THE STATE CONSUMER DISPUTES REDRESSAL

COMMMISION,

PANAJI – GOA



Present:

Smt. Sandra Vaz e Correia. . . Presiding Member.

Smt. Caroline Collasso . . . Member.



Appeal No.11 of 2008





Shri David Jonathan

(Proprietor),

Casa D’Amor, D’Mello Waddo,

Saligao, Bardez Goa. … Appellant

(Original Opposite Party)



v/s



Nilesh Sitaram Prabhu Borkar,

H.No. 165,

Khajardam, Borim, Goa. … Respondent

(Original Complainant)



For the Appellant …Shri S. Desai, Advocate.

For the Respondent ,,,Smt.M. H. Fernandes, Advocate.



Appeal No.12 of 2008



Shri David Jonathan

(Proprietor),

Casa D’Amor, D’Mello Waddo,

Saligao, Bardez Goa. … Appellant

(Original Opposite Party)





v/s



Mrs. Yvette Matilda Rodrigues,

H.No. 185, (A), Vaddy,

Temba, Merces, Goa.

(Original Complainant)



For the Appellant …Shri S. Des ai, Advocate.

For the Respondent ,,,Smt.M. H. Fernandes, Advocate.





Dated: 07-04-2009



ORDER



[Per Smt Sandra Vaz e Correia, Presiding Member]



1. Does a franchisee hire the services of the principal? This, in a nutshell, is the core issue before us in these appeals.



2. Being connected appeals, we dispose them by a common order. They are preferred by the opposite party against common order dated 14-01-2008 of the District Consumer Disputes Redressal Forum (District Forum) North Goa Porvorim in Complaint nos. 20/2006 and 21/2006 allowing the complaints and granting the relief’s prayed in sub-paragraphs (b) to (h) of the prayer clause thereof and further directing them to pay Rs.50,000/- towards compensation besides costs of Rs.5,000/. The respondents are the complainants.



3. For convenience, parties shall be referred as arrayed before the District Forum.



Case of the Complainants



4. Succinctly, it is the case of the complainants that they purchased machinery to make potato chips from the opposite party upon the representation and promise that all technical know-how required to produce best quality chips would be given and that this would include supply of raw material and good quality oil would be supplied by tankers. The complainants paid the opposite party a sum of Rs. 1,51,700/- in addition to spending an amount of Rs.80,000/- and Rs.97,400/- respectively to upgrade their premises to meet the standards of the franchise, etc. They also availed of bank loan to finance the business. The machine provided by the opposite was of poor quality and the complainants faced problems in its operation in as much they were unable to ignite the furnace in order to fry the potato chips. When informed, the opposite party replaced some parts of the machine which turned out to be defective as well; the potatoes inserted in the machine would get burnt making them unfit for consumption. Consequently, the complainants incurred heavy losses. The complainants telephonically informed the opposite party about the problems but he did not pay any heed to the requests. The opposite party misrepresented and cheated the complainants and did not keep his promises made at the time of purchase of the machine. The complainants issued a legal notice to the opposite party on 27-06-2005 which was replied by the opposite party on 30-07-2005. The complainants then initiated the proceedings before the District Forum and sought certain reliefs set out in the prayer clause of the complaint.







Case of the Opposite Party



5. Per contra, the complaint was contested by the opposite party. Execution of the franchisee agreement was admitted. Briefly, it is his case that prior to the signing of the franchisee agreement, the terms were negotiated by the parties and the complainant was given demonstration of the process of making/manufacturing chips. The opposite party was liable to obtain all licenses from the competent authorities at his cost, and he did so swiftly. Technical knowhow was to the extent of how to use the machinery used to manufacture and pack the chips and initial guidelines for the set up and guidance towards procuring the raw materials. It was denied that the opposite party was to provide the raw material. The amount of Rs.1,51,700/- was towards the cost of machinery only and not towards cost of providing technical knowhow and advertising. The averment that an amount of Rs.80,000/- / Rs.97,400/- were spent on upgrading of the premises was denied and it was submitted that being a tiny scale industry, it was not necessary for major renovations in a residential house. The allegation that he supplied poor quality machinery was denied; it was submitted that instead of a machinery with mild steel body, the opposite party supplied an unit with stainless steel body which is 30% costlier and thus the complainants saved Rs.35,000/- on the same. The opposite party had performed his part of the agreement by obtaining all required licenses to commence the activity including obtaining subsidy from KVIB amounting to Rs.37,000/-. The opposite party was providing training in process of chip-making and packing in two institutions in Goa. The allegations that he did not perform the promises made at the time of entering into the franchisee agreement and supplied poor quality products etc were denied. It was submitted that food technologists and engineers visited the complainants units as and when required. The chronology of events is set out in paragraph 11 of the written version.



6. The opposite party had offered to supply potatoes and edible oil provided the quantities were large enough to bear the transportation cost, but since the requirements were small the complainants were advised to procure them from the local market. The opposite party gave wide publicity to the activity including deputing field publicity agents to visit schools in close proximity to the complainants units, distribution of complimentary samples, distribution of fliers through newspaper agents and supply of 500 stamps to be stuck on postal covers. The opposite party’s technician inspected the complainant’s premises the two to three occasions and thereafter he was advised by the complainants not to send him unless required. The opposite party also provided stationery material to the complainants. It was submitted that the complainants are not consumers as the franchisee agreement was for the purpose of business and not for personal employment.



Order of the District Forum



7. The District Forum, upon considering the case of the parties and evidence on record, granted the reliefs prayed by the complainants in toto except that compensation of Rs.50,000/- was awarded against Rs.1,50,000/- claimed.



Submissions of the Appellant/Opposite Party



8. We heard Ld Adv Shri Sachin Desai for the appellant and Ld Adv Smt M Helena Fernandes on behalf of the respondents at length. Shri Desai argued that franchisee agreements did not come within the purview of the Consumer Protection Act. He further submitted that the agreement signed on the 1st / 6th of October 2003 was valid for a period of one year only from the date of signing and there was no contractual relationship as on the date of the legal notice issued on 27th June 2005. The franchisee arrangement had not been renewed. The trial forum had not considered this issue and had not given any finding on the same. As regards malfunctioning of the machinery, he submitted that there was no correspondence between the parties regarding the alleged defects or malfunctioning during the period that the franchisee agreement was in force; the allegations sprung up for the first time in the legal notice dated 27-06-2003. The onus of proving that the machinery was defective was on the respondents while the Trial Forum had saddled the appellant with the burden. He also pointed out that the Trial Forum had not sent the machinery for testing as provided under section 13 of the Act and hence the fact that the machinery was defective was not proved by the respondents. The appellant therefore could not be directed to replace the machinery.



Submissions of the Respondents/Complainants



9. On the other hand, Smt M Helena Fernandes argued that the contractual relationship between the parties was in existence on 27-05-2005 when the legal notice was sent. She took us through clause (i) of the franchisee agreement and submitted that the respondents/complainants were given an option of continuing with the services of the appellant after expiry of the one-year period or to operate the business without the company’s interference. The option of continuing with the services was exercised by the respondents, and it was the appellants own case that he rendered his services to the respondents even after the one year period. She referred to the averments made in para 11 (jj) and (kk) of the written version to buttress her submission. As regards the issue of onus of proving defective machinery, she submitted that it was the appellant who was an expert in the business and it was for him to show how the machinery supplied was not upto the mark from the beginning. She brought to our notice Bharathi Banerjee vs. C M S Computers 2004 (1) CPR 110 and Amtrex Ambience Ltd vs. Alfa Foods 1996 (1) CPJ 324. She further submitted that the machinery was purchased for operating a ‘tiny industry’ and was for the purpose of earning livelihood; hence the complainants were consumers.



Issues



10. We called for and perused the records and proceedings of the lower Forum and gave due consideration to the submissions advanced by learned Counsel. In view of the rival contentions, the following points crystallize for determination of this dispute, namely,

(i) Whether disputes originating from ‘franchisee agreements’ are consumer disputes envisaged under the Consumer Protection Act, and;



(ii) Whether the respondents/complainants have proved that the machinery supplied to them was inherently defective so as to merit its replacement.



Findings



Point no. 1



11. The fact that the agreement between the parties is a ‘franchisee agreement’ is not disputed by the complainants. That brings us to the issue of whether ‘franchisee agreements’ come within the purview of the Act for redressal fora to entertain. Shri Sachin Desai took us through the contents of the agreement and vehemently argued that ‘franchisee agreements’ do not come within the purview of the Act. We find considerable merit in the submission of learned Counsel. Hon’ble National Commission has repeatedly held that a franchisee holder cannot be said to have hired the services of the principal.

In Prof. P. Narayanankutty v. Uptron India Ltd. & Ors., I (1996) CPJ 340 (NC), the National Commission examined the question of the right of franchise holder and said:

“We are of opinion that in the present case the complainant cannot be said to be a consumer qua the opposite parties under the agreement dated 29th March, 1990 for running a Franchise Centre in Calicut. The opposite parties were only supposed to provide technical know-how and other materials to the franchisee as per the terms of the said agreement on payment.

A franchise holder cannot be held to have hired the services of the principal. In the case of Telephone Public Call Offices, this Commission has repeatedly held that a franchisee of the Telephone Department cannot be said to be hirer of services of the Department. Reference can also be made to The General Manager, Madras Telephones & Ors. v. R. Kannan, 1994 CPJ 14 (NC). The same principal applies to the present case.”



In Mysore Sales International Ltd. v. M.N. Misra, II (1996) CPJ 64 (NC), National Commission examined the consequences of failure to appoint the complainant as a selling agent and observed:

“There is no hiring of service of the petitioners herein by the complainant for consideration. Failure to appoint the complainant as a selling agent is a breach of contract for which remedy lies in Civil Court and not before the Consumer Forum... Even if it was a transaction, as the case of the petitioner herein, of the sale of oil, it will be hit by the fact that it was a commercial contract and case relating to non-supply of the oil. The complainant will not be consumer being purchaser of goods in which no defect is alleged.”



12. It is also pertinent to mention that in Sofspec Software Pvt. Ltd., Vs. Digital Equipment (India) Ltd., & Ors reported in II (2002) CPJ 5 (NC), the National Commission observed that the definition of word ‘franchise’ was considered in Wharton’s Law Lexicon. It is stated that ‘Franchise’ means an incorporeal hereditament synonymous with liberty. A royal privilege or branch of the Crown’s prerogative subsisting in the hands of a subject. It arises either from royal grant, or from prescription, which pre-supposes a grant. The kinds are almost infinite, but the principal are: bodies corporate, the right to hold Courts-leet, fairs, markets, ferries, forests, chases, parks, warrens, fisheries. The remedy for disturbance is an action. Also, the right of voting at an election for a Member of Parliament.



That was a case where the complainant claims to be carrying on business of computer training and an agreement was entered into between the three parties the parties were to provide diverse support services to the complainant by way of consultation, training staff, technical assistance, course material, support material etc. There were internal agreements between the complainant and others for use by the complainant of the Logo Digital. By letter the other party gave notice to the complainant of termination of the Logo Agreement. Complaining deficiency in service on account of unilateral termination of the agreement he claimed compensation. The National Commission after considering the terms of agreement opined that it was a franchise agreement.



13. We therefore find the point in the negative.



Point no. 2



14. Be that as it may, the next issue that arises is whether the complainants prove that the machinery supplied by the opposite party for manufacturing potato chips was inherently defective at the time of its purchase. The complainants have contended that the machine provided by the opposite party was of such poor quality that there were problems in operating it and the diesel/kerosene “bhatti” (furnace) could not be ignited to fry the chips. When the part was replaced by the opposite party on the complainants complaints, no sooner the potatoes were inserted in the machine they would get burnt thus making them unfit for consumption. The opposite party was telephonically informed about the defect but took no heed. However, other than bald statements made in the pleadings and reiterated in the affidavits, the complainants have not brought any evidence whatsoever on record to substantiate their claim. There is no independent corroboration of the facts pertaining to alleged defects in the machine, no photographs or samples of the burnt potatoes and no correspondence with the opposite party during or after the guarantee period. The “terms of business’ attached to the proforma invoice relied by the complainants mentions guarantee of 12 months from the date of installation of the machines; there is no evidence at all to indicate that the alleged defects occurred and/or were brought to the opposite party’s notice during the one year period. Even the complainant’s legal notice is primarily focused on the shortcomings in performance of the franchisee agreement; there is no specific reference to any inherent manufacturing defect in the machine. In our view, the complainants have been unable to prove even the preponderance of probability of their case.



15. Smt M Helena Fernandes placed reliance on Bharathi Banerjee vs. C M S Computers 2004 (1) CPR 110 to substantiate her point that the burden of proof lay on the opposite party. In the cited case, the observations by State Commission Maharashtra in para 25 of the order were made in the context of the fact that the frequent break-downs were conceded by the opposite parties and it was their case that requisite infrastructural atmosphere was not available for operation of the lamination machines and there were repeated oral and written complaints made during the warranty period to replace the machine. The facts of the cited case are distinguishable from the facts of the case before us.



16. No doubt the strict rules and technicalities of evidence do not apply to proceedings under the Act, but even so, the consumer is expected to produce adequate minimal proof to show preponderance of probability of his case to claim and get relief. We find this point in the negative.



17. In view of our foregoing discussions, we have no hesitation to hold that the complainants have failed to make out a case for grant of reliefs prayed for. There is no merit in their complaints.



Order



In these circumstances, the following order:



(a) Appeal nos. 11/2008 and 12/2008 are allowed.

(b) The impugned order dated 14-01-2008 is hereby set aside.

(c) Complaint nos. 20/2006 and 21/2006 on the file of District Forum North Goa stand dismissed.

(d) In the circumstances, parties shall bear their own costs.



Pronounced.





[Sandra Vaz e Correia]

Member







[Caroline Collasso]

Member