Can a Manufacturer be Liable for Defective Cars Sold by Its Dealer?
The Supreme Court, in the case of Tata Motors Ltd. v. Antonio Paulo Vaz and Another vide an order dated 18th February 2021, examined the liability of a manufacturer in instances where the relationship between the dealer and the manufacturer was on a principal-to-principal basis. The issue which arose for consideration before the Court was whether a manufacturer can be held liable for defaults committed by its dealer.
The relevant facts of the case are that the Respondent, Antonio Paulo Vaz bought a car from a car dealer (second respondent) Vistar Goa (P) Ltd. However, a 2009 model car which had run 622 kilometers was sold to him in place of a new car of 2011 make, of which the respondent refused to accept delivery. Therefore, a request for refund or replacement of the car with one of a 2011 model was initiated. Upon his grievance remaining unaddressed, the Responded preferred a complaint before the Goa District Consumer Redressal Forum (“District Forum”). In the light of these facts and observations, the District Forum held that there was deficiency in the service committed by the dealer and the manufacturer, and consequently held them jointly and severally liable.
When the matter was taken up before the National Commission in appeal, Tata Motors Ltd. (Appellant) urged two contentions: 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 therefore, no liability could be fastened upon it. However, the order passed by the National Commission negated both arguments and upholding the orders of the fora below it further declared that the Appellant had indulged in an unfair trade practice.
In order to determine the question, the Court firstly established that the relationship between the manufacturer and the dealer was one of principal-to-principal basis as provided under Clause 4 of the dealership agreement that defined the territorial scope and subject matter of the agreement, thereby constituting the second respondent as a dealer.
The matter was then taken to the Supreme Court in appeal. The provisions of Section 2 (g) of the Consumer Protection Act, 1986, which define ‘deficiency’, were brought to light. It was held by the Supreme Court that as per the aforesaid section, in order to establish that the services rendered were deficient in nature, the existence of a contract is essential. In the instant case, there is no privity of contract between the Appellant and the consumer and therefore, no ‘deficiency’ arises.
Additionally, it was held by the Supreme Court that special knowledge of the allegations made by the dealer, and involvement, in an overt or tacit manner, by the appellant, 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 appellant, the latter’s omissions and acts could not have resulted in the appellant’s liability. It was held that the action before the Consumer Forum was itself not maintainable.
With regard to the finding of the National Commission that Tata Motors was guilty of an unfair trade practice and the award of punitive damages passed against it, the Supreme Court stated that punitive damages are awarded against a conscious wrongdoing unrelated to the actual loss suffered. Such a claim has to be specially pleaded. However, the National Commission had gone much beyond its jurisdiction in awarding the relief which was neither sought in the complaint nor before the State Commission.
In light of the above, the order of the National Commission and the lower forum against the Appellant were set aside. The Hon’ble Supreme Court further propounded that the liability on the manufacturer could not be fastened unless the manufacturer’s knowledge is proven, given that the relationship between the dealer and the manufacturer were on a principal-to-principal basis.
