Take product liability cover for long-term contracts with foreign buyers

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: We manufacture rubber filter parts, which are used in the auto industry. We would like to find out about the countries where these products are being exported. Could you tell us from where we can get this information.

—Saluja Rubber Udyog, Ballabgarh, Haryana

Fortunately, with the computerisation of DGCI&S, the commerce and industry ministry has made trade data available on the internet through the website http://commerce.nic.in/eidb/default.asp.

This is an excellent source and the data is fairly reliable. You can get data for values of both imports and exports from 1997-98 onwards, with break-ups for countries, regions and commodities. You simply need to know the ITC HS code for your product. Else, you can get the relevant ITC HS code by giving the description of products from this web site.

I own a small company in Agra. We manufacture small pumps. Recently, a large US buyer visited us and approved our product. They intend to market it as their own brand. But they are insisting on a product liability clause in the agreement, the value of which is many times the value of product. Our company is small and we cannot bear the risk of liability if something goes wrong with the product. There is very little we know about it. What do other companies do in this situation?

— Vijay Goel, Agra

Increasingly, Indian SMEs are entering into long-term alliances with their foreign counterparts where Indian companies manufactures the product and the foreign company markets it. One of the issues in long-term agreements is product liability. Without this clause, long-term contracts are difficult to secure. Particularly in the US, there are instances of consumers demanding hefty compensation against loss or damage to buyers on account of some defect in the product or service concerned.

To meet this obligation, assistance is needed in two areas:

• In understanding the implications of the clauses of ‘product liability’ and estimating the cost of future obligations.

• On the basis of cost estimation, identification and taking up appropriate insurance cover.

There are many companies offering product liability cover in India viz. New India Assurance, Iffco-Tokio, ICICI, Tata-AIG, among others.

The product liability policy will indemnify your company against a sum up to the limits specified in the policy. This indemnity will be provided for any harm caused by the product (or container thereof) sold or supplied by the insured, in connection with his business, and occurring at any time during the period of insurance.

We are a group of three young first-generation entrepreneurs. All three of us are management PGs from reputed institutes in Mumbai. We intend to start a logistics transport firm and intend to purchase a small fleet of trucks. Our discussions for an annual contract with a large company based in Pune are already in an advanced stage. However, we are being advised by many people against entering the transport business because of complex laws. We asked the trucking firms about these laws, but could not get a clear picture. Could you please tell us briefly about laws applicable to transport?

—Vivek Lal, Mumbai through email

Your advisors are not very wrong. It is a difficult business to enter, especially if it is to be a maiden initiative, because of the complexity of laws. But considering that the bulk of the transport business is in the informal sector, it surely would not be impossible to operate. First, there is set of laws related to operation of fleet. This covers the road worthiness of vehicles, competence in driving, control of emissions, pollution control certificates, etc and other labour-related laws. The other laws could be classified into those related to location, commodity and taxation. Location-specific laws would encompass borders: national, states; districts; municipal limits; and bridges, and law and order regulations.

These may require permits, specific permissions for movement of goods. There are commodity-specific laws, which become applicable depending upon the classification of a given commodity in other central or state legislation— for example, essential, hazardous, adulterated, licensed, forest, endangered species, etc. Further, there are laws related to taxation such as customs, excise, sales tax/Vat, octroi, entry tax, toll, etc.

Last but not the least, there are local police and flying squads of various departments/ agencies, which may have specific orders for search and seizure. If that does not deter you, there are many states/ districts where movement of goods is impossible without dealing with local mafia/ insurgents/ naxalites! It is said that the free flow of goods, without geographical barriers, is a sine qua non for economic prosperity, nationally as well as internationally. The ground reality of transport in India is quite unpalatable.