Manufacturer Not Liable For Dealer's Fault Unless Manufacturer's Knowledge Is Proved In Cases Where Relationship Is 'Principal-To-Principal' Basis: Supreme Court

Date of Judgment: 18.02.2021

Core Issue involved: Whether a manufacturer can be held liable for deficiency in service on the part of Dealer when the relationship between them is on 'principal to principal' basis.

Gist of the matter:

A Three-Judge Bench of the Apex Court recently in Tata Motors Ltd. Vs. Antonio Paulo Vaz & Anr. held that the failure of the Complainant/Consumer to plead or prove the manufacturer's liability could not have been improved upon, through inferential findings as done by the lower forums in the present case. The circumstance that a certain kind of argument was put forward or a defence taken by a party in a given case cannot result in the inference that it was involved or culpable, in some manner. Special knowledge of the allegations made by the dealer, and involvement, in an overt or tacit manner, by the manufacturer, had to be proved to lay the charge of deficiency of service at its door. In these circumstances, having regard to the nature of the dealer's relationship with the manufacturer, the latter's omissions and acts could not have resulted in its liability.

Further, it has been held that unless the manufacturer's knowledge is proved, a decision fastening liability upon the manufacturer would be untenable, given that its relationship with the dealer, in the facts of this case, were on principal to-principal basis.

The brief facts are that one Antonio Paulo Vaz bought a car after paying the agreed total consideration price in 2011 to the dealer i.e Vistar Goa (P) Ltd. At the time of purchase, Vaz availed bank credit. A 2009 model car which had run 622 kilometers was sold to him in place of a new car of 2011 make. Vaz, therefore, requested for refund of the price paid or replacement of the car with one of 2011. The price was however not refunded; neither was the car replaced. Vaz refused to take delivery of the 2009 model car. He attempted a resolution of his concern and thereafter, caused a legal notice to be issued to the dealer, as well as the manufacturer/appellant. Upon his grievance remaining unaddressed, he preferred a complaint before the Goa District Consumer Redressal Forum.

The Ld. District Forum proceeded ex parte against the dealer and by its Judgment determined 'deficiency in service' and held the dealer and the manufacturer of the car to be jointly and severally liable and directed them to replace the car with a new one of the same model or to refund the entire amount of the car with interest @10% from the date given of delivery with cost towards mental stress and agony. It further noted that the car had some defects; the undercarriage of the car was "fully corrugated and had scratch marks on the body. The alloy wheels were also corrugated inside and the car also travelled almost 622 km. Also, some parts such as music system were not provided although agreed."

The manufacturer preferred an appeal to the State Commission which was dismissed with cost with an observation that the manufacturer's plea that its relation with the dealer was on a principal-to-principal basis was unsubstantiated by any material or evidence.

In Revision, the manufacturer urged two contentions before the National Commission: one that Vaz was not a "consumer" since he did not accept delivery of the car from the dealer, and two that its relationship with the dealer was on a principal-to-principal basis and that therefore, no liability could be fastened upon it. Both the arguments were rejected by the National Commission and it observed that the relationship of the dealer and the manufacturer in the facts appearing from the record, did not absolve it of liability. Further, the National Commission issued several directions- firstly upholding the orders of the fora below it and further declaring that the appellant had indulged in unfair trade practice, for which it was imposed with costs of 2,00,000/- of which 1,00,000/- was to be made over to Vaz and the balance to the Consumer Legal Aid Account of the District Forum within four weeks. The appellant was also ordered, through its Chief Executive under Section 14 (1) (f) of the Act to immediately pass appropriate directions to all its dealers to discontinue such unfair and deceptive acts, and not to put 'consumer'(s) to such loss and injury and to imbibe accountability and systemic improvements for the future. Further, the Chief Executive was directed to furnish a report-in-compliance to the District Forum within four weeks. In addition, the amount deposited with the District Forum in compliance of the National Commission's Order dated 01.05.2014, along with interest accrued on it, was to be utilized by the District Forum towards satisfaction of the Award.

The Apex Court while setting aside the findings of the National Commission and the lower forums against the manufacturer/appellant observed that the finding against the manufacturer, which had not sold the car to the consumer, and was not shown to have made the representations in question, were not justified. However, it granted liberty to the consumer to execute the order for alternative relief (of refund, with interest granted to him, by the district forum, as affirmed by the State and National Commissions) through the district forum concerned.

The Tata Motors Ltd. were represented Mr. Siddharth Bhatnagar, Sr. Adv.; Mr. Debmalya Banerjee-Partner, Mr. Kartik Bhatnagar, Principal Associate; and Mr. Ujjwal Singh, Associate for M/s Karanjawala & Co.

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