Some companies will not hesitate to spend a large chunk of their advertising and marketing budget (often in crores) on celebrity endorsement. After all, celebrity endorsements do assure that the sales curve would move upwards. A pertinent question to ask would be whether these same celebrities use the products or services they so blindly endorse. Does the actress really use that ten-rupee soap? Does she really believe that taking sugar-free tablets would reduce diabetes without any adverse side effect? Does the cricketer really live in that three-crore apartment situated 20 kilometres away from the airport? The answer in most cases is a blatant ‘no’. In fact, the celebrities are just performing their contractual obligations in return for a hefty fee, totally unmindful of the adverse impact such advertisements may have on ordinary consumers. The rosy picture presented in such celebrity endorsements lures gullible consumers to part with their hard-earned money for the products or services advertised. Such celebrity endorsements in corporate advertisements infringe on the consumers’ rights to choose the most competitive and value-added products or services.
Due to ambiguity in the nature of the existing laws with regard to the prevention of such misuse, the public gets baffled. Preventive action ought to be taken by the regulatory authorities controlling the companies or, at least, stricter control should be exercised to check the veracity of celebrity-endorsed advertisements. Corporates — with their deep pockets — usually end up fighting the matter till eternity and the celebrities are hence not fastened to any liability. As a result, the victimized consumer eventually gives up on the litigation or settles for a meagre compensation.
However, the newly passed Companies Act, 2013 has widened the scope of ‘fraud’. It clarifies that in relation to the affairs of a company or any body corporate, ‘fraud’ includes any act, omission or concealment of any fact by any person or any other person in connivance in any manner, with the intent to deceive or to gain undue advantage from, or to injure the interests of the company, its shareholders, or its creditors or any other person (whether or not there is any wrongful gain or loss). The definition of fraud further includes any ‘abuse of position’ committed by any person that results in the fraud, and any such person (including the company) who is found to be guilty shall be meted out strict penalty going up to thrice the amount of the fraud and a minimum imprisonment ranging from six months up to 10 years. To deter the fraudulent acts affecting “public interest”, the newly enacted provisions of the Companies Act clarify that the minimum term of imprisonment shall not be less than three years as against the minimum six months’ period in other cases.
Previously, the Companies Act, 1956 was only thought of as an act covering fraudulent activities relating to company shares or securities, debentures, fixed deposits and the like. The newly passed Companies Act will have wider ramifications that may bring celebrity-endorsed false advertisements under the ambit of frauds committed by companies in connivance with celebrities or other person.
Only time tell how the provisions related to fraud shall be enforced against companies and whether celebrities will be fairly or unfairly brought under its ambit. Nonetheless, the aforesaid changes presented in the Companies Act warrant that the celebrities will take reasonable steps to assess the substance of the advertisements they endorse. They need to have greater awareness of the liabilities falling on their shoulders as a consequence. At the same time, the public at large ought to exercise due diligence and prudence instead of blindly following what the celebrities say.