Man wins over Rs 9 lakh payout after dealer ‘sold test-drive’ car as brand new

“The state commission has erroneously, without there being any evidence of a proven manufacturing defect, gone on to hold the manufacturer to be liable,” the court said in its July 15 order, setting aside the state commission’s finding against Tata Motors.

‘New’ car that wasn’t

One Sadhu Singh of Patiala district claimed that he bought the Tata Manza Elan from its dealer, Hind Motors, on October 25, 2011, for over Rs 7 lakh. The man alleged that several defects showed up soon after delivery and were flagged to the dealer the very next day.

The man claimed that despite repeated visits to the workshop, the defects were never rectified. Subsequently, he sought a full replacement of the car, Rs 1.5 lakh in compensation, Rs 1 lakh for harassment, and Rs 20,000 in litigation costs from the district consumer commission. 

The district commission, in its order dated August 21, 2012, held that selling the test-drive car to the man as new amounted to an unfair trade practice and deficiency in service by the dealer. It ordered the dealer to refund the full amount with interest, take back the car, and pay Rs 2 lakh compensation along with Rs 20,000 costs, without fixing any liability on Tata Motors.

Aggrieved by this order, the dealer approached the state commission, which, in its order dated February 13, 2014, held the manufacturer along with the dealer jointly and severally liable, reasoning that Tata Motors, as the manufacturer, was responsible even for a discount the dealer had given at resale. The commission, however, reduced the compensation to be paid to the man from Rs 2 lakh to Rs 1 lakh.

Legal battle

The man moved the NCDRC to challenge this order in 2014. Representing his father before the commission, one Ranjit Singh argued that the dealer failed to provide any proof that the car was originally meant to be a test-drive vehicle. He also pointed out that the bill and paperwork given to his father never mentioned that the car was used or a demo unit, noting that it was sold and registered exactly as if it were a brand-new car.

Advocate Ritu Raj, representing Tata Motors, explained that the company had originally sold the car directly to the dealer for Rs 6.39 lakh. Because the manufacturer and the dealer operate as completely independent businesses, there was no direct contract or legal connection between Tata Motors and the customer, also it cannot be held liable for the wrong doing of the dealer.

Justice A P Sahi (president) and member Bharat Kumar Pandya noted that the dealer had deceptively sold a used test-drive vehicle as a brand-new car, ordering a full refund while clearing manufacturer Tata Motors of all liability. (AI-enhanced image)

Verdict

The NCDRC pointed out that proving a true manufacturing defect requires an actual examination of the manufacturing process, which neither of the lower commissions had done. Relying on Supreme Court rulings, the bench clarified that a manufacturer and a dealer operate on a “principal-to-principal” basis.

In this type of legal relationship, the manufacturer and the dealer are two completely independent entities that are separately liable for their own distinct actions. Because of this separation, a manufacturer cannot automatically be held responsible or penalized for the independent wrongdoings, such as unfair trade practices, committed by the dealer.

The commission allowed Tata Motors’ revision petition and restored the district commission’s August 21, 2012, order in full, meaning the manufacturer bears no liability at all.

It also found no justification for the State Commission’s decision to cut the dealer’s compensation from Rs 2 lakh to Rs 1 lakh, and restored the original Rs 2 lakh award, partly allowing Singh’s plea for enhancement while declining to raise it any further.

The net result: Hind Motors India Ltd must refund Singh’s full payment with interest, take back the car, and pay Rs 2 lakh compensation plus Rs 20,000 costs, while Tata Motors walks away with no liability.

Takeaway

The ruling establishes that automobile dealers will be held strictly accountable for unfair trade practices, such as deceiving customers by selling used test-drive vehicles as brand-new cars, and clarifies that manufacturers cannot be penalised for a dealer’s independent actions.

For consumer-related grievances, individuals may contact the consumer helpline in their respective states and union territories or call the National Consumer Helpline at 1915 for assistance.

(Written by Avinash Verma, Avinash is an intern with The Indian Express)