Analysis of class action suit under Consumer Protection Act
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This article is written by Ishita Manot, pursuing Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.com.

“For we have always understood that when times change, so must we, that fidelity to our founding principles requires new responses to new challenges, that preserving our individual freedoms ultimately requires collective action.”

                                                                -Barack Obama, 44th president of the US

Introduction

The class-action suit is one form of consumer protection that has recently gained momentum in India. Class action suits are a distinct and necessary component of the civil dispute resolution system. When a group of litigants raise a complaint or other actions before a court/tribunal/forum on behalf of a wider group of people, a class action proceeding is launched. Class action suits consider the commonality of evidence and remedies obtained in proceedings where all members of the class have a common cause and some of the members of the said class initiate proceedings in courts as representatives for other members of the class. Class action suits allow courts/forums to adjudicate grievances by similarly situated people; a class action proceeding is favourable as it prevents the initiation and adjudication of multiple proceedings in courts, but it also allows the adjudicating court to assess and grant claims for all members of the class, which assists in limiting litigation, avoiding multiplicity, and reducing costs. Class action cases have their origin in the Civil Procedure Code under Order 1 Rule 8 and are statutorily acknowledged under several acts, including the Companies Act of 2013, the Competition Act of 2002, and the Consumer Protection Act of 1986, as well as the Consumer Protection Act of 2019. This article shall discuss and analyse class action suits under the Consumer Protection Act.

What is a class action suit under the consumer protection law?

Class action suits emerged as a way to overcome the impracticalities imposed on a huge number of plaintiffs/petitioners in a court and to limit trial multiplicity. Though class action suits are popularly believed to be a feature of the American legal system, they originally emerged in England in the 13th century under the moniker ‘group litigation.’ In India, class action suit was introduced in the Consumer Protection Act, 1986 through the Consumer Protection (Amendment) Act, 1993, which inserted specific provisions for initiating litigation before the consumer forums by broadening the definition of “complainant” under the 1986 Act and inserting Section 2(1)(b)(iv) which stated “one or more consumers, where there are numerous consumers having the same interest.”

By the addition of Section 13(6) to the Act, the amendment also called for the implementation of the terms of Order I Rule 8 of the Code of Civil Procedure, 1908 in proceedings under the Consumer Protection Act, 1986, thus, mandating the procedure provided in the Civil Procedure Code to be adopted in cases of class action consumer claims. With the advent of rules for bringing class-action suits, the legislation governing the practice and procedure of class action cases advanced and evolved with time.

Landmark cases

Nestle India Maggi Noodles

In a significant development in the field of class actions in 2015, the Government of India for the first time took action under Section 12(1)(d) of the Consumer Protection Act, under which the Central or State Government may file complaints with the National Commission in its capacity or as a representative of the interests of consumers in general. A complaint was filed in the National Consumer Disputes Redressal Commission against Nestle India Ltd. over its popular 2-minute Maggi noodles after tests revealed that the product contained high levels of lead and MSG. The complaint was by interpretation, a class action, filed on behalf of all consumers, and sought Rs 640 crores in damages for alleged unfair trade practices, false labeling, and misleading advertisements. Although the judgment is pending before the courts, this complaint has paved the way for future consumer class actions and is a landmark case.

Ambrish Kumar Shukla and 21 Ors. vs. Ferrous Infrastructure Pvt. Ltd.

There were multiple cases where a group of consumers would file joint complaints with the National Consumer Disputes Redressal Commission (NCDRC) to seek relief in cases involving builder-buyer disputes. This issue of maintainability of such complaints was recognised in the Ambrish Kumar Shukla case, where the NCDRC addressed the issue of class action, in which a complaint can be filed by one or more persons on behalf of, or for the benefit of all persons having a common grievance against the same party and seeking the same/identical relief under Section 12(1)(c) of the Consumer Protection Act, provided that the conditions placed regarding pecuniary jurisdiction of this forum are met. Though this decision was made concerning complaints directed at builders and individuals in the construction industry, it does not preclude its application in consumer cases involving complaints about other industries as well.

Procedure for filing a class-action suit

In 2019, India passed a new consumer protection legislation. Class actions are specifically permitted under Section 35(1)(c) of the Consumer Protection Act, 2019 (CPA). One or more consumers registered voluntary consumer associations, the Central or State Government, legal heirs, guardians or legal representatives of the consumer may file a suit under the CPA. Under the CPA, a customer may be an entity, a business, a Hindu undivided family, a cooperative society, a group of people, an organisation, a company, or some other artificial juridical individual.

Class actions must be brought in the appropriate court with the required territorial and pecuniary jurisdiction. Manufacturers, service providers, retailers, and e-commerce firms, for example, maybe the targets of class actions. The CPA, therefore, establishes a consistent procedure structure. The National Consumer Disputes Redressal Commission previously indicated that it would not accept class actions that did not have a sufficient proportion of the class involved in the suit. Furthermore, the CPA provides for the establishment of the Central Consumer Protection Authority (CCPA) to investigate certain class action cases for violations of consumer rights, unfair trade practices, or deceptive or misleading advertisements before they are addressed by the consumer forum. This differs from the former process, in which consumers could unite together and file their complaints with the consumer court.

Section 39 of the CPA specifies various forms of relief, including repairing or replacing the product, refunding the customer for damaged products and services, withdrawing dangerous goods, compensating the consumer for damage or damage caused by neglect, and covering the costs of prosecuting and pursuing the suit. Furthermore, the CPA allows for punitive damages and, in some cases, incarceration.

The CPA specifies a two-year expiration time for filing a class action. It is also worth noting that Indian courts have the authority to allow delays and, in certain cases, a class action can be heard after the limitation period has expired if the adequate ground is shown. Litigation in India can be time-consuming and tedious, with numerous appeals, often spanning multiple levels, all the way to the Supreme Court. Class actions usually take four to seven years from the time they are filed to the time they are resolved.

Problems faced while filing a class-action suit

  • A representative class

People who file a class action suit in court would need to represent a substantial part of the class. The National Consumer Dispute Redressal Commission (NCDRC) has stated that it would not allow a suit if just 10 people out of a class of 100 want to litigate. They contend that if they support the case, the remaining 90 will be forced to submit separate lawsuits or file on behalf of another class.

  • Need for faster courts

Given the legal backlog of cases and the overwhelmed National Company Law Tribunal (NCLT), class action suits must be handled in a much more expedient manner. Where it can be contended that a class action filing can harm a brand’s reputation, will the company opt for a lengthy trial or opt for private arbitration, as has been seen as a trend in the West? If class actions take many years to settle and go through many appeals, it will be difficult to invest money in class action suits, making it a very unsustainable economic prospect.

  • Incentive alignment

In individual cases, clients approach the lawyer. Lawyers are most likely to solicit work from a class in a class-action suit. Aside from the accident, victims in a class hardly have much in common. As a consequence, it is possible that an informed referral mechanism would not emerge. The principals (class members) could be unable to serve as good monitors of the agent (the lawyer). The lawyer could be tempted to partake in self-dealing. Contingency payments address the incentive issue by tying the lawyer’s fees to the amount of value provided to the class. This is particularly true in consumer class actions, where client cohesion is uncommon. However, in India, lawyers are not permitted to charge a contingency fee. In the public interest, this must change so that class action suits can become a feasible alternative in India. 

  • Meeting expenses

Lawsuits can be both costly and risky. A class-action suit does not ensure that members will be eligible to cover its costs. Legal provisions can require participants to present specific evidence on an individual basis. Proceedings can also drag on for a long time, increasing the expenditure. And it is still possible for participants to lose the suit in that scenario as well. The legal framework should provide for costs to be covered by “third-party financing.” Contingency fees, as previously discussed, is one component of it. A second component is raising funds from firms that specialise in investing in class-action litigation. If the members win, they share the proceeds with the third party in exchange for funding the suit. The third party is in a superior situation than the class plaintiffs to handle the possibility of the suit being lost.

Impact of Consumer Protection Law, 2019 on class-action suits

In 2019, India passed a new consumer protection law. Unlike the previous law, which allowed a class to file a case before a consumer commission in cases of misselling, the 2019 law creates a new consumer protection regulator, the Central Consumer Protection Authority (CCPA). The CCPA is responsible for protecting and upholding consumer rights as a class. A complaint relating to violations of consumer rights prejudicial to the interests of consumers as a class is to be forwarded to the CCPA under the new Act. It would then initiate a preliminary investigation to determine whether there is a prima facie case of infringement of consumer rights and direct for an investigation to be undertaken. Individuals’ ability to initiate class actions has been taken away and vested in the hands of the regulator. Unlike in the past, when a class of consumers could approach consumer forums with a common grievance, they are now needed to fulfill the CCPA’s subjective satisfaction. It’s then supposed to result in an investigation and consequent orders if any. The difficulties of public administration are now affecting the process of resolving consumer complaints. People who have been harmed are now supplicants before the regulator, pleading with it to implement consumer law.  This added step to the process may result in fewer class-action suits being filed.

Conclusion

The laws in India have devised a framework that either restricts or disincentivizes class actions. This article does not provide a definitive solution for how to remedy such a situation, however, the analysis demonstrates the reasons for the absence of class action in India. To achieve a clear class action law, changes must be made to Indian legislation. The new consumer protection law may provide more clarity on what defines a prima facie case of violation of consumer rights, as well as the components of the investigation. We must entertain the feasibility of moving away from the loser-pays principle in class actions and toward contingency fees for lawyers and the use of third-party investors.

These reforms have the potential to open the door to class-action suits in a variety of areas. They are also a crucial pillar in the system of grievance redressal.

References


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