Legal Gamble In Promo Contests

Contests, lotteries and freebies have been the staples of promotion campaigns for decades. The craze for such schemes was controlled somewhat by the MRTP Commission in recent times by dubbing them unfair trade practices (UTP), barred by law. However, the trend now appears to be to free such campaigns from excessive legal controls.

The Supreme Court judgment earlier this month in Nirma Industries vs Director General is a clear pointer in this direction. The commission had held that the draw of lots conducted by the Ahmedabad detergent company was a UTP. According to the scheme, each packet of detergent contained a coupon. Consumers who bought them could win prizes worth Rs 71 lakh.

 

A consumer complained to the commission that the company had increased the price of the detergent along with the prize scheme. Apart from this, customers were lured to make excessive purchases irrespective of the quality of the product and the market conditions were distorted by restricting competition. The director general of the commission agreed with the allegations. And the commission restrained the company from conducting such contests in future.

On appeal, the Supreme Court interpreted Section 36A of the MRTP Act to prevent such blanket orders by the commission. It insisted that such contests should be proved to have caused loss to consumers, eliminated or restricted competition in order to be described as UTP.

A mere allegation that the price was hiked before the contest is not enough. It should be proved after hearing both parties that the price hike partly financed the contest and the consumer was the ultimate loser. There must be cogent material to support the allegations against the company. Thus, the court quashed the commissions order and remitted the case to reexamine evidence.

This judgment is likely to boost the morale of several companies and ad agencies who have been discouraged by harassment from consumers and frontmen of rival firms. The commission was taking a strict view of such contests. A few years ago, it held in the Colgate Palmolive case that loss or injury to the public was inherent to promotion contests, games of chance and lotteries. There was a flood of complaints against companies following this ruling and the commission was liberal in passing orders against them.

Two years ago, the situation eased when the commission revised its earlier view and ruled that a cease and desist order should be passed only if the contest was prejudicial to public interest or to consumers generally (Arora Contractors case). There could be no presumption of prejudice and there could be no generalisations, the commission said.

This decision as well as the Nirma judgment of the Supreme Court should encourage more contests in future. However, companies which are anxious to start contests and lotteries should be cautious as there are still several loose ends in the law. For one thing, the Supreme Court has interpreted Section 36A as it stood before the 1991 amendment, which had dropped some key words from it, like causing loss or injury to the consumers. It has also not taken into account the recent views of the commission.

Therefore, an odd consumer can even now drag the companies into the costliest game of chance litigation. The definition of UTP in the MRTP Act runs into two pages and the judgments on it read as if they were meant to generate more business for lawyers. Litigation in such matters take about 10 years. The Nirma case, for instance, is already six years old and now the evidence has to begin anew.

Bank guarantee

The principles which should be followed by the courts when dealing with an application for injunction against the encashment of bank guarantee have been reiterated by the Supreme Court many times in the past two decades. But few norms have been more dishonoured by the subordinate judiciary than this.

The apex court recounted its earlier judgments once again to drive home the point last month, (Dwarikesh Sugar Industries vs Prem Heavy Engineering). In this case, the Allahabad high court passed an injunction against the encashment of bank guarantee.

The SC chastised the high court for doing this, recalling its earlier rulings that such a drastic step should be taken only if there was established fraud or there would be irretrievable injury. These tests have been laid down in several recent judgments, including Svenska Handelsbanken vs Indian Charge Chrome, L&T vs Maharashtra SEB and, a few months ago, in UP State Sugar Corporation vs Sumac International.

It is unfortunate that notwithstanding the authoritative pronouncements of this court, the high courts and the courts subordinate to them still seem intent on affording to this court innumerable opportunities for dealing with this area of law, thought by this court to be well settled, the judgment said.

In this case, the apex court found that the role of the State Bank of India was suspect while dragging its feet on encashment of the guarantee. The court remarked that the facts showed that the bank had not shown professional efficiency, to say the least, and has acted in a partisan manner with a view to help a party. This as well as the continuous flouting of the guidelines might be pointing to a deeper malady in the system.

A mere allegation that the price was hiked before the contest is not enough. It should be proved after hearing both parties that the price hike partly financed the contest and the consumer was the ultimate loser.