By Sidhartha Jatar

One of the most commonly used tools for marketing a product is advertising, which uses the media to ‘reach out’ to consumers. Celebrities are an essential pawn in this strategy as they lend credibility to the product and engage with the consumer. But do celebrities really know the product to which they lend their face? If celebrity endorsers are not experts (or at least sufficiently knowledgeable) on the products they promote, how far should they be responsible if that product turns out to be a damp squib?

Currently, section 68 of the Companies Act, 1956 provides for punishment to any person fraudulently inducing another to invest money through a false or misleading statement made either knowingly or recklessly. The new Companies Bill, 2008 which was tabled in Parliament this October increases the liability to 50 lakh rupees and adds to this a jail sentence that may extend to three years (currently, the law provides for a fine of 1 lakh rupees). The inference then is that a celebrity who “knowingly” or “recklessly” makes a false representation will potentially have to undergo up to three years imprisonment. Quite clearly, the legislature wishes to add sufficient deterrent value to unfair practices and keep both celebrities and the companies on behalf of whom they endorse the product, in check.

It is a debatable issue whether the ratcheting up of liability is too severe given that ultimate product/service liability must rest with the manufacturer/service provider. While it may be fair to hold a management representative of a company liable for a misleading claim, should the celebrity be required to conduct a due diligence before entering into advertising contracts? While on one hand, the possibility of a jail term may appear harsh, proving knowledge and recklessness might turn out to be a difficult endeavour. Some of the factors that will have to be considered include – the nature and extent of involvement of a celebrity with the product (whether he/she is simply an endorser or has become a spokesperson over time), the impact the advert has had on the consumer (dependent on the ‘size’ of the celebrity and factual evidence), the extent of knowledge the celebrity has about the product and given the circumstance, the level of care the celebrity ought to have taken before endorsing the product. Unless there is proof beyond reasonable doubt (as is required under criminal law), the chances of a celebrity being sent to jail are low.

The next thought that occurs to one’s mind is why the Companies Act has taken on the onus of protecting the consumer from misleading advertisements. Why should a company tribunal be required to look into consumer protection issues? The Consumer Protection Law itself offers a detailed definition of an ‘unfair trade practice’, a term that was introduced to the Act in 1984 in order to protect consumers against false and misleading ads, among other things. Clearly, then, celebrity liability should fall under the purview of this act, rather than the Companies Act.

It remains to be seen how effective the new provision will be. There is little doubt,though, that such regulatory structures will contribute to the caution celebrities exercise while seeking to ‘cash in’ during a media blitz.