Are Indian Consumer Laws Ready For The Digital Age?

Are Indian Consumer Laws Ready For The Digital Age? – CIS India
Given the transactions occurring in online marketplaces – a large
number of them between retailers and domestic consumers, are there
any specific laws out there protecting the interests of consumers
online?
Apart from the Information
Technology Act, 2000
 and various circulars
by the Reserve Bank of India
 regarding online banking and
money transfer activities which are more generic in nature trying
to secure the online space as a whole, there are no specific laws
that seek to protect consumers in the online space. However, that
does not necessarily mean that the consumers are left without any
recourse and in this post we shall examine whether it is possible
to use the Consumer
Protection Act, 1986
 to protect consumer rights in the
online environment as well.
The Consumer Protection Act, 1986 (“COPRA”) was enacted
with the purpose of empowering consumers to take on the might of
large corporations and preventing unscrupulous businessmen from
taking undue advantage of the weak position which consumers are
inherently placed  in under the archaic Indian judicial system. It
set up special tribunals, simpler procedures and enacted special
provisions to help consumers get a better bargaining position
vis-à-vis manufacturers and retailers, etc. However, this law was
enacted more than a quarter of a century ago and it is not
entirely geared towards protecting consumer rights in the digital
era. However, that does not mean it is entirely toothless in the
online environment although it certainly needs some major
provisions to come to grasp with the special circumstances and
practices of the online marketplace, as the rest of the discussion
will demonstrate.
For any transaction to come under the purview of COPRA, it should
have the following three essential requirements:

  1. There should be a ‘good’ or ‘service’ sold or provided to a
    consumer;
  2. Such good or service must be ‘sold’ i.e. there must be a
    ‘sale’;
  3. There should be a ‘defect’ in the good or ‘deficiency’ in the
    service;

We will now examine different types of e-commerce transactions
and discuss whether they fulfill the requirements given above and
therefore are amenable to the jurisdiction of COPRA.
There should be a ‘good’ or ‘service’
Since a book or a mobile phone is considered as a ‘good’ then it
will always be considered as a ‘good’ irrespective of it being
bought from a physical shop or an online retailer. However, the
question becomes complex when dealing with digital items such as
mp3 files and software programmes. The General
Clauses Act, 1897
 states that all property which is not
immovable property is considered as movable property. Since
immovable property is defined as land and things attached to the
land, therefore it is pretty clear that ‘computer software’ would
in all likelihood be considered as movable property. Whether such
movable property can be considered as a ‘good’ or not is a
question which is yet to be tested in the courts of law in India,
however it must be mentioned that in the context of the Sales Tax
Act, the Supreme Court of India has held canned software to be a
‘good’. Laying down a test for determining whether a property is a
‘good’ or not, the Supreme Court in that case laid down the
following test:
“A ‘goods’ may be a tangible property or an intangible one. It
would become goods provided it has the attributes thereof having
regard to (a) its utility; (b) capable of being bought and sold;
and (c) capable of transmitted, transferred, delivered, stored and
possessed. If a software whether customized or non-customized
satisfies these attributes, the same would be goods.”

However, it may not be accepted by a court deciding a case on
COPRA. This is one issue which could and should be addressed under
Indian laws to ensure that the large numbers of Indian consumers
who buy items in the online marketplace are not left without the
protection of the COPRA.
There must be a “Sale” of the good or service
This question again can be simple when asked in relation to
sale of physical goods using the internet but may not be so with
digital goods. When a physical item is purchased using the
internet, a sale may be said to have occurred when the ownership
of the good passes from the online retailer to the consumer and
the payment and delivery are complete. However, the question
whether sale of software in an online environment would actually
constitute a ‘sale’ is questionable. A huge problem in labeling
online software purchases as a ‘sale’ is that most of these
‘sales’ are made in the form of a license. The manufacturers or
retailers would argue that such an online purchase is not really a
sale since the consumer usually only gets a license to use the
product under strict conditions and does not buy the product as an
owner.
The counter argument is that most websites advertise these
products as an outside sale. In fact in a number of cases you can
actually buy the file containing the software without ever being
shown the contractual terms of the agreement. These terms usually
specify that you are only getting a license to use the product and
may not have the right to resell or lend the product to others,
rights which a traditional buyer of a product enjoys under law.
This issue was also discussed by a Full Bench of the Supreme
Court of India in the case of Tata Consultancy Services v. State
of Andhra Pradesh, which ultimately held that the ‘sale’ of
canned software would be a sale of goods and therefore liable to
be taxed under the Sales Tax Act. This decision was given in the
context of the Sales Tax Act, but it could be argued that since
tax statues are anyways supposed to be interpreted strictly and
beneficial statutes such as the COPRA are required to be
interpreted broadly, therefore it is possible that such a
‘license’ could be considered as a ‘sale’.
Here again we see that although there might be arguments which
could be made to justify such licences for computer software as a
‘sale’, however it is still an untested issue and the COPRA
certainly needs to take these issues into account if we want to
protect the rights of the ever growing number of online consumers.
There should be a “defect” in the goods
If I order a pair of shoes from flpikart.com and the shoes arrive
with one of the soles torn off, it’s a pretty straightforward case
of there being a defect. Similarly, if I buy a software from a
manufacturer for my personal use and the file has a bug in it, it
can fairly easily be considered as a defect.
What if we argue that stringent Digital Rights Management
techniques by some online retailers are actually a defect in the
goods since they do give the consumer all the rights that a buyer
of goods would traditionally have. For example, if I buy an e-book
with DRMs which restrict lending and on-selling, then two of my
rights as a traditional book buyer are straightaway rescinded.
If an article bought has any fault, imperfection or shortcoming
in the quality, then it would be considered as a defective good.
An e-book with DRMs may also let a consumer read its contents but
that may not be the only criteria to determine whether an item is
defective or not. Using the traditional definition of a ‘buyer’,
we can argue that a traditional buyer commonly has rights such as
the right to resale, the right to make copies for personal use,
the right to lend, the right to gift, etc., which may not exist in
an e-book with DRMs. Thus, an argument could be made that such
measures constitute a ‘defect’ in the goods under the COPRA.
Again, this is only an argument and it is entirely possible that
a court of law may reject such an argument, especially in light of
the fact that the consumer has entered into a license agreement
while completing the transaction which specifically grants the
consumer only specific and limited rights in regard to the item
being purchased. A possible counter argument could be that the
agreement is generally long and verbose and is only presented to
the consumer towards the end of the transaction when the consumer
generally does not have the time to read it. Further, the consumer
can hardly negotiate the terms of the contract. This is why in
common law jurisdictions the courts have laid down certain
principles or extra conditions which a standard form of contract
has to abide by for it to be enforceable viz.,:

  1. Sufficient notice: This principle requires that the major and
    specially the unusual terms in a contract should be displayed in
    a sufficiently highlighted manner so that a reasonable consumer
    is not likely to miss these unusual terms.
  2. Fundamental breach of contract: If the contract is so drafted
    that it would impose additional obligations on the consumer or
    restrict the liability and obligations of the seller in such a
    way that it would result in breaching any of the fundamental or
    main terms or obligations that one expects in such a contract,
    then such a contract may not be enforceable.
  3. Exclusion of unreasonable terms: Another type of protection
    that is available to consumers is the principle which seeks to
    exclude unreasonable terms from a contract i.e. a term which
    would defeat the very purpose of the contract or if it is
    repugnant to the public policy.

Relying on the above principles of standard form contracts, it is
possible to at least argue that highly strict and limiting terms
which are put into a long verbose standard form contract which backs
the Technology Protection Measures on a protected software may not
be entirely enforceable, in which case the alleged consent of the
consumer for such DRMs gets negated and the software with all its
DRM limitations could be considered as ‘defective’.
The Centre for Internet and Society is a non-profit
research organization that works on policy issues relating to
freedom of expression, privacy, accessibility for persons with
disabilities, access to knowledge and IPR reform, and openness
(including open government, FOSS, open standards, etc.), and
engages in academic research on digital natives and digital
humanities.

--
Satya
Regional Project Officer
Consumers International
Office of the Asia-Pacific and the Middle East
Lot 5-1 Wisma WIM, 7 Jalan Abang Haji Openg, TTDI, 60000 Kuala Lumpur, Malaysia
Tel: +60 3 7726 1599

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