COMMENTARY

contract. The EU assimilated these in its

Right to Cancel Contracts draft law giving consumers the same
right (Commission of the European
The Consumer Protection Bill, 2015 Communities 1992).
The EU Parliament in 1997 enacted
the law which it calls a directive, for the
Akhileshwar Pathak protection of consumers in respect of dis-
tance contracts (EU Parliament 1997).

T
The Consumer Protection he Consumer Protection Bill, 2015 The rationale for the law, in the case of
Bill, 2015 proposes to give the has been introduced in the Lok purchase of goods, is that the consumer
Sabha to replace the existing 30- does not get to see the goods in conreto
right to a consumer to cancel
year-old law of the same name. It gives (in reality). The 28 member states of the
a contract within 30 days of the right to a consumer to cancel a con- EU, as mandated, have adopted the di-
making it, without giving any tract within 30 days of making it, at no rective by local legislation. For example,
reason or justification. This is a cost and without furnishing any expla- they adopted it in the Consumer Pro-
nation or reason. A contract once made tection (Distance Selling) Regulations
very significant right that sets
is final and binding on the parties. The 2000. While the legislative initiative,
a precedence at a global level. courts and law are generally reluctant to taken up in the 1980s was directed to
This article locates the basis interfere with this founding principle as contracts made on the phone, its main
and justification for the right in it would lead to uncertainties in com- application now is to the burgeoning on-
mercial and business life. This valuable line sales.
the law and practices in other
protection to the consumers in India In these countries, effectively, the
jurisdictions and in business needs to be located in precedence in consumer has the same right in relation
practices in India. other jurisdictions and justified in the to other retailers. Like the mail orders
context of business practices in India. money-back guarantee of the yester-
This will develop a foundation for pro- years, most retail shops give the right to
posed principle. the customer to return the purchase and
The European Union (EU) countries get a refund (Murray 2015). Thus, the law
provide the right to the consumer of a has had to be made for the protection of
distance contract to cancel the con- the consumer in relation to ordinary
tract within 15 days of its making. A dis- retail sale. If the consumer protection
tance contract is one wherein the parties were to slacken, the current return and
make a contract without being in the refund policy of the retailers, as it hap-
physical presence of each other, through pened in the case of distance contracts,
some means of communication. The mail would readily get turned into law. Thus,
order was the first form of distance sell- a consumer, whether he buys through a
ing, which was well developed by the regular store or online retailer, has the
early 20th century (Coopy et al 2005). right to return the goods and get his
In the 1980s, distance selling vastly money back.
expanded with new means of communi-
cation, including telephones, fax and Unscrupulous or Vulnerable?
television but it also brought business In India, leave alone a voluntarily
malpractices in its wake. The EU is man- return policy, a retailer does not even
dated to develop uniform consumer pro- entertain the customers complaint regard-
tection across the member states and ing defective goods. In the best and
took up the problem of consumers in biggest of the retail stores the following
distance contracts in the early 1990s is a common experience: A consumer buys
(Commission of the European Communi- an expensive mobile phone of a reputed
ties 1992). By then, several of the mem- brand but notices on the same day and
ber states had enacted laws to provide within hours that there are problems
protection to consumers in distance con- with the instrument such as the battery
tracts. The mail order had provided draining out or something else. Clearly,
money-back guarantee to buyers and the phone is not of merchantable quality
Akhileshwar Pathak (akhil@iimahd.ernet.in) taking this practice as the basis, the laws and the buyer has a right to return the
teaches at the Indian Institute of Management, of several of the member states gave the phone to the retailer and claim his
Ahmedabad.
consumer the right to cancel a distance money back. The store will refuse to
20 MARCH 12, 2016 vol lI no 11 EPW Economic & Political Weekly
 COMMENTARY

return the phone and ask the customer Timeshare Act 1992 allows a 14-day cycle is deferred by the period of cooling-
to complain to the manufacturer or take cooling-off period in a contract of time- off. The additional cost of refunding the
it to the service centre of the manufac- share. A timeshare contract is where a money to the customer and the adminis-
turer. Most consumers do not even have person buys the right to use a property, trative work of cancelling the contract is
the option of approaching the manufac- typically holiday homes for a limited a minor expense. A customer also has
turer. The following too is not an unlikely period of time each year. The customer is costs and will not be frivolous in getting
experience.1 A customer, to protect him- given the right as sales representatives into a contract or cancelling it. The law
self from the sudden rain in a hill station, aggressively market the product. In will not only bring relief to the customer
approaches a store to buy an umbrella. Canada, the cooling-off includes service but improve the quality of services. The
While selling the umbrella, the seller contracts to do with credit, health clubs, service providers will be transparent in
tells the customer to bring it back if condominiums, natural gas, electricity order to minimise cancellation of con-
there are any problems. Within 30 min- and door-to-door sales (Industry Canada tracts. The proposed right in the bill, giv-
utes, the poor quality umbrella breaks. 2015). In India, there is a cooling-off ing the right to the consumer to cancel a
On seeing the customer approach with a period for insurance contracts. The pre- contract, is justified by the practices in
broken umbrella, the shopkeeper asks, sumed reason is that the insurance agent other jurisdictions and will improve the
What have you done to the umbrella? may have prevailed on the customer in quality of goods and services in India.
How have you broken it? There is no getting the contract.
Notes
question of taking it back. A consumer in India who enters into a
1 Personal experience.
While the retailer appears unscrupu- service contract ranging from profes- 2 This is evident in the complaints before and the
lous, he is as vulnerable as the customer sional education to financial services decisions of the Advertising Standards Council
of India, a voluntary body, working towards
because further up the chain, the whole- suffers numerous malpractices.2 In the self-compliance; see at: http://www.ascion-
saler or the manufacturer will not take it absence of regulation, false and unfair line.org/index.php/asci-decisions.html.
back from the retailer. Poor quality advertising is common (Pathak 2015).
References
goods are being sold because poor qual- The trader or the agent is not interested
Commission of the European Communities (1992):
ity goods are being manufactured and in giving a complete or true picture and Proposal for a Council Directive on the Protec-
distributed. Thus, in India, the proposal indulges in half-truths, if not downright tion of Consumers in Respect of Contracts Ne-
gotiated at a Distance (Distance Selling),
in the bill to give the right to a consumer misrepresentations. Once the consumer Brussels, available at: http://aei.pitt.edu/8669/
to cancel a sale contract is based on parts with his money, the only remedy 1/8669.pdf.
Coopy, Richard, Sean OConnell and Dilwyn
precedence and justified. for him is to approach a consumer forum Porter (2005): Mail Order Retailing in Britain:
to contest and establish that the contract A Business and Social History, London: Oxford
Provisions of the Bill University Press, p 14.
was caused by misrepresentation. This is
EU Parliament (1997): Directive 97/7/EC of the Eu-
The bill gives the right to cancel both, a obviously an unnecessary hardship for ropean Parliament and of the Council of 20
sale contract and a contract for service. the consumer. May 1997 on the Protection of Consumers in
Respect of Distance Contracts, Brussels, availa-
The above exploration was focused on a The inequities and implications of ble at: http://eur-lex.europa.eu/legal-content/
consumer sale contract. There is wider cancelling a contract of service are EN/TXT/?uri=URISERV:l32014.
(2008): Directives 2008/48/EC of the European
precedence for a consumer having the different from a sale contract. A service Parliament and of the Council of 23 April 2008
right to cancel a contract of service. The may be of a kind that gets consumed on Credit Agreements for Consumers, available
at: http://www.eurofinas.org/uploads/docu-
EU consumer directive on distance con- irretrievably, for example, a taxi ride or a ments/policies/CCD/CCD%20-%20DIREC-
tracts applies to both sale contracts and haircut. In another class of services, the TIVE%202008-48-EC.pdf.
Industry Canada (2015): Office of Consumer Affairs,
contracts of service (EU Parliament 1997). prices may be dependent on the financial accessed on 30 October through http://www.
The rationale, in the case of a contract market or fluctuating, making a cancel- ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02654.html.
Murray, Amelia (2015): My Laptop Isnt Up To
for service, is that the customer does not lation an unjustified hardship on the Scratch: What Are My Refund Rights?, accessed
get all the information, as he would get service provider as for example, a per- on 30 October 2015 through: http://www.tele-
graph.co.uk/finance/personalfinance/money-
in a face-to-face contract, and is prone to son buying a share, a unit of a mutual saving-tips/11926499/My-laptop-isnt-up-to-
make impulsive decisions. Having made fund or an airlines ticket. Such contracts scratch.-What-are-my-refund-rights.html.
a contract, the customer gets the time to will necessarily need to be exempted. In Pathak, Akhileshwar (2015): Amending the Con-
sumer Protection Act, 1986, Economic & Political
cool-off and cancel the contract. In other contracts, the way cooling-off op- Weekly, 24 October, Vol L, No 43.
addition, the EU Parliament (2008) has erates is that the parties enter in a con-
made separate directives for consumer tract but the service provider defers the
contracts on banking, credit, insurance, provision of service till the cooling-off
personal pension and investment. These period is over. The customer can take available at
directives give cooling-off period whether the service earlier by waiving the right
the contract is a distance contract or of cancelling the contract. Oxford Bookstore-Mumbai
made face-to-face. Different countries Thus, in a service contract there is no
Apeejay House
3, Dinshaw Vacha Road, Mumbai 400 020
give the protection of the cooling-off to hardship to a service provider. Effectively,
Ph: 66364477
specific service contracts. In the UK, the the entire starting point of the contract
Economic & Political Weekly EPW MARCH 12, 2016 vol lI no 11 21