Supreme Court clarifies liability of inspection agencies in consumer cases: SGS India Ltd. vs. Dolphin International Ltd. (6 October 2021)

Date of the Judgment: 6 October 2021
Citation: [Not provided in the document]
Judges: Hemant Gupta, J. and V. Ramasubramanian, J.
Can an inspection agency be held liable for variations in product specifications after the goods have been shipped and reached their destination? The Supreme Court of India addressed this question in a recent case concerning the inspection of groundnut exports. The court clarified that inspection agencies are not responsible for changes in the quality of goods that occur during transit, especially when the contract does not explicitly state such liability. The judgment was delivered by a two-judge bench comprising Justice Hemant Gupta and Justice V. Ramasubramanian.

Case Background

Dolphin International Ltd. (the complainant) engaged SGS India Ltd. (the appellant), a testing and certification company, to inspect groundnut consignments intended for export to Greece and the Netherlands. The complainant had procured peanuts from M/s Shree Ram Industries, Rajkot. The appellant was responsible for inspecting samples and certifying the quality of the groundnuts based on parameters such as moisture, aflatoxin levels, broken/split kernels, admixture, damage, and sprouty/yellow kernels. The specifications were provided by the complainant in a communication dated 7.11.1997. The groundnuts were to be packed in 50 kg new jute bags, and the containers were to be fumigated. The appellant issued inspection certificates between 2.12.1997 and 20.12.1997, certifying the quality of the groundnuts.

However, upon arrival at the destination ports, the consignments were found to have discrepancies. In Greece, the peanut count size was disputed, and in the Netherlands, the aflatoxin levels were found to be higher than what was certified by the appellant. The complainant alleged that the appellant was negligent in its inspection and was liable for the losses incurred due to the discrepancies.

Timeline

Course of Proceedings

The National Consumer Disputes Redressal Commission (NCDRC) ruled in favor of the complainant, holding the appellant liable for the discrepancies found at the destination ports. The NCDRC directed the appellant to pay Rs. 65,74,000 with interest and Rs. 25,000 as costs. The NCDRC found that the appellant was negligent and deficient in service because the peanut count and aflatoxin content were higher than what was specified in the inspection certificates. The appellant then appealed the NCDRC order to the Supreme Court.

Legal Framework

The case primarily concerns the interpretation of the Consumer Protection Act, 1986, and the concept of “deficiency in service.” The relevant legal provisions are not explicitly quoted in the judgment. However, the court refers to the principles of burden of proof in consumer cases. The court emphasizes that the onus of proving deficiency in service lies with the complainant.

Arguments

Appellant’s Arguments:

• The appellant argued that its responsibility was limited to inspecting the goods at the port of loading in India and ensuring the quality, quantity, weight, and packing of the consignment at the time of shipment.
• The appellant contended that it had no control over the shipment once it left the Indian port and could not be held responsible for changes in the product specifications during transit.
• The appellant highlighted the disclaimer in its certificates, stating that it could not be held responsible for the development of aflatoxin-producing molds due to storage or transportation conditions.
• The appellant argued that the agricultural produce was subject to natural variations due to weather, moisture, humidity, and temperature during transportation.
• The appellant pointed out that the complainant did not share the report of the couriered samples tested at the destination port, nor was the appellant privy to the report of Dr. Verwey’s Lab.

Complainant’s Arguments:

• The complainant argued that the appellant was responsible for ensuring not only the quality but also the stuffing and packaging of the containers.
• The complainant contended that the appellant was authorized to reject the cargo if the material and/or stuffing were not as per requirements.
• The complainant stated that the aflatoxin content in the consignment to the Netherlands was required to be a maximum of 4 PPB, but it was found to be higher at the destination port.
• The complainant argued that the appellant had deliberately withheld the report of its counterpart in Greece regarding samples sent on 9.2.1998.
• The complainant also contended that the appellant did not send its sealed sample at the port of loading to its counterpart in Netherlands.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in the judgment. However, the core issue was whether the appellant could be held liable for discrepancies in the product specifications found at the destination ports, despite having certified the goods at the port of loading.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following cases:

Judgment

The Supreme Court overturned the NCDRC’s order, ruling that the appellant was not liable for the discrepancies in product specifications found at the destination ports. The court emphasized that the onus of proving deficiency in service lies with the complainant.

How each authority was viewed by the Court?

• Ravneet Singh Bagga v. KLM Royal Dutch Airlines & Anr. (2000) 1 SCC 66: The Supreme Court relied on this case to emphasize that the burden of proving deficiency in service lies with the complainant.
• Indigo Airlines v. Kalpana Rani Debbarma & Ors. (2020) 9 SCC 424: The Supreme Court reiterated the principle that the initial onus to prove deficiency in service is on the complainant.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The complainant’s failure to prove that the samples retained by the appellant at the time of consignment were materially different from what was certified.
• The absence of any contractual obligation on the appellant to ensure that the product specifications at the port of loading would be maintained at the port of destination.
• The disclaimer in the certificates issued by the appellant, which explicitly stated that it could not be held responsible for changes in aflatoxin levels due to storage or transportation conditions.
• The natural variations in agricultural produce during transit, which could affect the quality and specifications of the goods.

The court’s reasoning was primarily based on the legal principle that the burden of proof lies with the complainant in consumer cases. The court also considered the factual aspects of the case, such as the disclaimer in the certificates and the natural variations in agricultural produce. However, the legal considerations, particularly the burden of proof and the lack of contractual obligation, weighed more heavily in the court’s decision.

The court’s reasoning was that the complainant had not met the initial burden of proof to show that the inspection agency had been deficient in its service. The court also noted that the inspection agency had specifically disclaimed responsibility for changes that occurred after the goods had left the port of loading. The court also took into account the fact that agricultural produce is subject to natural variations during transit.

The Supreme Court held that the complainant failed to establish any deficiency in service on the part of the appellant. The court emphasized that the appellant’s responsibility was limited to the inspection at the port of loading and that the appellant could not be held liable for changes in product specifications that occurred during transit. The court also noted that the appellant had included a disclaimer in its certificates, which further limited its liability.

The court quoted the following from the judgment:

• “The deficiency in service cannot be alleged without attributing fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be performed by a person in pursuance of a contract or otherwise in relation to any service.”
• “The initial onus to substantiate the factum of deficiency in service committed by the ground staff of the Airlines at the airport after issuing boarding passes was primarily on the respondents. That has not been discharged by them.”
• “no responsibility can be accepted for the possible consequences of further development of Aflatoxin producing moulds dependent upon condition of storage and/or transportation nor for differences arising from varying methods applied”.

Key Takeaways

• Inspection agencies are not automatically liable for changes in product specifications that occur during transit.
• The burden of proving deficiency in service lies with the complainant in consumer cases.
• Disclaimers in inspection certificates can limit the liability of inspection agencies.
• Natural variations in agricultural produce during transit can affect the quality and specifications of the goods.

Directions

No specific directions were provided by the Supreme Court in this case.

Development of Law

The ratio decidendi of this case is that an inspection agency cannot be held liable for changes in product specifications that occur during transit, unless there is a specific contractual obligation or a failure to properly inspect at the time of loading. This judgment reinforces the principle that the burden of proof lies with the complainant in consumer cases, and that disclaimers in inspection certificates can limit the liability of inspection agencies. This case does not change any previous position of law but clarifies it.

Conclusion

The Supreme Court’s decision in SGS India Ltd. vs. Dolphin International Ltd. clarifies the liability of inspection agencies in consumer cases. The court held that inspection agencies are not responsible for changes in product specifications that occur during transit, unless there is a specific contractual obligation or a failure to properly inspect at the time of loading. This judgment emphasizes the importance of clear contractual terms and the burden of proof in consumer disputes.