Sudiksha Jha
Source: Freepik
Abstract: The Consumer Protection Act, 2019, was enacted to enhance consumer welfare by holdingservice providers accountable for deficiencies in their services. However, in light of theSupreme Court ruling in IMA v VP Shantha, hospitals that provide their services for free areexcluded from liability for medical negligence under Section 2(42) of the Act. This piececritically examines the payment-based categorisation of hospitals and argues forreconsideration, as it undermines consumer welfare, especially for economically weakersections.
Introduction
The Consumer Protection Act, 2019 (“the Act”) was enacted to strengthen consumer protection by holding service providers accountable for deficiencies in services. However, it leaves unsettled the question of liability of free government hospitals in case of medical negligence. Recently, the Gujarat State Consumer Disputes Redressal Commission (“SCDRC”) ruled that a government hospital would be liable for medical negligence under the Act even if the patient pays a nominal amount, such as an entry or registration fee. Although it seems a progressive judgment, aimed at bolstering consumer welfare, it reiterates the same problematic principle laid down in IMA v VP Shantha, 1995 (“Shantha case”), which categorises hospitals based on a subsidisation model under the Act.
Inthe Shantha case, the Supreme Court (“SC”) held that under the Act, only two categories of hospitals are covered. First, those hospitals that charge for the treatment, and second, where subsidised treatment is given only to needy customers, and the rest have to pay for their treatment cost. The Court categorically held that purely free government hospitals are not covered under the Act, as no consideration is paid for the treatment.
This blog argues that the exclusion of free government hospitals, based on the payment model, hinders the objective of consumer welfare and therefore warrants reconsideration. The piece advances a threefold critique of this payment-based exclusion. Firstly, the Shantha case reflects doctrinal fragility in its reasoning. Secondly, the consideration for public services is paid in the form of taxes. Thirdly, such exclusion disproportionately restricts economically weaker sections from accessing legal remedies for medical negligence.
Doctrinal Lapses in the Court’s ReasoningIn the Shantha case, the SC, for the first time, held that medical services are covered under the Act. The Court’s interpretation of Section 2(42) of the Act forms the basis of the Court’s reasoning. It held that the Act does not apply to contracts of personal service. The Court held that, as a contract for service, a doctor and a patient are in a proprietary relationship under the Act. This means, therefore, that patients will be classified as “consumers” with respect to consideration when they receive treatment.
The Court rejected the proposition that the medical profession is not covered by the provisions of the Act. The Court based its reasoning on the evolving relationship between doctors and patients, with a shift towards a more consumer-oriented approach. It specifically noted that patients have certain established rights: the right to information, autonomy, and redress. The Court urged that a patient injured as a result of medical negligence deserves compensation, and the failure to do so is a significant injustice.
Despite the rights-oriented model, the Court categorised hospitals into three classes based on payment structures: hospitals providing services in lieu of payment, hospitals providing treatment entirely free of cost, and hospitals that operate on a mixed model, where some patients pay, and other needy patients are treated for free. The Court held that only the first and third categories of hospitals are covered under Section 2(42) of the Act. Consequently, hospitals offering treatment entirely free of cost are excluded from the Act, even when patients pay token or registration fees.
The Court justified the inclusion of mixed categories of hospitals based on the Act’s objective to protect ‘consumers as a class’. It ensures that the economically disadvantaged section, who receive free treatment, are protected in a hospital that also treats ‘paying’ patients. Furthermore, it held that denying protection to those who cannot pay would result in a non-uniform standard of care, defeating the objective of the Act.
However, this reasoning to include mixed categories of hospitals within the ambit of the Act exposes doctrinal fragility for two reasons.
Firstly, while the judgment recognises patient rights for all, it leaves a specific class of patients without remedy under the Act by the application of the ‘payment model’. For instance, in Govt Health Dept v Sreemathy, the Kerala SCDRC noted that no government hospitals in Kerala collect consultation or nominal registration fees. Therefore, it follows from the reasoning of the payment model that services at these government hospitals are not covered under the Act. This outcome is in direct contradiction to the fundamental doctrine of ubi jus ibi remedium, which holds that where a legal right exists, there must be a legal remedy. While the Shantha case recognises the patient’s legal right under the Act to redress for deficiency in medical services, it simultaneously denies the remedy to seek such redress for medical negligence in free government hospitals.
Secondly, the ‘payment model’ does not justify the test of reasonable classification under Article 14 of the Constitution of India. The objective of the Act is to provide speedy and accessible redressal mechanisms for deficiencies in services. However, by excluding free government hospitals from the ambit of the Act, the Court has made the redressal primarily contingent on the mode of payment rather than the negligence. Such exclusion indiscriminately denies remedies to the economically weaker sections of society, as they are mainly dependent on free healthcare services. Therefore, the Court’s justification in the Shantha case to exclude free government hospitals is arbitrary and bears no reasonable nexus with the duty of care.
These doctrinal weaknesses have led to decisions where patients’ serious allegations of medical negligence have been dismissed. For instance, in Mahendra Kumaar Agrawal v. Dr. Nilesh Kumar Jain, 2023, the Rajasthan SCDRC dismissed the complaint on the ground that treatment was free of charge in a government hospital. The Commission held that the complainant is not a ‘consumer’, despite the complainant’s allegations that the surgery was left open after a power failure, which resulted in the death of the patient. Similarly, in In Chief Medical Officer v Rajkumari and Another, the Uttarakhand SCDRC refused compensation to a couple that conceived after a free sterilisation operation at a government hospital.
Therefore, the Shantha case has shifted the focus of liability from medical negligence to the mode of payment. This mode of payment is determined by the narrow conception of ‘consideration’, which has been discussed in the next section.
Taxation and Consideration under the Act
The Court in the Shantha case ruled that the payment of taxes does not create a valid consideration for receiving treatment in free government hospitals under Section 2(42) of the Act. The reasoning behind this was that a tax was a collective burden imposed in the name of the common good or public benefit for the public at large, with no specific benefit to the individual member of the public. Since the imposition of a tax has been done in a collective sense without the involvement of individuals, it can therefore not be taken into consideration from the standpoint of the Act.
- Restrictive Conception of Consideration
Firstly, the Act is a welfare-oriented statute, which is intended to safeguard consumer rights and ensure accountability for deficiencies in goods and services. A narrow, restrictive definition of consideration that is limited to direct, point-of-service payment would undermine the remedial nature of the Act.
The Court in the Shantha case imported the definition of consideration from the Contracts law, where the person voluntarily pays for the consideration. However, the definition of consumer under Section 2(7)(ii) of the Act includes “includes any beneficiary of such service other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment”. Therefore, under the Act, consideration extends beyond the direct monetary payment, and hence it is not necessary that the user themselves pays for the services. This definition also includes previously paid consideration. The SC has also upheld that consumers are not only those who hire or avail services but also those who are the beneficiaries of the service.
Taxes fulfil these requirements as citizens already pay taxes to the State with the legitimate expectation of access to public services, including healthcare, especially for those who cannot afford it. These funds become part of the Consolidated Fund of India and are utilised for funding public services. Furthermore, the State also collects health cess on the total tax payable. The SC has held that such a cess is collected for a specific purpose and benefits may not be directly proportional to the amount paid and may not directly benefit the payers. However, it is a valid tool for the State to generate funds for its welfare obligations. Thus, beneficiaries avail services, which are funded by taxpayers. Therefore, the Court, through its reasoning, has demonstrated a nexus between cess and public services to consider cess as a form of consideration under the Act.
The Court in the Shantha case included the mixed category of hospitals based on the consideration paid by the paying class, which is not a direct consideration. This reasoning can also be applied to free government hospitals, as the State or Union Government indirectly pays for free government hospitals through taxes.
- Statutory Incoherence in the Interpretation
Section 2(42) of the Act defines service as any activity ‘made available to potential users’. The Court read hire and avail in the same sense and considers the term ‘user’ must be construed as someone who is availing services for consideration. This conjunctive reading of ‘hire’ and ‘avail’ services conflicts with the statutory language of ‘hires or avails’. The Act does not require that the individual consumer personally pay the consideration.
In reading the text conjunctively, the Court has also created an inconsistency. The Court holds that the Act recognises third-party payment arrangements, where employers bear the cost of employees’ medical treatment or insurance covers treatments, but does not consider the common burden of tax a consideration. This inconsistency is also evident in judicial practice. For instance, in Laxman Kotgire v G.M. Central Railway, where the employee received free medical treatment at a railway hospital as part of the employment benefits, the SC held that it is covered under the Act. The Court reasoned that such treatment is not truly free, because it is funded by the employer through service conditions. On the other hand, in Pushpa v District Medical Officer, where the deceased was treated free of cost in a government hospital, the NCDRC held that such free-of-cost treatment is not covered under the Act. In this case, the hospital did not conduct essential inquiries, failed to properly diagnose internal injuries, and did not explain the diagnosis or treatment plan. This showed a fundamental breach of the right of a person to be informed and receive quality health care, as enshrined in the Shantha judgment.
These contradictions reveal the judicial significance given to the payment structure of the hospitals rather than the conduct of the professionals. This undermines the welfare objectives of the Act, especially for the patients relying on government hospitals out of economic necessity, which has been discussed in the next section.
Welfare Implications of the Payment Model
Government facilities for public healthcare, such as free government hospitals, play a crucial role in providing accessible and quality medical facilities to the economically weaker sections of society, as they cannot afford to receive expensive medical treatment at private hospitals. Socio-economic factors play a crucial and major role in the access and utilisation of healthcare services by people. Research shows that every year, an estimated 7% of the national population tends to slip into poverty due to health care costs. Thus, free government hospitals play a crucial role by providing subsidised healthcare facilities to those who need them the most.
In such a scenario, discrimination on the basis of payment models could lead to health disparities among those who need medical help the most and those who can afford medical services. They are left with only civil remedies. In Guru Nanak Foundation v. Rattan Singh and Sons, the SC has highlighted the limitations of civil courts as “Interminable, time-consuming, complex, and expensive court procedures”. It is critical to note that Courts have left the economically weaker section with only expensive remedies. The One Hundred and Fiftieth Report of the Law Commission also addressed the need for speedy and effective justice in civil courts. This forces the vulnerable population to choose between inaccessible private care and unaccountable public health facilities. Evidence suggests that the poor are increasingly relying on private healthcare services even when they have to borrow funds at exorbitant interest rates or sell productive assets like livestock or land, causing depletion of savings.
Recommendations
Free government hospitals constitute the backbone of India’s public healthcare system and are primarily availed by economically weaker sections of society. These institutions are crucial because private healthcare is inaccessible to a large segment of society, and therefore, it is the constitutional obligation of the State to provide quality and accessible healthcare facilities. The SC has interpreted Article 21 of the Constitution of India to include the right to health as a fundamental right. Articles 39, 41 and 42 also put an obligation on the State to protect public health and ensure social welfare. As a result, the medical negligence in rendering these services must attract State responsibility and cannot be diluted with inquiries into payment structures. India must learn from France, where incidents of medical negligence in State-run and government hospitals are addressed as liabilities of the State.
India could draw inspiration from the Swedish Patient Insurance Act, which aims to achieve uniformity in compensation practices and prioritises redress over adversarial fault-finding. It reduces tort-based litigation for medical injury claims as disputes are resolved out of court, using specialised indemnification mechanisms. This makes the process faster, and therefore, remedies are more accessible for patients. Similarly, India enacted the Consumer Protection Act, 2019, to provide speedy and accessible remedies for all. However, the Court’s interpretation in the Shantha case has undermined its remedial objectives by leaving vulnerable classes, such as the economically weaker section, with expensive civil litigation. Therefore, India should take insights from the Swedish model to ensure uniform application of the Consumer Protection Act, particularly for similarly placed patients.
Although India’s legal and institutional framework is different from both Sweden and France, the underlying normative message remains applicable. The medical profession’s accountability for negligence does not depend on whether or not the patient paid for the service, so it is both a doctrinal and policy necessity to include the idea of free services in the Act. Without amending the Act to include free services, the Act’s promise to promote consumer welfare will be undermined.
Conclusion
This piece shows that the exclusion of free government hospitals from the Act undermines consumer welfare. It absolves States of their responsibility when providing to society’s vulnerable members and compels them to resort to civil suits. This shift in justice is highly problematic and transforms the right to consumer protection into an “entitlement only of those that have or can pay for it.” The SC has recognised that civil remedies are often very costly, take considerable time and can become overly complicated. Further, by treating free public healthcare as a charity, the Act weakens State accountability, even when citizens pay for the funds.
The present structure results in undue consequences wherein liability does not flow from a harmonious test for medical negligence but from the mechanisms of payment in the hospital. It dilutes accountability, and hence, reform becomes paramount. India should strive to achieve a harmonised scheme of liability which focuses not on the mechanisms of payment but on professional competence.
Sudiksha Jha is a second-year law student at National Law University, Delhi,
with a keen interest in socio-legal analysis.
