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Unfair trade practice?

(IL)Legality of Pepsi’s one crore jackpot prize and why this competition is not available in Tamil Nadu

Pepsi Co., one of the largest cold drinks manufacturers in India has introduced a prize competition in association with the popular Sony TV programme Kaun Banega Crorepati (KBC). The prize involves answering of a simple question given behind the label of Pepsi Co’s cold drink bottles and sending the right answer via SMS to the given number. One winner (to be picked by a random draw of lots) would be given a one crore rupees prize on the sets of KBC at the end of the period of the contest.

Unfair trade practice?

Pepsi has mentioned in its terms and conditions that the offer of the prize is not available in the state of Tamil Nadu. One may have noticed that schemes to win prizes such as these are offered by almost all consumer companies for promoting their products and increasing sales. Such schemes are becoming increasingly common with mobile operators sending SMSes to consumers urging them to participate in easy contests to stand a chance to win prizes and companies dealing in consumer goods holding lucky draw contests to distribute prizes to customers.

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However, the legality of such competitions or schemes may be challenged under the Consumer Protection Act and the Lottery (Regulation) Act.

1. Does the Pepsi contest amount to a lottery?

Three essential elements have to be satisfied for an activity to be considered a lottery: prize, chance and mutual consideration. While prize and chance are certainly present in this contest (this contest being a predominant game of chance, since the extremely simple question is a mere qualification and cannot be said to involve a substantial degree of skill); it is quiet unclear whether there is an element of mutual consideration involved in the contest, i.e. whether the organisers (Pepsi Co.) is getting a share of the revenue from the SMS costs and using this collected amount to disburse prizes.

The terms and conditions laid down by Pepsi Co mention that the answer to the question has to be messaged to an ordinary mobile number and not a five digit special number. Thus it seems that only ordinary message charges will apply for sending the answers and the revenue from the SMSes will only go to the telephone operators and not Pepsi or KBC.

Thus, if the third element of mutual consideration is not fulfilled, then the contest cannot be said to be a lottery and hence the penal provisions of running an illegal lottery will not be applicable in this instance.

However, it must be noted that all companies holding contests where consumers are required to send answers to simple questions to special 5-digit numbers and the revenue from the SMS charges is shared by the contest-holding companies may be held to be illegal lotteries under the Lotteries (Regulation) Act 1998, Section 294-A of the Indian Penal Code and other state laws.

2. The Pepsi contest amounts to an unfair trade practice under the Consumer Protection Act

It is also apparent that this particular contest conducted by Pepsi amounts to an unfair trade practice under Section 2(1)(r) 3 of the Consumer Protection Act, 1986 and Pepsi and all other contests held by companies would be liable to compensation to the consumers if a complaint is made to any district consumer forum.

Section 2(1) (r) 3 of the Consumer Protection Act reads as follows:

“unfair trade practice” means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely:

(3) permits-

(a) the offering of gifts, prizes or other items with the intention of not providing them as offered or creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole;

(b) the conduct of any contest, lottery, games of chance or skill, for the purpose of promoting, directly or indirectly, the sale, use or supply of any product or any business interest…

It is thus abundantly clear that all such contests or gift schemes organised by companies, which are obviously conducted with the intent of promoting products or services, would be within the ambit of unfair trade practices and could be shut down by the Consumer courts under Section 14(2) (f) of the Consumer Protection Act.

In fact a similar “Har Seat Hot Seat” contest organised by KBC in association with Airtel was held to be an unfair trade practice by the Consumer Grievance Redressal Forum in Society Of Catalysts vs Star Plus Tv, Star India Pvt. Ltd (2008) and KBC/Airtel were asked to pay a compensation of Rs. 1 crore for their unfair practice.

3. Why such prize schemes are not available in Tamil Nadu?

The state of Tamil Nadu has passed a law The Tamil Nadu Prize Schemes (Prohibition) Act way back in 1979 which prohibits companies to give any prizes on the sale of products. Contravening these provisions is made a criminal offense where offenders may be punished with up to three years of imprisonment.

No other state in India has made a specific law banning prize schemes on products, similar to the Prize Schemes Act of Tamil Nadu. Companies have assumed that there would be no other laws prohibiting such schemes, forgetting the provisions in the Consumer Protection Act and the applicability of lottery laws to these competitions.

With inputs and suggestions from Ramanuj Mukherjee

About Jay Sayta

Jay has researched extensively on gaming laws and has been cited by various media houses and journals as an expert. He has helped leading newspapers in their stories on gaming laws. Jay completed his B.A. LL.B. (Hons.) degree from NUJS, Kolkata in 2015 and is currently based out of Mumbai.

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21 comments

  1. (a) the offering of gifts, prizes or other items with the intention of not providing them as offered or creating impression that something is being given or offered free of charge when it is fully or partly covered by the amount charged in the transaction as a whole;

    Hi. This is a good article.

    I’m curious – When you say it is ‘fully or partly covered by the amount charged’ what do you mean? Is Pepsi Co. doing that? Does this particular malpractice apply to their promotional activities? How, if the money from all the sms go to the telephone company?
    Also, aren’t all lottery prizes paid for from the money collected from ticket sales? How is this different? Lotteries aren’t illegal are they?

    Oh and what about the free samples of medicine given away by pharmaceutical companies to independently practicing doctors? That’s the same thing that you’re accusing Pepsi of, sin’t it? Promoting through free distribution of product? Though, of course, they don’t give them away as prizes – more like bribes.

  2. Hi- If the entire amount collected from the charges for SMS goes to the telephone provider and if the company organising the competition does not get any consideration, then the activity is not a lottery, but merely a prize competition.

    And yes- lotteries are illegal in about 10 states and in all other states you need the permission of the state government to conduct the lotteries. There are several other restrictions like the lottery has to be printed by the state government, lotteries cannot be for more than once a week etc.

    About the pharmaceutical companies-if you read the bare text of the section, it would be clear that it only applies when free gifts etc. are charged along with the paid products . Giving gifts to pharmaceutical companies is a separate issue and I do not think it will be covered under these provisions.

  3. the mobile tele company receives the money, but shares with the service provider. its a standard business model now, called VAS – you can sell anything, even stpid jokes/music/education etc through mobile in this way.

  4. huzaifa ibrahim daruwala

    i have not reply

  5. WoW!! man i cant believe this is one of the wackiest challenge i have ever came across on pepsi youngistan ka wow challenge nice one buddy.

    my mobile no: 9737777399
    mohsin jamidar

  6. kehte raho youngistaan ka wow! pepsi
    my mobile no: 973777399

  7. hai sir i am prempal tomar and i want to win one crore rupees b,coz then i see kbc program then i think that one day i will win one crore so plz sir you would gives to me a chance sir so i mention to you sir thank,s once again sir

  8. hi sir i want to win one crore so plz sir give me a chance sir and my contact number is 9917648469 so thank you sir once again sir

  9. Hi sir i am prempal tomar and imy dream that i want to win one crore in my life so sir i want to win this prize sir through your hand sir and my contact is 9917648469 i mention to you sir thank,s sir

  10. why this competition is not available in Tamil Nadu, any other ways

  11. please read this post carefully, the contents of the Tamil Nadu statute and reasons why such contests are not available is all explained.

  12. Regarding unfair trade practice and lottery combined, Here in Ahmedabad, Gujarat some of the builders are publishing full page ad which says you can win Car, Bike, iphone etc.

    What a customer is required to do to participate in in this contest? He has to just book one plot in their project. This lucky draw is done every two month and winners are declared.

    Is this not an unfair trade practice as well as lottery?

    Regarding lottery, there is Prize, it’s only based on luck (no skilled required)and there is a mutual consideration as well because all these prizes are covered fully by the contribution made by customer towards plot.

    At the same time the scheme encourages booking of plot (increases sale) which should make it unfair trade practice.

    Can the Realtor be held responsible for lottery and unfair trade practice? as in Gujarat lottery is banned.

  13. Yes, of course such lotteries or prizes offered by builders can be stopped by Consumer Forum if some aggrieved person approaches it. Again criminal action under IPC and/or State lottery Act is also possible.

  14. thanks

  15. Hi sir,
    Without mutual consideration (without pay money by sms or any way) if companies makes revenue from advertising by showing ads to audience and the winner paid by that ad revenue only .is it legal or lottery?.please give me answer .I am interest in start a online quiz contest which is free of charge to participate.please guide me.9177565438

  16. Hi,

    My question is that any scheme of business promotion which attracts consumer/buyer/public to pay money for an article/service and an opportunity to win prize is purely a Lottery. to my mind it carries all the ingredients i.e.

    a) Participation fee (included in cost of the cost of product),
    b) Game of Chance (win by a lucky draw etc.)
    c) Prize (in form of cash, product, gold etc.)

    Few Examples:

    a) Buy a Lux Soap worth INR 25-30 and with your luck you can win a GOLD COIN.

    b) Pay Rs. 10 for a Soft Drink Bottle which carries a code at its cap. You may win Prizes worth millions if your luck supports you.

    c) Any Product coming with an offer that if you are one of the lucky buyer, you will get it Free or Gold (worth more than/less or equal to Product).

    d) A Newspaper (MRP 2 Rs.) asking consumers to cut coupon(s) from it and submit periodically. One Lucky reader wins 1 Lakh prize.

    To my understanding all these are Lottery and Unfair Trade Practice both.

    What do you suggest?

  17. I would agree with you.

  18. @Peeyush Jain
    It might also amount to product promotion wherein the cost of your coupon/ticket is not more than the product i.e. you are not being charged anything over and above the product that you bought.
    Since, there is no consideration for the chance to win, thus it may not amount to lottery. This is the extent is its legality.

  19. Hi,
    I want to enquire about the practise followed for promotion of Restaurants. It will be using a software to create a viral prize draw (Such as a meal for two). What this does is, it builts an email list for restaurant as more and more people enter the draw. They are encouraged to share the Prize draw with their friends on various social platforms, and they get points to share. At the end of the month, a winner is chosen on ramdom (Only one winner- he might or might not be one with large no of points). Will this type of promotion be considered legal?

  20. HI
    Recently I went to buy a water heater to a reputed electrical shop and they were offering some scratch Card with prizes like Car etc on every purchase above certain amount. After negotiations they agreed to reduce the prize by 400/- provided I don’t take the scratch card. Would this amount to Lottery as it seems they are indeed taking money from the consumer to distribute the prize? If yes what is considered as a proof that they are using the money from the consumer for the lottery. (Simply me stating this incident may not stand legally, I believe).

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