Legal Metrology: Clarity on Institutional and Retail Consumers – Part 2

[The following post is contributed by Sunayna Jaimini, who is an Associate at Singhania and Partners, New
Delhi and can be contacted at
s.jaimini@singhania.in.
The post contains research inputs from Kriti
Kaushik
, Associate at Singhania & Partners, New Delhi who can be
contacted at kriti@singhania.in
This is a continuation from a previous post available here]
Judicial Analysis
Before discussing the judicial
decisions on the matter, it is important to mention that the judgments below
analyze the issue of direct and indirect sale to industrial and institutional
consumers under the Standards of Weights and Measures (Packaged Commodities),
Rules, 1977. In the year 2009, Legal Metrology Act replaced the Standard
Weights & Measures Act, 1976 and as a result the rules made under the
erstwhile Act were replaced with the rules under the Legal Metrology Act.
However, the below mentioned judicial decisions are still relevant as the same
errant drafting that was present in the new Packaged Commodity Rules.
The Indian courts have taken different
views on the interpretation of these provisions. The Hon’ble Bombay High Court in the matter Larsen & Toubro Limited
vs. Union of India [2012 (275) ELT 153 (Bom)] while deciding on the issue
whether Rule 6 declarations (under the erstwhile Standard Weights and Measures (Packaged
Commodities), Rules, 1977) are required on packaged commodities sold to
institutional or industrial consumer through a stockiest, has held that Rule 6
would not apply to industrial and institutional consumers who buy the
commodities directly from the manufacturer. All other industrial and
institutional consumers of the packed commodity to whom the retail package are
not sold directly to the provisions of Rule 6 shall apply.
On the other hand the in the matter of Ewac
Alloys Limited v. Union of India [2012(2) Kar LJ 324] the Hon’ble Karnataka High Court, differed from the decision above and
held:
In the case of retail
package, the manufacturer of goods meant for industrial use may not be able to
supply the goods directly. Therefore, they may take the assistance of a
stockiest. If the customers are spread over the country and if the
manufacturing unit is in one part of the country and they want to concentrate
on manufacturing activity, they may not have resource or ability to arrange for
sale of their product throughout the country. In those circumstances, it is
quite but natural that they need middle men or stockiest, as distributors,
through whom they would distribute their product or sell their products to an
industrial or institutional user. In such an event, that packaged commodity
cannot be construed as a retail package…
…Therefore, it is
clear that the protection under this Act is confined only to individuals and
persons who are eking out livelihood by self employment and not to
institutional and industrial consumers or consumers who purchase goods in large
quantities. Therefore, requirement of Rule 6 is not required to be complied
with by a manufacturer who sells his packaged goods to an industrial or
institutional consumer through a stockiest.”
The decisions of the Karnataka and Bombay High Courts are
conflicting with each other. On one hand the Bombay High Court has considered
that only direct sale by manufacturer to the distributor would be considered
under the exception to Rule 3, however, any sale made through a stockiest would
be considered a retail sale. On the other hand Karnataka High Court has
emphasized on the intent of packaging, and has held that if the intent of the
package was for industrial or institutional it does not matter whether the sale
was made through a stockiest or the manufacturer directly.
Upon the detailed analysis of the
judgments above, we are more partial to the decision of the Bombay High Court,
the reason being, that the main intention of Chapter II and specifically
declaration under Rule 6 is that the consumer should be able to locate the
manufacturer or the packer in case of any grievances with the product. The
individual retail consumer is not in direct contact with the manufacturer and
the product and declaration thereon are the only connection between the
manufacturer and the ultimate consumer. Therefore, declarations regarding the
product are required to be placed directly on the product.
However, the packages for industrial or
institutional consumers do not require declarations as the products are sold
directly by the manufacturer and the consumer has a direct link or connection
with the manufacturer. Such an industrial or institutional consumer, in case of
any grievances with the product, knows the person and point of contact with the
manufacturer. Further, it could also be argued that the manufacturer has either
had the opportunity to prove its worthiness to such an industrial or
institutional consumer at the time of sale, or that the industrial and
institutional consumer has contacted the manufacturer on the basis of the
goodwill of the manufacturer. In either of the above scenarios the consumer is
making an informed choice and the details of the manufacturer and the product are
known to the consumer. Therefore, the requirement to make compliances under
Chapter II does not arise for packages directly sold to institutional and
industrial consumers. 
Clarity by Legislative Intervention
From the above we can see that the judicial
decisions were divergent on the status of packaged commodities meant for
institutional and industrial consumer sold through a distributor or stockiest.
Therefore, the need of the hour was either a Supreme Court ruling, at the cost
of being reprimanded for judicial legislation in the face of legislative apathy
to the whole situation, or a (divine!) legislative intervention by amendment of
the provisions of the Package Commodity Rules.
Much to the relief of manufacturers
catering solely to institutional and industrial consumers, on June 6, 2013, an
amendment was made to the Packaged Commodity Rules by which the exclusion of ‘industrial
and institutional consumers’ from the meaning of ‘ultimate consumers’ in the
definition of “retail package” was removed. Thereby, any package intended for
industrial or institutional sale may be considered retail package. Further, the
explanation under Rule 3 providing the meaning of ‘industrial’ and
‘institutional consumers’ has been lifted and placed under the Rule 2 the definitions
clause.
The effect of the above-mentioned
amendment is such that any product purchased by an industrial or institutional
consumer from an entity other than the manufacturer itself will come under the
purview of retail package. Meaning thereby, the declarations required under
Rule 6 of the Packaged Commodities Rules will be applicable on packages sold through
a distributor.
Simply put, the provisions of Chapter
II shall be applicable to all such industrial or institutional consumers who
buys the product from an entity other than the manufacturer.
(concluded)


Sunayna Jaimini

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

3 comments

  • Dear Madam,
    Thank you for the nice article.
    Request you to please shed more light on the definition of "Manufacturer" as per the Metrology act. We are planning to import GPS trackers and then add our software into it and also a sim card. We will also be sticking out own label on the GPS trackers.We intend to sell it to Institutions and Industries only (i.e. we will not be selling to through retail outlets). In such as case will we be called manufacturers and hence the sell would be directly from manufactur to Industria/Institutioinal buyer??
    Thanks,
    Marcus

  • Measuring device by which a product is sold (like weighing scale) requires registration under Legal metrology Act.

    Why it is being insisted for testing equipment like Multimeter, noise level measuring devices which are used in industries.

    The concept is either misunderstood or misinterperated. The Act is primarily to protect Consumers. The Gadgets like Multimeter or Noise level indicator which is used at the time of repair of product(s). The consumer is not charged based on the reading of these gadgets measures.

    Still all departments insist on registration. CAN YOU PLEASE CLARIFY

    Thanks
    Aleem

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