It’s imperative that consumers are protected from unfair contracts of service providers and manufacturers

Unilateral terms in contracts, skewed heavily in favour of service providers or manufacturers, are a common problem that consumers face. Service providers expect consumers to sign on the dotted line with terms and conditions often rigid, giving very little flexibility to consumers.

A few years ago, the Law Commission had observed that in order to protect consumers, it was necessary to evolve general principles regulating unfairness in contracts.

Thus, the Consumer Protection (Amendment) Bill, which provides for amendments that would broaden the scope of the definition of unfair trade practice and also include unfair contracts, was introduced in 2011. Unfortunately, this is yet to see the light of day!

Though consumers are bound by contractual agreements in general, there are instances, such as Central Inland Water Transport Corporation Limited vs. Brojo Nath Ganguly, where, the Supreme Court held that an unfair or an unreasonable contract entered between the parties of unequal bargaining power was void, under Section 23 of the Contract Act. It said that the Courts would relieve the weaker party from unfair and unconstitutional obligations in a standard form contract.

Recently, in Classic Kudumbam Retirement Community vs. S.P. Sundaram, decided by the National Commission (NC), the Commission held that gross inequality of bargaining power, together with terms unreasonably favourable to stronger party may confirm indications that transaction involved element of deception or compulsion, or may show that weaker party had no meaningful choice, no real alternative or did not in fact assent or appear to agree to unfair terms.

In the said case, Sundaram, aged about 82, and his wife, entered into an agreement for booking an apartment with the opposite parties (OPs), the Classic Kudumbam Retirement Community, by paying Rs. 7 lakh. Two months later, the complainants wrote two letters to the OPs expressing their dissent and grievance about the functioning and management of OPs. OPs immediately terminated their contract and the complainants, under protest, vacated the premises and demanded refund of the deposited amount.

Deficiency of service

The OPs declined this and thus, alleging deficiency in service, the complainants filed a complaint before the District Forum seeking refund along with compensation. District Forum held the OPs liable for deficiency in service and directed them to refund Rs. 6,50,000, along with compensation of Rs. 20,000. However, the OPs preferred an appeal before the State Commission, which was dismissed. Hence, a revision petition was filed before the NC.

The counsel for OPs argued that as per deed, the deposited money was “non-refundable” and that the OPs neither invited the complainants to take membership nor were they compelled to sign the agreement, but the complainants preferred the concept of retirement community homes of OP.

He also claimed that as per the terms and conditions of the licence deed, the OPs had the right to vacate any resident who indulged in any activity that might disturb the tranquil ambience of the community.

However, the NC observed that the complainants were not at fault, there was no evidence to prove that they had misbehaved and that the OPs had indulged in unfair trade practice by charging exorbitant amounts towards monthly maintenance charges and additional 10 per cent over TNEB rates. The NC further stated that the OPs’ behaviour was arbitrary and that the contract was an unconscionable contract. This had caused harassment and mental agony to the senior citizens who deserved fair compensation, the NC said, and ordered for refund of the amount along with interest and compensation.

(The writer works with CAG, which offers free advice on consumer complaints to its members. For membership details / queries contact 2491 4358 / 2446 0387 or helpdesk@cag.org.in)