Misleading Advertisements and the Liability of an Endorser

Sub-section (6): the publisher's defence. No person is liable to such a penalty if he proves that he published or arranged for publication in the ordinary course of his business; but that defence is not available if he had previous knowledge of the Central Authority's order for withdrawal or modification of the advertisement.

The offence: section 89

Any manufacturer or service provider who causes a false or misleading advertisement to be made which is prejudicial to the interest of consumers is punishable with imprisonment which may extend to two years and with fine which may extend to ten lakh rupees; and for every subsequent offence, with imprisonment which may extend to five years and fine which may extend to fifty lakh rupees.

Note the division of labour: section 21 is a penalty imposed by the regulator, section 89 is an offence tried by a court, and a consumer's own remedy for a misleading advertisement is a complaint of an unfair trade practice, with the reliefs in section 39 including a corrective advertisement.

A worked example

A company advertises a health drink claiming it makes children "twice as tall". A well-known actor appears in the advertisement. A newspaper carries it.

Is it misleading? Yes on the first two limbs of section 2(28): it falsely describes the product and is likely to mislead consumers as to its quality; and it would be an unfair trade practice under section 2(47) as a false representation about the benefits of goods and a warranty not based on an adequate test, in which case the burden of proving the test lies on the company.

What may the Central Authority do? Order the advertisement discontinued or modified under section 21(1); impose up to ten lakh rupees on the company and on the actor under section 21(2), and up to fifty lakh for a repeat; prohibit the actor from endorsing anything for up to a year, and up to three years for a repeat, under section 21(3); and impose up to ten lakh rupees on the newspaper under section 21(4).

The actor's defence. Under section 21(5), that he exercised due diligence to verify the veracity of the claims, which in practice means asking for the test data and being able to show that he did.

The newspaper's defence. Under section 21(6), that it published in the ordinary course of business, unless it knew of an order for withdrawal or modification.

The company's criminal liability. Section 89: up to two years and ten lakh rupees, and up to five years and fifty lakh for a subsequent offence.

And a parent who bought the drink? Complains to the District Commission of an unfair trade practice, and may ask for refund, compensation and a corrective advertisement under section 39.

What it does NOT mean

An endorser is not automatically liable. Due diligence to verify the claims is a defence under section 21(5).

A publisher is not automatically liable. Publication in the ordinary course of business is a defence, unless he knew of the order.

A penalty under section 21 is not a criminal conviction. Section 89 is the offence.

A consumer does not have to wait for the regulator. He may complain of an unfair trade practice himself.

Quick revision

1. Section 2(28): false description, false guarantee or likely to mislead as to nature, substance, quantity or quality, a representation that would be an unfair trade practice, or deliberate concealment of important information.
2. Section 21(1): direction to discontinue or modify.
3. Section 21(2): penalty up to ten lakh rupees on a manufacturer or endorser; up to fifty lakh for a subsequent contravention.
4. Section 21(3): prohibition on an endorser for up to one year; up to three years for a subsequent contravention.
5. Section 21(4): penalty up to ten lakh rupees on a publisher.
6. Section 21(5): the endorser's defence of due diligence to verify the claims.
7. Section 21(6): the publisher's defence of publication in the ordinary course of business, lost if he knew of the order.
8. Section 89: imprisonment up to two years and fine up to ten lakh rupees; up to five years and fifty lakh for a subsequent offence.

Test yourself

1. What is a misleading advertisement, and what may the Central Authority do about it? Section 2(28) defines it as an advertisement which falsely describes a product or service, gives a false guarantee to or is likely to mislead consumers as to the nature, substance, quantity or quality of the product or service, conveys an express or implied representation which would constitute an unfair trade practice if made by the manufacturer, seller or service provider, or deliberately conceals important information. Section 21 gives the Central Authority four powers. It may direct the trader, manufacturer, endorser, advertiser or publisher to discontinue or modify the advertisement. It may impose a penalty of up to ten lakh rupees on a manufacturer or endorser, and up to fifty lakh for a subsequent contravention. It may prohibit an endorser from making any endorsement for up to one year, and up to three years for a subsequent contravention. And it may impose a penalty of up to ten lakh rupees on a person who publishes or is party to the publication of a misleading advertisement.

2. Is a celebrity who endorses a product liable, and how may he escape? He may be. Section 21(2) allows the Central Authority to impose a penalty of up to ten lakh rupees on an endorser of a false or misleading advertisement, rising to fifty lakh for a subsequent contravention, and section 21(3) allows it to prohibit him from endorsing any product or service for up to one year, and up to three years for a repeat. His defence is in section 21(5): no endorser is 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 about the product or service he endorses. In practice that means obtaining and checking the material on which the claim rests, and being able to prove that he did so. The provision is new with the Act of 2019 and it is the reason endorsement contracts now carry verification clauses.

3. Distinguish the penalty under section 21 from the offence under section 89. The penalty under section 21 is imposed by the Central Consumer Protection Authority, a regulator, by order after investigation, and it operates against the manufacturer, the endorser and the publisher, with the figures set out in the section and with statutory defences of due diligence and ordinary-course publication. The offence under section 89 is tried by a criminal court and applies to a manufacturer or service provider who causes a false or misleading advertisement prejudicial to the interest of consumers; the punishment is imprisonment up to two years with fine up to ten lakh rupees, and for a subsequent offence imprisonment up to five years with fine up to fifty lakh rupees. The two are independent, and neither is the consumer's own remedy, which is a complaint of an unfair trade practice with the reliefs in section 39, including a corrective advertisement.