To Advertise, Or Not To Advertise That Is The Question

To Advertise, Or Not To Advertise That Is The Question

The CCPA, close to its establishment, acting under its executive jurisdiction, issued the “Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022” (“Advertising Guidelines”) to crack the proverbial nut, i.e. misleading advertisements.

The symbiotic relationship of consumption and the consumer, with production and the producer has been well-exposited as early as the 1700s. Adam Smith has cogently described this relationship as “Consumption is the sole end and purpose of production.¹

This fundamental interconnection is, unfortunately, seldom accorded its due consideration when issues concerning ‘protection of the consumer’ is being deliberated upon by the State.

The mode by which the producer communicates about his product to the public at large and potential consumers is through advertisement. Advertisements serve the purpose of educating and informing consumers about products and services so that they are in a position to make an informed decision regarding their consumption.

In 2024, it is expected that more than a trillion US Dollars would be spent on advertising by companies worldwide.² This underscores the importance of advertising in communicating information to consumers, and in promoting products and brands of companies.

This article endeavours to analyse the significance and role of advertisements from the perspective of a producer or advertiser, vis-à-vis the policies and law on consumer protection. The focus herein will primarily be on the guidelines pertaining to advertisement issued under the Consumer Protection Act of 2019 (“2019 Act”)³ for protecting Consumers from misleading advertisements, particularly in light of the regulatory authority’s powers in this respect; and the implications of compensation under the 2019 Act.

Legislative background

There is no specific provision relating to rights of consumers under the Constitution of India, and the Seventh Schedule of the Constitution of India does not demarcate consumer protection under any of the Lists, and the entries there under. However, the rights of consumers are discernible from various provisions in the Constitution, most significantly, the right to receive free speech under Article 19(1)(a).⁴ It is also pertinent to note here that the right to commercial speech is the other facet of Article 19(1) (a) (dealt with subsequently in this article). Further, various entries under the Union List in the Seventh Schedule of the Constitution, including carriage of passengers and goods by railways, ship or air, banking and insurance, and entries under the Concurrent List including food adulteration, drugs, legal, medical and other professions, electricity and newspapers also pertain to consumer affairs, and accordingly, reflect the power to legislate on the same.

In furtherance of such power, the Consumer Protection Act of 1986 (“CP Act, 1986”) was enacted invoking the residuary power of the Union “to provide for better protection of the interests of the consumers”⁵. The 2019 Act was enacted repealing the CP Act,1986,interalia, to protect the consumer from challenges posed by misleading advertisements, tele-marketing, multi-level marketing and to provide for swift executive interventions to prevent consumer detriment.⁶ In sequitur, the 2019 Act is also intended to provide a speedier remedy to consumers. The Forums or Commissions established under the 2019 Act are established on the same principles as that of Tribunals, and are not bound by strict procedures. In order to hold a manufacturer liable, the 2019 Act provides for ‘product liability action’ and punitive damages.⁷

Advertisements and their regulation under the 2019 Act

The definition of “advertisement” in the 2019 Act⁸ is similar to the definition of “advertisement” under various statutes, including the Food Safety and Standards Act, 2006, another legislation aimed at benefitting consumers.

They were proposed to be regulated by the Central Consumer Protection Authority (“CCPA”), established under the 2019 Act for the purpose of regulating matters relating to violation of Consumer rights, unfair trade practices and false and misleading advertisements⁹. The CCPA, close to its establishment, acting under its executive jurisdiction, issued the “Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, 2022” (“Advertising Guidelines”)¹⁰ to crack the proverbial nut, i.e. misleading advertisements.

Under the Advertising Guidelines, the CCPA has accorded to itself the power to stipulate what an “advertisement should state or contain” so that it is not rendered misleading; and to be considered a valid advertisement, there by surreptitiously supplanting the definition for “misleading advertisement” under the principal statute, i.e. the 2019 Act.

This approach is problematic for several reasons. It is, for one, overly prescriptive. Advertisements are results of creative processes, with the objective of communicating to the ordinary consumer information regarding a product. They cannot be strait-jacketed into pre-determined moulds, such as too many restrictions under law on how an advertisement should be portrayed. The Advertising Guidelines impose conditions to be conformed to for an advertisement to be lawful. In other words, the Advertising Guidelines approach the content to determine misleading advertisements conversely, by prescribing the formula to a non-misleading advertisement or a valid advertisement. Similarly, conditions for bait advertisements, surrogate advertising and advertisements pertaining to ‘free’ products are also prescribed.

Secondly, coupled with the overarching powers bestowed upon the CCPA under Chapter III of the 2019 Act (which includes the powers to regulate, powers of investigation and the power to impose penalties), the Advertising Guidelines also provides that “In case of any ambiguity or dispute in interpretation of these guidelines, the decision of the Central Authority shall be final”¹¹, thus making the CCPA the investigator, the complainant and the judge in matters pertaining to advertisements. Even censorship of films does not have to deal with such wide restrictions. Section 5B of the Cinematograph Act, 1952¹² provides for the Central Government to prescribe guidelines by which the Censorship Committee will be guided subject to the provisions contained in subsection (1) of 5B. Sub Section (1) of 5B reproduces Clause (2) of Article 19 (prior to the First Amendment) of the Constitution of India. The guidelines by which the Censor Board is guided on film certification limits itself to what would amount to objectionable content required to be censored or considered for certification for a film or cinematograph work, and does not venture into prescribing content that will make a feature film valid The Constitutional Bench of the Supreme Court in K.A Abbas v. Union of India¹³ while upholding the validity of censorship of films under Section 5B of the Cinematograph Act 1952 stressed upon the observance of procedural safeguards by the executive which “will make censorship accord with our fundamental law”. Hidayatullah, J.’s words here on the approach of the Central Government in determining the content of a film for censorship are of seminal importance – “We express our satisfaction that the Central Government will cease to perform curial functions through one of its secretaries in this sensitive field involving the fundamental right of speech and expression.”

Thirdly, the CCPA’s mandate may be argued to be beyond the mandate of the principal Act. The definition of Consumer¹⁴ under the 2019 Act excludes a purchaser (of goods or services) who avails of such goods or service for any commercial purpose from protection under the Act. This being the case, to cover all viewers of any Advertisement, not necessarily a ‘consumer’, under the application of the Act, through the provisions of the Advertising Guidelines, by way of delegation, may suffer from being beyond the Act itself.

An advertisement if deemed as “prejudicial to the interests of consumers as a class” is sufficient for invoking the jurisdiction of the CCPA.¹⁵ The ambiguous use of the undefined phrase “interests of class of consumers” may be used by the authority, in this case, the CCPA, to take action relying on the principle of parens patriae and bring representative claims on behalf of the citizenry.¹⁶ Parens Patriae actions are where the State itself is the plaintiff asserting a guardianship role to protect itself and its citizens from alleged harm. The CCPA, by virtue of acting on behalf of “interests of class of consumers” should not assume any such role, particularly on the basis of a hypothetical injury and intended harm from Advertisements as perceived by CCPA.

Finally, various sectoral laws, including the Food Safety and Standards Advertising and Claims Regulations framed under the Food Safety and Standards Act 2006, the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954, SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, with Guidelines for Advertisements by Mutual Funds, Advertisement Code for Investment Advisers and Research Analysts, Insurance Regulatory and Development Authority of India (Insurance Advertisements and Disclosure) Regulations, 2021 etc, address issues pertaining to advertisements pertaining to their sector. Each of these regulations provide for independent governance mechanisms for determination of misleading, false or fraudulent advertisements along with necessary remedial measures, and enforcement mechanisms to rein in errant advertisers. The sectoral regulatory authority would be best suited to deal with misleading advertisements pertaining to their respective sectors, as they have the necessary expertise and wherewithal for the same.¹⁷

Whereas, the prescription-based approach under the Advertising Guidelines only abrogates the freedom of commercial speech and is against a catena of decisions of the Apex Court on the subject. In State of Bombay v. F. N. Balsara,¹⁸ (which was quoted with approval in Kesavanada Bharati Sripadagalvaru v. State of Kerala,¹⁹) the prohibition of commending (i.e., advertising) any intoxicant was held to be void for being in conflict with the fundamental right guaranteed by article 19(1)(a). In Indian Express Newspapers (Bombay) (Private) Ltd. and Ors v. Union of India and Ors,²⁰ also the Court stated that commercial advertisements are protected under Article 19(1)(a) of the Constitution. In Tata Press Ltd v. Mahanagar Telephone Nigam Limited and Ors,²¹ the Court, while explicitly and clearly holding that “commercial speech” is a part of freedom of speech and expression, emphasised that “Advertising is considered to be the cornerstone of our economic system. Low prices for consumers are dependent upon mass production, mass production is dependent upon volume sates, and volume sates are dependent upon advertising. Apart from the lifeline of the free economy in a democratic country, advertising can be viewed as the life blood of free media, paying of the costs and thus making the media widely available.” The circulation of ideas is at the heart of the right to freedom of expression. And the ‘attempt to regulate thought’²² is not a function of the government. The freedom of speech encompasses the right of all citizens to read and be informed. The United States Supreme Court, in Time v. Hill²³ observed that the constitutional guarantee of freedom of speech and press are not for the benefit of the press so much as for the benefit of all the people.

Advertisements, by virtue of being a product of commercial motive, are not disentitled to the constitutional protections as are available to other expressive commodities (such as movies, television shows etc.) The Hon’ble Supreme Court of India has also clearly recognised this. It is also a fact that advertisements are a persuasive feature of the modern public sphere, and they possess more power than most genres of expression to ‘normalise contested ideas and beliefs’.²⁴ The result is that laws that restrict commercial advertisements, or limit what they can say, may pose a threat to the vitality of a democratic public sphere in the manner of censorship laws or repressive speech regulations.²⁵

A plethora of cases dealing with the subject matter of the Advertising Guidelines, i.e. misleading advertisements, tell us that the determination of this aspect is very nuanced and ever-evolving. The primary contributor in India to the evolution and development of precedents surrounding misleading advertisements has been the industry itself. Industry self -regulation could be an advantageous complement to government policies.²⁶

Compensation to Consumers

While this is slightly tangential to the main focus in this article, i.e. misleading advertisements, issues pertaining to grant of compensation for various consumer complaints has reared its head quite pugnaciously of late, and has been briefly dealt with herein, in view of its relevance and significance.

The existence of provisions for punitive compensation has sadly encouraged speculative litigation and a lack of understanding of the principles governing award of punitive damages appears to have aggravated it. One of the most common themes for claiming exemplary damages by consumers for deficiency in goods or services appear to be on the ground of ‘mental agony’. There are several examples of vexatious claims under the colour of mental agony. In Manveer Singh Negi,²⁷ the claimant allegedly found insects in a soft drink (clearly inspired by Donoghue v. Stevenson²⁸) and the District Forum awarded a total damage of Rs.40,008/-. Although the State Commission subsequently set aside the award of Rs.35,000/- it upheld the award of Rs.8/- towards the cost of the soft drink, Rs.5000/- towards deficiency in service and Rs.10000/- towards damages against the seller. In a similar case, the District Forum at Chennai granted Rs.55,000/- on a complaint that insects were found in a brandy. The order shows that the product was not consumed.

There are similar illustrations galore. In a complaint regarding damage of hair upon using a shampoo, the manufacturer offered medical help and the complainant alleged that even after the treatment it was not cured, and she had to remove her hair. Against the claim of Rs. 10 lakhs as compensation for mental agony and harassment, the District Forum awarded Rs.25,000/-. The State Commission dismissed the appeal holding that the manufacturer did not prove that its product was good.²⁹ One would think that the complainant was obligated to prove that her hair was damaged because of the shampoo, in spite of the known fact that there was no similar complaint from any other consumer which proved that the product could be faulted.

In another instance, we have an advocate filing a case for quantity difference in two glucose biscuit packets seeking Rs.8 lakhs as compensation alleging that the manufacturer sold the similar packets for the last 8 years. The variation was within the limits permitted under the Legal Metrology (Packaged Commodities) Rules, 1977. The Commission found that the complainant was only entitled to refund of the purchase price of Rs.16/-.

Only a few such cases pertaining to consumer protection under the said Act appear to have reached the Supreme Court. In these cases, the Supreme Court has clearly enunciated the principles for determination of damages. The court has generally refused to grant damages in cases of ‘deficiency’ in service unless cogent materials are produced to substantiate the loss.³⁰ The law of damages in India is well settled, as the Supreme Court has, time and again, reiterated. Only actual and direct damages suffered by the non-defaulting party could be claimed from the defaulting-party. Remote damages and punitive damages are an anathema to the law of damages. Notwithstanding the provision in the 2019 Act for punitive damages, the courts will be justified in restricting the punitive damages to cases where the defendant’s conduct is reprehensible.

The economic costs of product liability have been a point of contention over decades in foreign jurisdictions³¹, and needs to be considered prior to penalising an advertiser to an extent that it dissuades the advertiser from engaging in business. Alternatively, the transactional and economic costs, if unchecked, will lead to a point when a manufacturer or service provider will have to factor in the cost of compensation into the good or service itself.³²

Conclusion

It is yet early days to comprehensively evaluate the issues which will arise in respect of the Advertising Guidelines, and the effectiveness of the CCPA in enforcing the Advertising Guidelines, as well as the CPPA’s powers. The recent efforts by the Central Government inpassing the Jan Vishwas (Amendment of Provisions Act), 2023 is a positive step to decriminalising several offences in various statutes to further the cause of “trust-based governance for ease of living and doing business”.

However, the very existence of the draconian and wide powers of the CCPA under the 2019 Act appears to run counter to the objective sought to be achieved under the Jan Vishwas Act.

One can only hope that the regulators will appropriately address more pressing concerns of late, including serious challenges to privacy arising from generative artificial intelligence, targeted marketing, and the like, which the current law and guidelines do not seem to address.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.