This article is written by Harman Juneja, from Dr. B.R. Ambedkar National Law University, Rai, Sonepat. The article talks about understanding the relationship of “principal-principal” basis in light of the case of Tata Motors Ltd. Vs. Antonio Paulo Vaz. 

Introduction

Automobile manufacturers frequently enter into principal-to-principal dealership agreements with dealers or showroom operators. A principal-to-principal arrangement is advantageous because it holds the dealer solely responsible for his dealings with the buyers. In a recent decision in Tata Motors Ltd. v. Antonio Paulo Vaz and Ors (2021), the Hon’ble Supreme Court held that the liability of a dealer’s deficiency of service could not be fastened onto a car manufacturer when the contract was on a principal-to-principal basis and no knowledge of the dealer’s wrongful acts was attributable to the car manufacturer.

Relationship of “principal-principal” basis

The parties to a contract (whether financial or non-financial) sign the contract in their capacity, whether or not they directly negotiated and drafted its terms and each party’s obligations. It also signifies that there are no intermediaries or agents involved in the transaction. In this context, a primary refers to the two parties to a transaction who are not using the services of agents.

Tata Motors Ltd. v. Antonio Paulo Vaz and Ors

Facts of the case

• In 2011, the respondent purchased a car from the second respondent, an appellant corporation dealership, after paying the entire consideration price. Instead of a new car, the first respondent was sold a 2009 model car that had already clocked a significant number of kilometres. 
• The first respondent who refused delivery preferred to file a complaint with the Goa District Consumer Forum (District Forum). Despite being served with notice, the respondent did not appear and was left unrepresented. The District Forum heard the appellant and determined that the appellant and the second respondent were both jointly and severally liable for ‘deficiency in service.’ 
• The car was fully corrugated and also had scratch marks on the body. As a result, the District Forum ruled that the appellant and second respondent must replace the car with interest from the delivery date, as well as pay INR 20,000 for mental stress and INR 10,000 for costs.
• Dissatisfied with the District Forum’s decision, the respondent filed an appeal, which was denied by the State Consumer Disputes Redressal Commission (State Commission). The appellant argued before the National Consumer Disputes Redressal Commission (National Commission) that the first respondent was not a consumer because he did not accept the car’s delivery from the respondent. 
• Furthermore, the appellant contended that no liability could be imposed on the appellant due to the appellant’s principal-to-principal relationship with the respondent. The National Commission dismissed the appellant’s arguments and upheld the District Forum’s decision. The National Commission also issued an order requiring the appellant to pay INR 200,000 in additional costs (INR 1,00,000 towards the first respondent and INR 1,00,000 towards the Consumer Legal Aid Account of the District Forum). 

Contentions of the parties

The appellant disputed the National Commission’s determinations that the first respondent’s complaint before the District Forum contained no charges against it other than implementing it and demanding redress. According to the appellant, the complainant never alleged or proved that the appellant or one of its employees were involved in the transaction in question or influenced the first respondent to purchase the car from the second respondent. The appellant relied on the decision in Maruti Udyog Ltd. v. Susheel Kumar Gabgotra (2006) to argue that the manufacturer could not be held liable unless the appellant could establish that there was a defect in the car.

The respondent, on the other hand, claimed that the appellant was intentionally deceived by selling an old car without the advertised accessories. As a result, the first respondent argued that the appellant’s actions constituted unfair trade practices and a defect in service within the meaning of the term. The first respondent cited the case of Jos Phillip Mampilil v. Premier Automobiles Ltd. and Anr. (2004), in which the court stated: “It is disgusting that a damaged car was tried to be sold as a brand-new car, and instead of accepting the deficiencies, the manufacturer opted to reject its liability.” The first respondent further argued that a car dealer always acts as the manufacturer’s representative, citing the case of Vivek Automobiles Ltd. v. Indian Inc. (2007)

Observations of the court

The Hon’ble Supreme Court noted that the appellant had no role or wrongdoing in the instant case before the District Forum. The Hon’ble Supreme Court also cited the judgement in Indian Oil Corporation v. Consumer Protection Council of Kerala (2003) when discussing the principal-to-principal relationship between the appellant and the second respondent. It was found in Indian Oil Corporation that in a principal-to-principal contract, Indian Oil could not be held accountable for the authorised activities of its distributor. There was no ‘deficiency’ against Indian Oil under Section 2(g) of the Consumer Protection Act since there was no privity of contract between Indian Oil and the consumer. The Hon’ble Supreme Court further cited the decision in General Motors (I) (P) Ltd. v. Ashok Ramnik Lal Tolat (2014) to hold that a claim must be specifically pled before the court for it to be adjudicated. In General Motors, it was decided that the National Commission erred in giving relief when the party did not request it. 

The evidence demonstrated an absolute paucity of pleadings from the respondent detailing the appellant’s participation or special knowledge regarding the claimed misrepresentation, according to the facts of the case. The National Commission’s findings on the appellant were found to be unreasonable. It was noted that, unlike the District Forum, State Commission, and National Commission rulings, the first respondent’s inability to plead or show the appellant’s culpability could not be improved upon by inferential conclusions. As a result, the Hon’ble Supreme Court found that unless the appellant’s knowledge was established, a ruling imposing liability on it would be untenable, particularly since the appellant and the first respondent were acting as principals.

Laws and Cases applied

Indian Oil Corporation v. Consumer Protection Council of Kerala

Facts of the case

The first respondent is a Kerala-based voluntary consumer organisation, as evidenced by the National Consumer Disputes Redressal Commission’s decision and order dated March 17, 1993, in R.P.No. 266 of 1992. The Scientific, Literary, and Charitable Societies Registration Act governs the registration of scientific, literary, and charitable societies. The Respondent has Dr P. Kamalasanan, Ram Nivas (Gayathri), Sasthamcotta as a member and Secretary. He had obtained an LPG connection from M/s Karthika Gas Agency, the appellant’s approved distributor. The second respondent is the aforementioned Karthika Gas Agency.

The second respondent made many mistakes when it came to supplying him with a gas connection and LPG cylinder refills. The Gas Agency had provided more connections than the appellant, the Indian Oil Corporation, had authorised. This amounted to a shortcoming in their performance. The approved agent of Indian Oil Corporation is the second respondent. The appellant-Corporation, on the other hand, did not take necessary precautions to guarantee that the agency would not defraud customers. Even though the appellant was aware of the second respondent’s wrongdoing, it did not take any meaningful measures to curb the irregularities perpetrated by the second respondent.

Judgment

The Indian Oil Corporation and M/s Karthika Gas Agency have signed a memorandum of understanding. This creates a principal-to-principal relationship between Indian Oil Corporation, the appellant, and Karthika Gas Agency, the Corporation’s distributor.

Thus in the case, it was determined that Indian Oil could not be held liable for the authorised actions of its distributor under a principal-to-principal relationship. Because there was no privity of contract between Indian Oil and the consumer, there was no “deficiency” against Indian Oil under Section 2(g) of the Consumer Protection Act.

General Motors (I) (P) Ltd. v. Ashok Ramnik Lal Tolat

If a claim or award of relief is made based only on the existence of unfair trade practices the causation of loss must also be shown. Punitive damages are paid for intentional wrongdoing that is unrelated to the real loss. Such a claim must be pleaded specifically. The court had to decide whether it was permissible to award punitive damages in the absence of any plea in the complaint and without any proof of any harm sustained.

It was determined that the Consumer Protection Act 2019 is a component of social legislation designed to offer a forum for customers who have been duped by suppliers of products and services. A consumer is entitled to restitution for any failure in service as well as any loss or injury caused by unfair trade behaviour. By later amendment, the scope of a complaint can be expanded to include not just specific customers, but also inconveniently identifiable consumers. The complainant, on the other hand, must make an averment and make a claim. 

Section 12 of the Act allows not only a complaint by a consumer to whom goods are sold or delivered but also a complaint by any recognised consumer association or one or more consumers on behalf of and for the benefit of all consumers; however, a case must be made out and the affected party heard on such an issue. As a result, to protect consumers’ interests, the scheme of the Act must be interpreted liberally and purposefully, avoiding a hypertechnical approach. At the same time, fair procedure is a hallmark of every legal proceeding, and any affected party has the right to be informed of the claim that such affected party must meet.

It was unequivocally observed and held that mere proof of unfair trade practice is insufficient for a claim or award of relief unless the cause of loss is also proved, which was not established in the current case. There was no allegation in the original complaint concerning other customers incurring punitive damages, and even in the appeal before the Court, the appellant was unaware that any such claim was to be fulfilled by it.

Conclusion

The ruling, in this case, is one of several where a consumer matter was pursued against a business to the National Commission without sufficient pleadings or a claim filed in the first instance. Cases like this one and the one in General Motors (I) (P) Ltd. serve as a cautionary govern tale about how failing to make a proper case against a party can cost litigants and courts a lot of time and money. Consumers must understand the legal complexities involved in filing a complaint with India’s consumer courts. This would ensure an efficient adjudicatory procedure, saving both the litigants’ and the courts’ valuable time and resources.

References

• https://www.mondaq.com/india/dodd-frank-consumer-protection-act/1050194/liability-of-a-dealer39s-wrongful-acts-in-a-principal-to-principal-contract-cannot-be-fastened-on-the-manufacturer-where-no-special-knowledge-can-be-attributed-to-it-supreme-court-of-india
• https://indiankanoon.org/doc/26131257/
• https://indiankanoon.org/doc/258912/
• https://indiankanoon.org/doc/123516191/
• https://fincyclopedia.net/finance/p/principal-to-principal-basis#:~:text=The%20parties%20to%20a%20contract,terms%20and%20each%20party’s%20obligations. 
• https://indiankanoon.org/doc/334666/ 
• https://www.tclindia.in/mere-proof-of-unfair-trade-practice-is-not-enough-to-seek-punitive-damages-unless-causing-of-loss-is-also-established/ 
• https://indiankanoon.org/doc/1891987/ 

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