Misleading ads are a menace and their have been no specific laws to deal with it. Similarly, real estate have been unregulated for decades together and introduction of The Real Estate (Regulation And Development) Act, 2016 (RERA). Though, still it has to be seen whether the purpose has been achieved in spirit but the delivery is satisfactory to a great extent. The homebuyers which use to be at the receiving end are now having a forum to adjudicate and be entitled to compensation. Basically, the consumer are now aware and also well equipped legally to take on the mighty. Further, the consumer law which has been almost three decades old is now been revamped. Consumer Protection Bill 2018 was introduced in Lok Sabha and got passed and soon the bill will become Act. The Consumer bill has made stringent provisions with respect to misleading advertisements, unfair contract and formation of Consumer Protection Authority like RERA. Therefore, this article is an attempt to understand the new Consumer law in the offing and its application in Real Estate sector and remedies under RERA.

Also Read-‘Say what you mean’ Misleading Real Estate Ads: RERA and ASCI

Consumer Protection Bill, 2018

India has been a pioneer in consumer advocacy with the Consumer Protection Act, 1986 (CPA) , a path breaking legislation, enacted in 1986 and a separate Department dedicated to Consumer Affairs was established in 1997.Based on the experience gained from implementation on the ground, the Act has been amended thrice in the years 1991, 1993 and 2002. The consumer courts adjudicate complaints relating to defects in goods and deficiencies in services and are meant to provide simple, inexpensive and speedy redressal of consumers’ grievances.

Misleading Advertisement

The definition of the ‘advertisement’ was missing the CPA and it has been first time defined in the Bill. Now, the advertisement which was loosely done and only a self regulatory body such as Advertising Standards Council of India (ASCI) is there. The decisions of ASCI are not legally enforceable except on members of ASCI or where the law has adopted. The ‘Report of The Standing Committee On Food, Consumer Affairs And Public Distribution of the Parliament’ discloses the need of regulation of advertisements.

The proposed definition is reproduced below for ready reference:

(1) “advertisement” means any audio or visual publicity, representation, endorsement or pronouncement made by means of light, sound, smoke, gas, print, electronic media, internet or website and includes any notice, circular, label, wrapper, invoice or such other documents;

This has taken into ambit all sorts of advertisements and even the endorsement has been for the first time included in the definition of “advertisement”. 

Maggi Case

There has been hot debate when in 2014 when allegations of excessive lead and MSG content was detected in the Maggi, flagship brand of multi-national giant Nestle. It led to nationwide ban on Maggi and also the Ministry of Consumer Affairs for the first time invoked Section 12(1D) of the Consumer Protection Act,1986 and filed class action suit of Rs.640 Crores for damages. Further, debate to bring law against celebrity endorsing the products ignited. Maggi was at that point of time endorsed by some of the big time celebrities like Amitabh Bachchan, Madhuri Dixit and Preity Zinta. No law at that point of time was there to take any action against celebrity, though the matter is still pending with Courts and has not been decided even till today. But,the debate led to referring the case of amendment in the CPA and the Bill of 2015 was thereafter referred to the Standing Parliamentary Committee on Food, Consumer Affairs and Public Distribution. The present bill of 2018 passed by Lok Sabha went through various rounds of deliberations.

Some of the important discussions with respect to “Misleading Advertisements”:

  1. Misrepresentation of product especially food product should be taken seriously considering the influence of the celebrities and corporate junks.
  2. Celebrity should not endorse products which may cause health hazards. People connect with celebrities realizing the stature of the celebrity.
  3. Introduction of National Advertising Code like UK.
  4. To introduce corrective advertisement in case of misleading ads.
  5. To include online marketplaces and online auction sites.

The Consumer Protection Bill,2018 defines the “endorsement” as below:

(18) “endorsement”, in relation to an advertisement, means—

(i) any message, verbal statement, demonstration; or

(ii) depiction of the name, signature, likeness or other identifiable personal characteristics of an individual; or

(iii) depiction of the name or seal of any institution or organisation, which makes the consumer to believe that it reflects the opinion, finding or experience of the person making such endorsement;

Concept of Regulatory Authority

The CPB, 2018 has brought in the concept of Central Authority, now the Central authority is concept that will oversee that no misleading advertisements come and also have the power to penalize upto Rs.10 lakhs and Rs.50 lakhs in case of subsequent violation. Further, for the first time the law empowers authority to penalize and also ban endorser i.e. Celebrity for one year to three years.

The provisions relating to Central Authority are given in Section 21 of the CPB, 2018 and is reproduced herein below:

“21. Power of Central Authority to issue directions and penalties against false or misleading advertisements

 (1) Where the Central Authority is satisfied after investigation that any advertisement is false or misleading and is prejudicial to the interest of any consumer or is in contravention of consumer rights, it may, by order, issue directions to the concerned trader or manufacturer or endorser or advertiser or publisher, as the case may be, to discontinue such advertisement or to modify the same in such manner and within such time as may be specified in that order.

 (2) Notwithstanding the order passed under sub-section (1), if the Central Authority is of the opinion that it is necessary to impose a penalty in respect of such false or misleading advertisement, by a manufacturer or an endorser, it may, by order, impose on manufacturer or endorser a penalty which may extend to ten lakh rupees:

Provided that the Central Authority may, for every subsequent contravention by a manufacturer or endorser, impose a penalty, which may extend to fifty lakh rupees.

 (3) Notwithstanding any order under sub-section (1) and (2), where the Central Authority deems it necessary, it may, by order, prohibit the endorser of a false or misleading advertisement from making endorsement of any product or service for a period which may extend to one year:

Provided that the Central Authority may, for every subsequent contravention, prohibit such endorser from making endorsement in respect of any product or service for a period which may extend to three years.

 (4) Where the Central Authority is satisfied after investigation that any person is found to publish, or is a party to the publication of, a misleading advertisement, it may impose on such person a penalty which may extend to ten lakh rupees.

(5) No endorser shall be liable to a penalty under sub-sections (2) and (3) if he has exercised due diligence to verify the veracity of the claims made in the advertisement regarding the product or service being endorsed by him.

(6) No person shall be liable to such penalty if he proves that he had published or arranged for the publication of such advertisement in the ordinary course of his business:

Provided that no such defence shall be available to such person if he had previous knowledge of the order passed by the Central Authority for withdrawal or modification of such advertisement.

(7) While determining the penalty under this section, regard shall be had to the following, namely: —

(a) the population and the area impacted or affected by such offence;

(b) the frequency and duration of such offence;

(c) the vulnerability of the class of persons likely to be adversely affected by such offence; and (d) the gross revenue from the sales effected by virtue of such offence.

 (8) The Central Authority shall give the person an opportunity of being heard before an order under this section is passed.”

The Real Estate (Regulation And Development) Act, 2016 (RERA)

RERA was enacted for regulation and promotion of the real estate sector. Further, to ensure sale of plot, apartment or building, as the case may be, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector.

Many states have established regulatory authority under the RERA wherein the mechanism for speedy dispute redressal has been established. Appellate authority has also been notified wherein the Appellate Tribunal has been established to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority and the adjudicating officer and for matters connected therewith or incidental thereto.

The definition of advertisement reads in Section 2 (b)

“advertisement” means any document described or issued as advertisement through any medium and includes any notice, circular or other documents or publicity in any form, informing persons about a real estate project, or offering for sale of a plot, building or apartment or inviting persons to purchase in any manner such plot, building or apartment or to make advances or deposits for such purposes;

Secondly, the functions and duties of promoter under Section 7 of RERA, casts an obligation to disclose the complete details of the project. The buyer comes across such instance they may withdraw from the project and shall be entitled to amount and prescribed interest.  Rate of interest has been prescribed by the states under their respective laws like for instance Gujarat, Rajasthan and Maharashtra has prescribed agreed rate or as per existing directives of Reserve Bank of India i.e. Marginal Cost of Lending Rate (MCLR) the State Bank of India Prime Lending Rate plus two percent.

11. Functions and duties of promoter.—

(2) The advertisement or prospectus issued or published by the promoter shall mention prominently the website address of the Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority and such other matters incidental thereto.

12. Obligations of promoter regarding veracity of the advertisement or prospectus.—

Where any person makes an advance or a deposit on the basis of the information contained in the notice, advertisement or prospectus, or on the basis of any model apartment, plot or building, as the case may be, and sustains any loss or damage by reason of any incorrect, false statement included therein, he shall be compensated by the promoter in the manner as provided under this Act:

Provided that if the person affected by such incorrect, false statement contained in the notice, advertisement or prospectus, or the model apartment, plot or building as the case may be, intends to withdraw from the proposed project, he shall be returned his entire investment along with interest at such rate as may be prescribed and the compensation in the manner provided under this Act.

Maharashtra Real Estate Regulatory Authority (Complainant) v. Sai Estate Consultant Chembur Pvt. Ltd. (Respondent)[1]

In the first case Maharashtra RERA took suo moto cognizance of the fact that the respondent was advertising without  RERA number and ordered to apologize and imposed penalty of Rs.1,20,000 (per day Rs.10,000)

Conclusion

The legal system which was once considered as time trapped in terms of relief and the buyers were left at lurch of builders has been sea changed. It will be interesting to see how the law will take its course since the Consumer Protection law and RERA will offer dual reliefs to the ‘homebuyers’. It is therefore important that both laws are interpreted with purposive interpretation. Further, it will also be interesting to see that if the builder is penalized under RERA whether that order shall operate  as evidence for the authorities under Consumer law to penalize. Times to come this shall be tested in court but one thing is sure that such interplay will benefit the (home) buyers.

Authors

CA.Mahadev Birla is RERA consultant and has been ex-senior executive for real estate company for 6 years. He can be reached at md.birla@gmail.com                         

Adv.(CA.) Nipun Singhvi is practicing advocate at various Tribunals, High Courts and Supreme Court. He can be reached at nipunsinghvi@yahoo.com

[1] Suo-Moto Case No. 1 of 2017, dated 5th  June, 2017

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