighed with the National Commission. It was also influenced by the fact that the appellant had, before the district forum, filed its written version in which it explicitly stated that the relationship between the manufacturer and its dealer was on a principal-to-principal basis, nevertheless, it did not file a copy of the dealership agreement in support of its argument.
The Commission came to the conclusions that –
- Other than extolling its product and its after-sales services, no material to substantiate its relationship between the dealer being one of principal-to-principal basis had been adduced.
- In the averments in the appeal before the state commission, the dealer’s fault was not put forward as a defence.
It held that the relationship of the dealer and the appellant in the facts appearing from the record, did not absolve it of liability. It issued several directions –
- Upheld the order of the State Commission and declared that the appellant had indulged in unfair trade practice, for which it was imposed with costs of INR 200000 of which INR 100000 was to be made over to the Respondent no. 1 and the balance to the Consumer Legal Aid Account of the District Forum within four weeks.
- It further ordered to immediately pass appropriate directions to all its dealers to discontinue such unfair and deceptive acts, and not to put the consumer, i.e. the Respondent no. 1 to such loss and injury and to imbibe accountability and systemic improvements for the future.
Before the Hon’ble Supreme Court
The Court relied on an earlier decision[2] which held that “as there is no privity of contract between the appellant and the consumer, no ‘deficiency’ as defined under the Act arises.” It observed that the records do not show pleadings by the complainant with regard to the appellant’s role, or special knowledge about the two disputed issues, i.e. that the dealer had represented that the car was new, and in fact sold an old, used one, or that the undercarriage appeared to be worn out. The findings against the dealer were justified on demurrer.
However, the findings against the appellant/manufacturer which has not sold the car to the Respondent no. 1 and was particularly not shown to have made the representations in question, were not justified. Further, the circumstance that a certain kind of argument was put forward or a defence taken by a party in a given case cannot result in the inference that it was involved or culpable, in some manner. Special knowledge of the allegations made by the dealer, and involvement, in an overt or tacit manner, by the appellant had to be proved to lay the charge of deficiency of service at its door.
Conclusion
In the present matter, the focal point of the judgement has been whether the manufacturer has knowledge of the dealer’s deficiency of service. It laid focus on the fact that the relationship of the two should be on principal-to-principal basis.
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