Abuse of Dominance: Indian Competition Commission unveiling the fraud

Author: Abhinav Gaur, Research Associate

Though the law cannot hinder people of the same trade from sometimes assembling, it ought to do nothing to facilitate such assemblies; much less to render them necessary ((Adam Smith, The Wealth of Nations, Book IV Chapter VIII, p. 145, para. c 27)).

With the advancing competition and ever-growing need for trade and commerce, countries all over the world have already begun adopting liberal trade and economic policies with a view to advance towards a market economy. It is undeniable that Free and Fair competition is one of the pillars of an efficient market economy. Thus, competition has become a driving force in today’s global world. But, unfortunately like any other sector even this sector is not left untouched by malpractices and frauds leading to adverse effects on not only he customers but also business enterprises, whose sustainability is challenged by anti-competitive practices, such as artificially rigged prices. Thus, to curb such ill-practices in the global market, there arises a need to have strong and effective competition law, which would eliminate odds and nurture the fair and equal competitive process.

India, since time immemorial, has been a target market for trade and inter-course because of the viability and dynamic nature of Indian market. It is immensely surprising to know that India was one of the first developing nations to have a competition law in the form of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, which was significantly amended twice- in 1984 and again in 1991.

With the dynamic change in market, recommendations of the Raghavan Committee were called, and the Competition Act, 2002, was passed. While the earlier MRTP Act had focused on curbing monopolies, the Competition Act focuses on promoting competition.

Establishment of the Competition Commission of India

The Competition Act, 2002, was amended by the Competition (Amendment) Act of 2007. The Competition Commission of India (CCI) was established on March 1, 2009, as an autonomous independent body comprised of a chairperson and six members. In addition, an appellate body called the Competition Appellate Tribunal (CAT) was later set up in May 2009, with final appeal lying to the Supreme Court of India. In 2009, the earlier MRTP Act was repealed, and the MRTP Commission established under that act was abolished. The MRTP Commission’s pending cases were transferred to the CCI ((Seema Gaur Chapter 3: India, Part I: Regulator’s Introduction in Adrian Emch , Jose Regazzini , et al. (eds), Competition Law in the BRICS Countries (Kluwer Law International 2012).)).

Cases that are filed with the CCI are called information, not complaints. The CCI also has an extraterritorial jurisdiction with powers to inquire into an anticompetitive agreement or abuse of a dominant position taking place outside India, if the conduct has, or is likely to have, an appreciable adverse effect on competition in India. The CCI has power to look into cases of anticompetitive agreements and abuse of dominance and to take remedial action, including imposition of heavy penalties against firms engaged in practices that impede free and fair competition in the market and which are anti-consumer.

The CCI may impose penalties of up to 10% of the average turnover of an enterprise for the three preceding financial years. In the case of a cartel, the CCI may impose on each member a penalty of up to three times its profits or up to 10% of its turnover, whichever is higher, for each year during which the agreement was in force. However, section 46 of the Competition Act empowers the CCI to grant leniency by levying a lesser penalty on a member of a cartel who provides full, true and vital information regarding the cartel.

Whenever information is received ((Information received under sections 3 and 4 of the Act)), relating to anticompetitive agreements and abuse of dominance, the CCI considers whether there is a prima facie violation. If a prima facie violation is found, it is sent to the Director General (DG) for Investigation. After receiving the DG report, the matter is again considered by the CCI. If needed, the CCI can further investigate the matter and pass an order, including imposition of penalties.

DOMINANCE IN MARKET

Unilateral conduct laws in the BRICS countries and in the European Union constitute a perfect illustration of the worldwide globalization of antitrust rules. Legislatively, all BRICS countries have unilateral conduct regulations. In some countries, such as Russia or China, these regulations are very detailed. BRICS countries, which adopted unilateral conduct regulations at a much later stage ((In the EU, abuses of dominance are regulated since 1957, when the Treaty on the European Community was adopted. Russia has adopted rules which specifically regulate abuses of dominance in 1991; Brazil: 1994; South Africa: 1998; China: 2007; India: the Monopolies and Restrictive Trade Practices Act of 1969 regulated dominant position but the Act prohibiting abuses of dominance came into force in 2009.))than the United States or the European Union, now have a wide range of legislative, institutional or enforcement tools to fight against these anticompetitive practices. From an enforcement perspective, the BRICS country regulations provide heavy sanctions in the form of financial penalties imposed on companies that commit an abuse of dominance, and also, in most cases, criminal sanctions.

In the EU, Article 102 of the Treaty on the Functioning of the European Union (TFEU) governs abuse of dominance ((Article 102 TFEU: Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.)). Contrary to the BRICS’s regulations, this text is less comprehensive and provides very narrow idea as to what constitutes an abuse of dominance. For this reason, the Court of Justice of the European Union (ECJ) has developed extensive case law. The European Commission, through its decisional practice and its Guidelines concerning abuses of dominance, also plays a major role in the fight against this type of anticompetitive conduct ((Philippe RincazauxChapter 6: Comparative Overviews, Part III: Unilateral Conduct in Adrian Emch , Jose Regazzini , et al. (eds),Competition Law in the BRICS Countries (Kluwer Law International 2012).)).

There is a point of conjunction between the EU and BRICS countries’ laws on unilateral conduct which may be noticed with regard to the definition of dominance, and may be noted in the competition authorities’ approach concerning the practices that constitute an abuse, and in the sanctions imposed as a result of such anticompetitive conduct, all of which has been elucidated below.

BRICS on unilateral conduct, very much resemble to the approach by European Commission. The most predominantly used criteria in BRICS to determine whether an entity is dominant is the possibility for the relevant entity to conduct itself independently vis-à-vis other market players.

The European commission defines it as dominance is defined as a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on a relevant market, by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers. This notion of independence is related to the degree of competitive constraint exerted on the undertaking in question.

The definitions of dominance in the BRICS countries and in the EU are clearly along the same lines and governed by the underlying concept of ability of the business operator concerned to behave in an independent manner apropos to its competitors, clients or consumers. But, no BRICS country gives a conclusive definition of what constitutes an abuse, though most of the BRICS countries admit that abusive conduct may be justified by pro-competitive effects.

CHARGES OF CARTELIZATION AND ANTI- COMPETITIVE PRACTICES AGAINST INDIAN OIL, BHARAT PETROLEUM, HINDUSTAN PETROLEUM

On May 9th, 2012, the Competition Commission of India cleared three Public Sector Undertakings (PSUs), namely, Indian Oil, Bharat Petroleum, Hindustan Petroleum of charges of cartelization and anti-competitive practices alleged by M/s Royal Energy Ltd, (the informant), a manufacturer of bio-diesel.

BACKGROUND: National Policy on Bio-fuels (NBP) indicates that the Government aimed at mainstreaming of bio-fuels to increasingly substitute petrol and diesel with an indicative target of 20% blending of bio-fuels by 2017 and to that end, under the Bio-fuel Purchase Policy (BPP) ((Refer Bio-fuel Purchase Policy, with effect from January 1, 2006, Ministry of Petroleum and Natural Gas, Government of India, Paragraph 4.2, (vi).))the government authorized oil marketing companies (OMCs) to buy biodiesel at a uniform price, as may be decided by the OMCs, from time to time, depending upon the circumstances. In addition the government also imposed a prohibition on sale of Bio-diesel in open market other than to OMCs. Thus in effect, the Bio-diesel manufacturers were per force to sell their product only to the OMCs at a price determined by the OMCs and the difficulty arose when the price quoted by the OMCs was below the very cost of manufacturing Bio-diesel ((As per the order the price quoted by OMCs was Rs.26.50/-per litre while price of bio-diesel sold independently by the informant was Rs.31/-per litre)).

In M/s Royal Energy v. IOCL and Ors. ((In M/s Royal Energy v. IOCL and OrsMRTP Case No. 1/28 (C-97/2009/DGIR).)), CCI had erroneously validated state-engineered oligopoly of State Owned Enterprises (SOEs) having inadequate regard to both the executive & legislative intent and the law on the point failing to guarantee competitive neutrality in the Indian Oil sector.

ABUSE OF DOMINANCE BY THE CRICKET REGULATOR (SH. SURINDER SINGH BARMI)

CCI recently imposed a fine of INR 54.24 crore on the Board for Control of Cricket in India (“BCCI”). The CCI found the BCCI to be in a dominant position in the market for organizing private professional league cricket in India and that it abused that position of strength to favor its own commercial venture, the Indian Premier League (“IPL”) by not allowing entry into that market by any potential competitors ((SonamMathur, The Indian Competition Commission finds abuse of dominance by the cricket regulator (Sh. Surinder Singh Barmi), e-Competitions, No. 51800, © e-Competitions – Institute of Competition Law, www.concurrences.com)).

BACKGROUND: The complaint/information was filed by a cricket fan, Mr. Surinder Singh Barmi who alleged that there were irregularities in the conduct of IPL that is, the grant of franchise rights for team ownership, grant of media rights for coverage of the IPL, award of sponsorship rights and other local contracts related to the organization of the IPL. The informant raised these concerns with respect to another competitive league called Indian Cricket League; however, this aspect was not investigated by the CCI in detail as it concerned the time period before the Competition Act, 2002 (“Act”) was enforced in May 2009.

The primary issues that arose in this case are as follows: 1. Whether the BCCI is an “enterprise” under the Act? 2. If yes, whether the BCCI enjoys a dominant position in the relevant market? 3. If yes, whether the BCCI abused that position of dominance?

Cement Manufacturers Association: Fined for forming cement cartel with a record fine of RPS 60 billion

The Competition Commission of India (CCI) has fined eleven cement companies, namely, ACC, Ambuja Cements Limited, Ultratech Cements, Grasim Cements, JK Cements, India Cements, Madras Cements, Century Cements, binani Cements, Lafage India and Jaypee Cements, for fixing prices, and for limiting and controlling the output in the cement markets. The CCI has imposed record fines amounting to RPS 60 billion on the cartelists. Economic evidence, as well as the regular meetings held amongst the members of the Cement Manufacturers Association has been considered to be sufficient to prove the existence of an agreement, and ultimately a cartel ((MarianelaLópez-Galdos, The Indian Competition Commission breaks up a cement cartel and fines cartelists with a record fine of RPS 60 billion (Cement Manufacturers Association), e-Competitions, No. 47952, © e-Competitions – Institute of Competition Law, www.concurrences.com)).

Misleading Advertisements: Concept, Concerns and Remedies

Author: Aniruddha Jain

Advertising may be described as the science of arresting human intelligence long enough to get money from it” ((Stephen Leacock 1869-1944 Garden of folly (1924) ‘The Perfect Salesman’ Oxford Dictionary of Quotations and Proverbs.))- Stephen Leacock.

Advertising is a form of communication used to encourage or persuade an audience to continue or take some new action. The communication can be made either through mass media or through new media. The mass media includes newspapers, television, magazines, television commercials, radio advertising and the new media includes blogs, websites or text messages ((See http://en.wikipedia.org/wiki/Advertising Last accessed on April 3 , 2013 3:17PM)).The rationale behind advertising is to update the consumers regarding a particular product and its availability in the market. One of the most important objectives of advertising is to generate demand for new products by attracting the interests of public towards it. In reality, the eventual purpose of any commercial organization behind advertising is to aggrandize its profitability and this can be made feasible only when the company allure more and more sales. This helps them to adorn the visibility of the products and services among the consumers. Advertisements are intended to enhance the awareness among the customers.

Through the alluring advertisements the business organizations erect an image which they desire of creating in the minds of the consumers ((See Advertisement Laws of India –it’s time for a uniform legislation available at http://legalonline.blogspot.in/2011/04/advertisement-laws-of-india-its-time.html Last accessed on April 3, 2013 4:08PM)). Consequently, in order to attract more and more customers the companies squander a gigantic sum of their budgets on advertising and promotional strategies. The greatest concern which arises here is that the proportion of budget spent by an advertiser on the product’s advertisement is additional to the distribution price of the product. Therefore, it is the customer who has to pay huge amounts for the products being advertised. Advertisements are constructive only until they serve the reason for which they are shaped i.e. to create awareness among the public regarding a new or an existing product. Since advertisements are basically made to promote a product or a service, one does not see any exaggeration in the way they extol the virtues of the product. But when it goes beyond that and deliberately utters a falsehood or tries to misrepresent facts thereby misleading the consumers, then it becomes objectionable ((See Pushpa Girimaji , Misleading Advertising and consumers, Indian Institute of public administration. Delhi 2006 Pg.3)). This article provides an insight to the concept of ‘misleading advertising’, statutory position in India and its impact on Indian consumers. It further discusses the remedies which can be efficient in eliminating such practices from India.

Misleading Advertisements

Misleading advertisements are those advertisements that deceive or are likely to deceive anyone who sees it. Misleading advertising may affect consumer’s choices regarding what they buy. It’s worth bearing in mind that it may be an offence for a trader to advertise goods or services if it is likely to delude and therefore cause loss, damage or injury to the consumer.

An advertisement is misleading if it creates increases or exploits a false belief about expected product performance ((See J. Edward Russo , Barbara L. Metcalf, Debra Stephens(1981) Identifying Misleading Advertising(The Journal on consumer research) Pg.128)). The following are some examples of how advertisements can be misleading:

  • The conditions of delivery of the goods or services diverge to that advertised. (Example: ‘free delivery’ actually involves a fee or charge)
  • Claims made about the characteristics of goods and services consisting a fake declaration of fact. (Example: A product weighs 800g instead of 1 Kg)
  • The attributes of the advertiser, the advertiser’s identity etc. are exhibited falsely. (Example: A made in India labeled product actually a product which is Made in China)
  • The price or manner, in which the price is calculated, is altered. (Example: Goods are not offered at sale prices, but advertised as such)
  • Advertisements can be illusory in other ways as well. For example, if the advertisement conceals some important facts. (Example: ‘60% Discount on everything’ – really only applies to certain things).

Advertisements are also considered misleading if they create a false impression even if everything stated in the advertisement may be literally true. Misleading advertising occurs when a claim about a product or service is materially false or misleading, in an attempt to persuade the consumer to buy it. Misleading advertisements usually make claims which can be generally categorized as puffery claims, data based claims and testimonial claims. While puffery claims are made without implying scientific bases for it, data based claims are simply that a test / study/ count or some kind of scientific effort has been made to produce the basis for the claim. Using name, signature, photograph etc makes false testimonial claims ((See Mrs. Vaishali Kathuria Billa: Advertising Ethics and Law Page 80, Available at http://www.ddegjust.ac.in/studymaterial/pgdapr/pgdapr-103.pdf Last accessed on April 5,2013 7:36PM)).

A. Statutory Framework:

The objective of regulating misleading advertising(through laws) is to ensure that advertisements do not distort the facts about the product and mislead the buyer through subtle implications, omissions, and false statements about the quality, quantity, features or other characteristics of the product or any service accompanying the product, e.g., repair and maintenance ((See DPS Verma, Regulating Misleading Advertisements: Legal Provisions and Institutional Framework,Vikalpa: The Journal for decision makers Indian Institute of Management Ahmadabad Issue: April 2001Page 51 Available at: http://www.vikalpa.com/pdf/articles/2001/2001_apr_jun_51_57.pdf Last accessed on April 5,2013 8:22 PM)). Some of statutes which are responsible for regulating the misleading advertisements are:-

1. Constitution Of India:-

Even though there is no special provision for regulating advertisement policy in the Constitution of India, which should be adopted by press or media, the Supreme Court has given guidelines for the same through a series of Judgments Most significant decisions in this context are is Tata Press Ltd. v. Mahanagar Telephone Nigam Ltd. ((AIR (1995) 5 SCC 139.))The constitution of India explicitly protects freedom of speech and expression in Article 19 (1) (a). The Supreme Court of India in Tata Press Ltd. v. Mahanagar Telephone Nigam Ltd. held advertisements to be commercial free speech subject to certain reasonable restrictions ((See Amit Datta (2010), Comparative advertising in India- Puff under scrutiny, World Trademark Review Issue : December/January 2010 Page 60. Available at: http://www.worldtrademarkreview.com/issues/article.ashx?g=32a85852-a5d2-4c65-8216-619aaf642086&q=Scrutiny+under+puff#search=%22Scrutiny+under+puff%22 Last accessed on April 6 2013 4:46PM)). The limitations include restriction on manipulative advertising as well. The Hon’ble apex court in the same judgment remarked “it is expected that by way of advertisement or promotion of its services, the subscriber should not be misled”.

2. Monopolies and Restrictive Trade Practices Act, 1969

There are several laws, regulations and codes to tackle false and misleading advertisements. But one law that really made an impact in the eighties and the nineties was the monopolies and restrictive trade practices Act. In the year 1984 the government brought through, an amendment, “unfair trade practices” under the purview of Monopolies and trade practice commission ((See Pushpa Girimaji , Supra note 4 at pg.12)). Section 36 A of the MRTP Act defines an unfair trade practice. Section 36B empowers the commission to inquire into any of the unfair trade practices. Although this act has been repealed now, a similar definition of the UTP can be found in the consumer protection act,1986

3. The Consumer Protection Act,1986

The consumer protection act, 1986 under section 2 (1)(r) describes unfair trade practices, which specifically under sub-sections 2 (1)(r) cl. vi and 2 (1) (r) cl. ix include the acts which can be called as misleading advertisements and claims. Section 2 (1)(r) cl. vi describes any act(s) aimed at “making a false or misleading representation concerning the need for, or the usefulness of, any goods or services” as one of the restrictive trade practices. Further Section 2 (1)(r)ix prohibits any act that “materially misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided, and, for this purpose, are presentation as to price shall be deemed to refer to the price at which the product or goods or services has or have been sold by sellers or provided by suppliers generally in the relevant market unless it is clearly the price at which the product has been sold or services have been provided by the person by whom or on whose behalf the representation is made.”. Section 2 (1)(r) x prohibits any misleading claims and advertisements aimed at disparaging goods, services and trade of another person.

4. The Trademarks act,1999

A coherent depiction of the manipulative advertising can be found in the Trademarks act, 1999. Section 2(1) Clause (i) of the Trademarks act, 1999 define ‘False Trade deceptions’. False and misleading advertisements may also attract regulatory measures provided in the Trade Marks Act, 1999. As provided in Section 103 of the Act, any person who (1) falsifies any trademark or (2) falsely applies to goods or services any trademark, or (3) applies any false trade description to goods or services, shall be punishable with imprisonment and fine. Moreover, under Section 107 of that Act, making of false representation of a trademark as registered shall be an offence, punishable with imprisonment and/or fine ((See DPS Verma. Supra note 7 at Page 54)).

5. The Drugs and Magic Remedies(Objectionable Advertisements)Act, 1954

This act Specifies two kinds of offences: advertising of drugs and diseases specified in the act, or rules and advertisements that are misleading about the nature, cure and any other material particular of the drug so advertised ((Refer Health care case laws in India : A reader (2007) Edited by: Mihir desai , Kamayani Bali Mahabal pg.89 Available at http://www.cehat.org/humanrights/caselaws.pdf Last accessed on April 8 ,2013 6:14 PM)).

While Section 3 of the act prohibits advertisements of certain drugs for treatment of certain diseases and disorders, Section 4 prohibits misleading advertisement relating to drugs. Section 4 which is exceptionally significant to the concept of misleading advertisements states “Subject to the provisions of this Act, no person shall take any part in the publication of any advertisement relating to a drug if the advertisement contains any matter which

  • Directly or indirectly gives a false impression regarding the true character of the drug; or
  • Makes a false claim for the drug; or
  • Is otherwise false or misleading in any material particular”.

6. Securities and Exchange Board of India Regulations, 2003

The Securities and Exchange Board of India (Prohibition of fraudulent and unfair trade practices relating to securities market) Regulations, 2003 under Section 4(2) Clauses (a), (k) & (r) prohibits misleading and manipulative advertisement. The said clauses prohibit the following:-

  • Indulging in an act which creates false or misleading appearance of trading in the securities market;
  • An advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors;
  • Planting false or misleading news which may induce sale or purchase of Securities.

The IRDA (Insurance Advertisements) Regulations, 2000

The IRDA (Insurance Advertisements) Regulations, 2000, seeks to regulate and control every insurance advertisement issued by the insurer, intermediary or insurance agent. For this purpose, every insurer, intermediary or insurance agent is required to establish and maintain a system of control over the content, form and method of dissemination of all advertisements concerning its policies and such advertisement should be filed with the Authority as soon as it is first issued. An advertisement issued by an insurer should not fall in the category of an unfair or misleading advertisement. A precise definition of the ‘unfair or misleading advertisement’ is given under section 2(d).

All the above laws are primarily responsible for quality control and ensuring that credulous consumers are not swindled. Besides these some statutes like The Cable television network act, 1995 The infant milk substitute, feeding bottles and infant Foods act, 1992(including the amendment act, 2002), The food safety and standards act, 2006 etc. also contains certain provisions related to misleading advertising and prescribes the mechanism to regulate them as well.

Institutional Framework :-

Advertising standards council of India

The ASCI Code aims to protect the legitimate interests of the consumers by regulating patently false, misleading, and objectionable advertisements broadcast on television, radio, and internet by advertisers, media, and advertising agencies ((Refer Regulating Advertising in India , Sunaina Kapoor and Neeraj Dubey PSA 2009 Page 2 Available at www.psalegal.com/pdf/TMT-Bulletin-Issue-III11062009042225PM.pdf Last accessed on April 8 ,2013 7:08 PM)). The first and foremost code of ASCI for self regulation aims to “ensure the truthfulness and honesty of representation and claims made by advertisements and to safeguard against misleading advertisements”

During 1985 prominent members connected with all aspects of advertising came together and decided to accept global best practices in the field of ‘Self Regulation in Advertising’ ((Anonymous, Chapter III History and profile of ASCI Pg. 51 Available at :-http://shodhganga.inflibnet.ac.in/bitstream/10603/3434/7/07_chapter%203.pdf Last accessed on April 10,2013 5:29 PM)). It was then the Advertising Standards Council of India (“ASCI”), a non statutory tribunal, was established that created a self regulatory mechanism of ensuring ethical advertising practices. Before the establishment of the ASCI the courts were responsible to adjudicate upon these matters. But then gradually, the ASCI Code received huge recognition from the advertising industry. The warnings issued by ASCI to the advertisers against the misleading advertisements were gradually being accepted by the advertisers and the advertisements were actually stopped being aired or were modified significantly to comply with the prescribed ASCI Code ((Refer to kapoor and Dubey supra note 13 at Page 2)). ASCI receives and processes complaints against advertisements, from a cross section of consumers, the general public and industry, in the interest of all those who rely on advertising as a commercial communication, and this covers individuals, practitioners in advertising, advertiser firms, media, advertisement agencies, and ancillary services connected with advertising. ASCI communicate with the advertiser when a complaint is upheld and it is noteworthy that in about 90% the cases where the complaint is upheld, the ads are either modified or withdrawn ((Supra note 14 at Page 63)).

Apart from the self regulatory organization ASCI, The Reserve Bank of India, Medical Council of India, Insurance regulatory Development authority, Telecom regulatory authority of India and Securities Board exchange of India are also empowered to exercise control over the misleading advertisements in their respective domains.

Impact On consumers

Advertising is essentially a thing to induce consumption to make people buy thing they do not want” ((See Robin Jeffrey, India’s Newspaper Revolution: Capitalism, Politics and the Indian-Language Oxford University Press, New Delhi, 2000 Page 55)). – Pt. Jawaharlal Nehru

The Advertisements have a large impact on consumer. They are made to propagate awareness and hence should not mislead the consumer. The advertisement should bring precisely the use and motive of the product but the manufacturers or traders should not look for their gain or profits. In India, due to severe sanctions on advertising certain products like alcohol, tobacco products, medicines and baby food has led to the emergence of a whole genre of misleading / surrogate advertising ((See V.G. Rangnath Restrictions on Advertisement in vision of Consumer Page 1 Available at :- http://works.bepress.com/cgi/viewcontent.cgi?article=1010&context=ranganath_vadapalli Last accessed on April 11,2013 2:35PM )). The influence of such advertisements on consumer choice is undeniable. And it’s this fact that makes it imperative that advertisements be fair and truthful. Misleading and false advertisements are not just unethical; they distort competition and of course, consumer choice. False and misleading advertisements in fact violate several basic rights of consumers: the right to information, the right to choice, the right to be protected against unsafe goods and services as well as unfair trade practices ((See Pushpa Girimaji Supra note 10 pg.1)).

Advertising costs companies lots of money and even after proper planning and implementation, there are hidden money involved, which burns our pockets deep. When we usually buy a product, we don’t just pay for the product. There are lots of expenses already included with it like packaging, the development, manufacturing, technological expense, machinery, etc. along with all these we also pay for advertising expenses as well. Some organizations go over board to sell their products making manipulative claims to the customers but as per the law it is mandatory for them to submit statistical data in order to prove their claims. Recently, a complaint was filed in ASCI against Hindustan Unilever Ltd (Dove Hair Fall Rescue shampoo) The advertisement was aired on various channels claiming “No Hair Fall No Damage” Further, the word ‘Super’ in the advertisement represented – “No hair breakage and split ends( according to the sampling based on lab test) when regularly used Dove Shampoo”. It was contended in the complaint that this claim needs to be substantiated with independent technical data. The word ‘Super’ does not state the source of the study and nor does it state the date on which the said study was conducted. The word ‘Super’ speaks only of sampling based on lab test which is not adequate to make such a technical claim. The word ‘Super’ in the advertisement was blurred and illegible from a consumer point of view. It was held by the ASCI commission that the claim, “No Hair Fall No Damage”, was an absolute claim which was not mitigated by the word super. Claim was not substantiated and was tagged ‘misleading’. The advertisement was hence withdrawn ((See Campaign India dated Dec 22 2011 , ASCI’s Consumer Complaints Council upholds complaints against 17 ads Available at: http://www.campaignindia.in/Article/285214,asci8217s-consumer-complaints-council-upholds-complaints-against-17-ads.aspx Last accessed on April 11,2013 4:35 PM)). Thus, being factually incorrect such a statement could have attracted the consumers to buy the product subsequently causing them wrongful losses.

The most recent Nirmal Baba’s case is an epitome in the context of the topic .In a recent petition filed in the Delhi High court it was alleged by the petitioner that Nirmal Baba has been advertising in different electronic and print media claiming to give ‘magical treatment’ while misleading the common man by claiming himself to a ‘representative of god’. It said that such advertisement in the media given by the Baba is contrary to the provisions of the Drug and Magic Remedies Objectionable Advertisement Act, 1954. ((See Millennium Post dated Tuesday, 28 May 2013 Available at : http://millenniumpost.in/NewsContent.aspx?NID=2078 Last accessed on April 12,2013 4:47PM)).

It is found, nowadays that many of the cosmetic companies make misleading claims regarding their products in order to promote their sales. There are certainly some claims that are more egregious than others. The advertisements by the coaching classes and educational institutes are also manipulative to a very large extent. Being attracted by such misleading claims, the gullible students pay a large amount of fees and realize it very late that they are left with nothing. On failure some students suffer from deep mental trauma and prefer to end their life. The Consumer Complaints Council (CCC), in June 2011 received a complaint against Career Launcher, a prominent institute for the Law entrance exams (CLAT and AILET). Career Launcher claimed to have “Top 20/20 AIR in CLAT and Top 20/20 AIR in NLU, Delhi” This implied that students who took CLAT and AILET and achieved All India Rank (1 to 20) were CL students. In this advertisement, claims were not supported and substantiated with reliable data or evidence. The CCC concluded that pending the validation of the data by independent auditors, the claims mentioned in the advertisement and cited in the complaint are misleading ((Supra note 20)).

Children are in the most vulnerable age group which is affected by the misleading advertising. Actually, the children lack the perceptual defense possessed by the adults and cannot objectively evaluate advertisements; they are more susceptible to deception. Television advertising corrupts children by instilling values that are not acceptable to the society and helps in the development of conflicting relationship between the children and their parents ((See Vaishali Kathria Billa Supra note 6 at Page 361)). As soon as children see some great persuading advertisement, they run to their parents to purchase them the item. Whether it’s useful to them or no, they get so attached with attractive imagination that they get adamant on buying them. Junk food items, which are heavily promoted, may lead to child obesity in children. They keep craving for such foods all the time, which are more fatty and sugary from health perspective ((See Business Mantra, Effects of advertising on children Feb 18, 2010 Available at:-http://www.businessmantra.net/effects-of-advertising-on-children.html Last accessed on April 17 2013 4:47 PM)).

Advertising creates artificial needs. Advertisements motivate and persuade consumers to buy the things that are not needed even. Advertising should not persuade by playing with consumers emotions, anxieties, psychological needs & desires such as status, self esteem, attractiveness & others but should just provide information useful in making purchase decisions such as price, performance & other objective criteria. Persuasive advertising foster discontent among consumers & encourage them to purchase products & services to solve deeper problems. Misleading advertising surrounds consumers with the images of good life and convinces how the materialistic possessions lead to happiness in life ((See Vaishali Kathuria Billa Supra note 24 at Page 11)).

Judicial Behavior in India

In Colgate-Palmolive (India) Limited vs. Anchor Health & Beauty Care Private Ltd (( Madras High Court C.S. No. 451 of 2008)), the issue involved was whether a person can be injuncted from making any false, misleading or disparaging representations or from making any slanderous statements in showing, screening, exhibiting or telecasting commercial/advertisements with respect to products of any other person. Colgate-Palmolive approached the court aggrieved by the use of the words “ONLY” and “FIRST” in the advertisement of the Anchor Health. The objection regarding the advertisement was the claim by Anchor that their’s was the “ONLY” toothpaste containing all the 3 ingredients, calcium, Fluoride, Triclosan. The Second objection was the use of the word “FIRST” all round protection toothpaste. The applicants contented that even their products contained all these products. The claims made by Anchor were contented to be misleading .The court after detailed analysis of various case laws and provisions came to the final conclusion that the reasons behind the use of the words “ONLY” and “FIRST” were not satisfactory. The advertisement usually gives out an impression that Anchor is the only toothpaste containing all the three ingredients. Similarly, the use of word “FIRST” is not in relation to the slogan “all round protection” as it is indented to project. The respondent has to bring out a scientific base for such claims and thus, the words “ONLY” and “FIRST” fall under the dragnets of Section 2(1) (r) of the Unfair Trade Practices contained in The Consumer Protection Act, 1986 and could create an impression in the minds of the consumer that Anchor is the best toothpaste in the market . In this light, Anchor was restrained from using the offending words in the advertisement.

In M/s. Cox & Kings (I) Pvt. Ltd. vs. Mr. Joseph A. Fernandez & Others ((N.C.D.R.C.Appeal No:- 366 OF 2005)), the Respondents Mr. and Mrs. Fernandez had booked for a tour from Bangalore to Singapore-Malaysia and back with Cox & Kings. The advertisement displayed the duration of the tour as “Two nights /three days cruise”. But in the confirmation voucher given to the Respondents timings were mentioned as “Leave Singapore at 23.59 hours on 17.4.2002 and arrive at Singapore on 19.4.2002.” This actually meant that the trip is originally for two nights and one and a half days whereas it was advertised as 2 nights/3 days Cruise. Therefore, there was a shortage of one and a half days cruise service according to the Complainants. The Hon. District Court ordered Cox & Kings to pay Rs.50, 000 as compensation. The appeal by the tour operator was dismissed by the Karnataka State Commission which however reduced the compensation to Rs.25, 000/- with 25% interest p.a. The matter then reached to the apex consumer court. The court found that the state forum took a lenient view by reducing the amount to half and restored the order of the District Commission. In courts view, this practice by the Petitioner was not only a case of misrepresentation through misleading advertisement but also an unfair trade practice in the eyes of Consumer Protection Act.

In the case of Bhupesh Khurana vs Buddha Parishad (( C.A. no.1135 of 2001)) , the Buddhist Mission Dental College advertised in National newspaper for admission in BDS Course. The said advertisement claimed that the college was affiliated to Magadh University, Bodh Gaya and was recognized by the Dental Council of India. The Complainants in good faith accepted the information of the Opposite Party as an authentic and correct and sought admission in the BDS course and paid a substantial amount as demanded by College for admission. Later on it was revealed by the students that the college was neither affiliated to none of the claimed organizations and as a result of which unable to hold the annual examinations. Moreover, there was no regular qualified teaching staff to teach the students and laboratory was ill equipped and there were no instruments and other articles of the laboratory. Fees are paid for services to be rendered by way of imparting education by the educational institutions. The Complainants had hired the services of the Respondent for consideration so they are consumers as defined in the Consumer Protection Act. The Supreme Court said that this case comes under the meaning of deficiency in Consumer Protection Act .Thus the court, in its judgment directed the College to refund the admission expenses paid by the injured parties at the time of admission with interest calculated at the rate of 12% p.a. from the date of receipt of the amount till date of payment and also to pay Rs.20,000/- to each of the Complainants by way of compensation for the expenses defrayed on purchase of books, mess expense, hostel expenses for two years and for the loss of two valuable academic years ((See Pushpa Girimaji Supra note 19 Page 18)).

Combating Misleading Advertising

Role of the consumers in reducing the instances of misleading advertising is most important. The consumers are expected not to remain gullible. Customers should take their time to compare product features and prices before making a decision to purchase it. Generally, there is more than one choice per product in the marketplace, and it’s our duty to determine which one will work best for our respective purposes. They should not get tempted by the discounts and other deceptive offers. Whenever they come across an Advertisement which they consider misleading or offensive, they should write to The Advertising Standards Council of India. ASCI promises them that even a single complaint alleging that an advertisement is misleading or offensive is usually enough to require the Advertiser to correct the Advertisement. Further,the ministry of consumer affairs, with the sole objective of empowering consumers, has implemented a pioneering and intensive multimedia campaign, “Jago Grahak Jago (Wake up Consumer)” to create consumer awareness in the country.

The problem of misleading ads continues to be serious in the country despite several legislations like the Food Safety and Standards Act, Consumer Protection Act and the Drugs and Cosmetic Act. Therefore, need for a single codified legislation empowered to regulate all types of misleading advertising is an important need of the hour. Concerned over the advertisements that are misleading, the government of India is mulling the idea to create an effective law to stop companies from giving such advertisements ((Jagran Post dated 15 Feb 2012 Laws against Misleading advertisements soon :KV Thomas http://post.jagran.com/Laws-against-misleading-advertisements-soon-KV-Thomas-1329303970 Last accessed on April 20 2013 8:45 PM)).

Revival of the MRTP commission with the sole purpose of preventing false and misleading advertisements can prove to be another landmark step ((See pushpa Girimaji supra note 30 page 30)).

Further, as clear from the precedents that courts and consumer tribunals have been playing an effective role in imparting justice to the aggrieved parties. The consumers are advised not to remain quiet if they happen to come across any injustice and approach the court and tribunals for the redressal of their grievances

Concluding Remarks

Whereas on one side advertisements are used for a campaigning against the ills in the society (eg. Cancer, AIDS, smoking, malnutrition, degrading tourism industry etc.) the same are being used in the wrong way for misleading the consumers. As has already been mentioned about the plethora of laws that have been enacted to get rid of misleading advertisements and claims, But it cannot be left without stating that none of these legislations has been able to curb this disease and provide a perfect panacea for it’s cure . The most important thing is have better laws in keeping relevance with the contemporary scenario, better enforcement of the legislations, self-regulation by industry, and independent regulator to regulate the misleading advertising. Consumers must create self awareness and exercise their rights against deceitful businessmen indulged in practices of creating surrogate and misleading claims of their products They are expected to bring such cases to the notice of the enforcement agencies, which, in turn, should play the role of a watch-dog of public interest ((See DPS verma supra note 11 Pg.57)).