Background

The Supreme Court of India, in a recent judgment,[i] overturned a decision of the National Consumer Disputes Redressal Commission (‘Commission’) in which it had found Star India and Airtel guilty of indulging in unfair trade practices under the Consumer Protection Act, 1986 (‘the Act’) during the broadcast of Star India’s programme Kaun Banega Crorepati in 2007, after a complaint was brought before it by a consumer society named the ‘Society of Catalysts’. Specifically, the Commission was of the view that the programme’s ‘Har Seat Hot Seat’ contest (‘HSHS’) amounted to an unfair trade practice under S. 2(1)(r)(3)(a) of the Act. Essentially, the HSHS invited viewers of the programme to participate in an objective-type question contest, where the viewer was required to select out of four possible answers and send his answer in through SMS services offered by Airtel. A winner for each episode was then selected randomly out of those who sent in the correct answers and a prize of Rs. 2 lakhs was awarded to the winner. Though there was no entry fee for HSHS, a participant was required to pay Rs. 2.40 per SMS to Airtel – substantially higher than the normal SMS rate.

The main allegations levied against the HSHS thus were that (a) it created a false impression in viewers’ minds that participation was free of cost, though the cost of organizing the contest as well as the prize money were reimbursed from the increased rate of SMS charges, and that profits from these charges were being shared by Airtel and Star India, and (b) that it was essentially a lottery as the questions were extremely easy and the winner was actually picked by random selection. The Commission focused on the former line of argument and, relying upon a report published by the Hindustan Times on 15.07.2007, found that Airtel had received 58 million SMSes through the course of HSHS. This meant that they collected approximately Rs. 13.92 crore from HSHS, while only paying Rs. 1.04 crore as prize money (as per the report). Furthermore, it was observed that the higher SMS cost for the HSHS contest was not properly justified and could not be construed as a value-added service, leading the Commission to assume that there was an undisclosed revenue sharing agreement between Airtel and Star India. Consequentially, the Commission held that Star India had committed an unfair trade practice under S. 2(1)(r)(3)(a)* of the Act, as the prize money for HSHS was fully or partly covered by the revenue generated from the unjustifiably high SMS costs. Punitive damages of Rs. 1 crore were thus awarded against Star India and Airtel by the Commission under S. 14(1)(d) of the Act. In light of this finding, the Commission deemed it unnecessary to delve into the argument that the HSHS was a lottery-type contest.

(*For the readers’ reference, S. 2(1)(r)(3)(a) is as follows:

“(r) “unfair   trade   practice” means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely;—

…

(3) permits—

(a) the offering of gifts, prizes or other items with the intention of not providing them as offered or creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole;… )

Arguments before the SC

On behalf of Star India, it was contended that the Commission’s decision was based merely on inferences, speculation and reliance on an uncorroborated newspaper report. It was also argued that there was no revenue sharing agreement between Star India and Airtel, and that the only monetary flow between them was a periodic fixed lump-sum to be paid by Airtel under the services-cum-sponsorship agreement between the two parties. Furthermore, the imposition of a higher SMS rate was claimed to be justified on the basis that the transmission of SMSes to register options in a multiple-choice question game required a special software, and that this constituted a value-added service. Additionally, since Star India had conformed with relevant TRAI regulations mandating that increased tariff (for SMSes) be displayed on the television screen, no question of duping the participants arose; participants were thus duly informed of the increased SMS cost, while participation in the HSHS contest itself remained free of charge.

On behalf of the complainant, the main submission was that the appellants had created a wrongful impression in the consumers’ minds that the HSHS contest prize money was not paid out of the revenue generated by increased SMS tariff rates, and that the Commission’s decision was thus correct. Ancillary arguments pertaining to the imposition of punitive damages and jurisdiction of the Commission in this matter were also dealt with by both parties, though they did not directly concern the crucial issue in casu.

SC’s Analysis and Decision

The court limited itself to the issue of whether an unfair trade practice had been committed under the aforementioned S. 2(1)(r)(3)(a). The court observed that this clause seeks to address two possible mischiefs, i.e. (a) the offering of gifts or prizes with the intention of not providing them as offered, and (b) the creation of the impression that something is being given or offered free of charge in spite of the cost of the item actually being covered either fully or partly by the amount charged in the relevant transaction. The controversy in this case surrounded the latter part, as the Commission had found the appellants guilty of this mischief. The court hence had to ascertain the source of the funds out of which the HSHS prize money was being paid by Star India.

Right away, the court was quick to dismiss the Commission’s holding that the HSHS prize money was distributed out of the contest’s SMS revenue as baseless and unsupported. Though the appellants had not specifically denied this speculative argument, it had been clarified that Airtel was merely a sponsor/advertiser, and that the commercial agreement between Star India and Airtel dictated that Airtel would pay sponsorship charges while Star India would be independently liable for paying the prize money out of its own pocket irrespective of the revenue earned by Airtel. The court further discredited the Commission’s reliance on the aforementioned Hindustan Times news report, insofar as the same was uncorroborated and not even produced before either the Commission or the court. Thus, in the court’s eyes, the complainant failed “to establish any direct linkage between the increased SMS tariff rates and prize money so as to show that the prize money was deceptively recovered in the guise of increased SMS rates charged to participants.”

Looking at the increased costs of SMSes for participation in the HSHS contest, the court found that the same constituted a value-added service as Airtel had to set up the hardware and software required for a contest of this format at its own cost. This was reinforced by the TRAI’s direction on ‘Premium Rate Services’ (dated 03.05.2005) issued by TRAI, in which it is categorically stated that televoting and participating in quizzes, etc. through SMS constitutes a value-added service. Thus, the complainant’s argument that the appellants had wrongfully imposed additional SMS costs or wrongfully advertised the same was dismissed by the court as well.

The court therefore found that the Commission’s finding of an unfair trade practice was bad in law and accordingly it allowed the appeals and set the impugned judgment aside. In doing so, the court ensured that the ordinary business practice of utilizing different sources of revenue for a particular purpose (in this case, to fund prize money) was not unduly restricted and that the ambit of an unfair trade practice under S. S. 2(1)(r)(3)(a) was not excessively expanded.

Courtesy: iprmentlaw.com

Complete Story: https://iprmentlaw.com/2020/02/22/unfair-trade-practice-kbcs-har-seat-hot-seat-controversy-settled-by-the-sc/