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Government Vs Maggi!

Published on Sat, Aug 15,2015 | 15:55, Updated at Mon, Aug 17 at 23:01Source : CNBC-TV18 |   Watch Video :

The Maggi case is an unprecedented case in more ways than one. It’s the first such public face off between the food standards regulator and a food company. It’s led to the first nationwide ban against a popular food product. And now the government has filed its first such class action against a food company! This week the Government of India said it was suing Nestle on grounds of unfair trade practices and sale of defective goods. It has sought 284 crore rupees as penalty and another 355 crores as punitive damages for gross negligence, apathy and callousness. Is the government justified in taking such action against Nestle? Joining CNBC TV18’s Menaka Doshi this week are Anand Desai of DSK legal and Supreme Court advocate Gopal Jain.

GOVT vs MAGGI!
 
Govt files a class action suit
Under Section 12 (1)(d) of the Consumer Protection Act, 1986
Suit filed in the National Consumer Disputes Redressal Commission

GOVT vs MAGGI!
 
Govt files a class action suit
Claims
-          Rs 284.55 cr in damages
-          Rs 355.40 cr in punitive damages

Doshi: What do you say of the appropriateness of a class action suit against Nestle because of Maggi products allegedly having excess lead in them?

Desai: The act does provide for such an action. Therefore the government is entitled under the act to do so. I think currently the waters are muddied by the fact that the Bombay High Court has stated currently that the processes required to be followed while testing, while banning were not followed. To that extent it opens up a question whether this action is premature. There are fresh tests to be done, we have to wait for results of those tests. You are right this is the first time this is being done. From what we understand there is no specific complaint filed for damages or compensation by any individual. So, I don't know where the money is going to go at the end of the day. They say it is going to go into a fund if they do succeed but we have to wait and see.

GOVT vs MAGGI!
 
Consumer Protection Act, 1986
Section 12 (1) says a complaint may be filed with a District Forum by
(c)  one or more consumers…on behalf of, or for the benefit of, all consumers so interested; or
(d)  the Central Government/State  Government, either in its individual capacity or as a representative of interests of the consumers in general

Doshi: The consumer protection act in itself and the section under which this suit has been filed 12(1)(d), does permit the central government or the state government to file a complaint at the National Consumer Disputes Redressal Commission in its individual capacity or a representative of interest of the consumers in general. It is not just this provision, as we were discussing earlier on there are other several provisions in law that allow for the government to act representatively on behalf of citizens, residents, consumers.

Desai: Bhopal tragedy was a big one where the government took a position that the poor people who had suffered did not have the ability to defend themselves or protect themselves in that case and the government stepped in. I think that is a bit different because I don't know which consumer today is saying I suffered because of this and has linked the product to any specific damage for which he is claiming money. So, it is a little different to Bhopal.

Doshi: Gopal would you say that the government is well within its right if it thought that a food product could be damaging to consumers or has been damaging to consumers, that it could file a class action suit, unprecedented as it may be of this nature at the National Consumer Dispute Redressal Commission?

Jain: We should look at it in two ways. We have to first see the context and the timing and then obviously the power of the government under the act. Now the context becomes important because there is a regulator and it is his job really to look at whether a food company is following the prescribed norms or standards and he had issued a ban order which was the subject matter of a challenge. Coincidentally the order came about the same time as the complaint was filed and the order has said that the product must go back to three laboratories for fresh testing.

So, while this issue is pending between the regulator and the food company, the government has filed this case also asking for damages. In order to establish damages you first have to prove that there was injury and in fact there was unfair trade practise or a defective good, that still is under consideration. So, in that sense I think they have jumped the gun. However the fact that the act provides that the government can act in representative capacity is a important safeguard. It is good to have government being taking up class action but I suppose they have really rushed into this one.

Doshi: I want to try and break this up into two baskets. First I want to talk about the mechanics of how such a class action would operate and then we will come to the Bombay High Court order and the implications of that on this class action suit. On the mechanics of the class action, the most interesting bit is the damages amount that the government has sought, as I said right upfront Rs 284 crore in damages which apparently represents according to a PTI report 10 percent of Maggi's annual sales. Then the remaining Rs 355 crore as punitive damages which again in the PTI report is explained as 30 percent of the company's profit from the product. How would you understand these amounts? Is there any precedent, previous cases that help us understand how to arrive at amounts that could be asked for in such a class action suit?

Jain: Usually damages are always something which is adjudicated by a court and which requires evidence to show that let's say a defective product caused material injury and its impact. What they have done is they have taken a very easy yardstick which is to take its revenue figures as well as profits from the sale of this and treated that to be a measure of damages in the action from what you mentioned. Ultimately in India it is always for courts on the basis of evidence to be able to arrive at a correct number before they award damages.

Doshi: How do you look at this because in the consumer protection act it says that district  forum shall have the power to grant punitive damages in such circumstances as it deems fit.

GOVT vs MAGGI!
 
Consumer Protection Act, 1986
Section 14 (d) says District Forum
-          can order compensation to the consumer for any loss or injury due to negligence of the opposite party
-          shall have the power to grant punitive damages in such circumstances as it deems fit

Desai: There are two parts. As it has been said by t he Supreme Court in one other case, they have said that there should be a recompense and there could be a sort of disincentive for the company in future to take such a position. So, two parts to it and possibly that is why they have done it. We haven’t seen the complaint of this case. So, we don't know  the details but that possibly is the way they have looked at it.

Doshi: Is there any guideline, is there any previous case by which we could measure whether these are the right amounts as a percentage of sale or as a percentage of profit for the damages for a government to claim or for anybody in a class action to claim in this country?

Desai: Principle as Gopal Jain said is you have to prove damages. That is the fundamental principle of damages anywhere. However again punitive damages can be given in a fit case by the courts.

Doshi: If there hasn’t been any injury, atleast there hasn’t been any complaint, illness or death as a result of Maggi consumption that we know of publically. So, how do you then justify damages? You may justify penalty because the product did not meet your standards but how do you then justify damages?

Desai: That is a big question mark as to how they are going to do it and I don't know.  

GOVT vs MAGGI!
 
Consumer Protection Act, 1986
Section 14 (hb) says District Forum
-          can order payment of sum as may be determined if loss or injury has been suffered by a large number of consumers
-          the minimum amount of sum shall not be less than 5% of the value of such defective goods
-          the amount so obtained shall be credited in favour of such person and utilised in manner as may be prescribed

Doshi: One more question on the mechanics of how this will work. The PTI report seems to indicate that if the government were to win and get that damages amount then the penalty and the damages or at least the damages would go towards the consumer welfare fund. If you look at the consumer protection act, it says very clearly that such damages or such sum as determined by the district forum should not be less than 5 percent of the value of such defective goods sold or service provided and the amount so obtained shall be credited in favour of such person, that is the affected person and utilised in such manner as may be prescribed. Now how do the two sit together? The government claims damages, is it going to return it to all Maggi consumers in the country, is it going to go towards the consumer welfare fund and if it goes towards a welfare fund is that in-keeping with what the act allows or provides for?

Jain: Recompense really is for affected person. So, far we don't have the class or category of affected persons before the National Commission. Now from what the PTI report seems to suggest government may have said in its complaint that if you award any compensation it can go to this fund. Presumably the fund then would look at this aspect of it which is if affected persons do come but all this has to be really carefully examined because it really seems to be a case of going to court and sending out a message that the government is taking on the food companies and the government is going to act in consumer interest. Clearly it is not well thought out in terms of legal principles which you have mentioned, whether it is fully in consonance with the spirit of the act and how it will actually pan out.

Desai: The other challenge here is going to be that the defective products have to be proved to be defective across years, batches, production units etc also to my mind. If the government is asking for this kind of relief, imagine they will also have to show this has been going on for some time because you can't just throw a number up and say now pay.

Doshi: I do want to come to what Bombay High Court order has said because that is really the final point that I want to make and the order has ripped into the FSSAI especially the processes of testing and therefore everything  that took place before the ban order was passed. Let me quote from what the Bombay High Court has said, ït said, "In our view there is something fundamentally wrong in the approach of the Food Authority and in the interpretation which is sought to be given by it to several provisions of the act." It then says the ban order on Maggi has been passed in an arbitrary manner, there is lack of transparency, it is unreasonable, it was passed in utter violation of principles of natural justice. Then it says the samples of the product have not been analysed as per the mandatory provision. The procedure was not fair and transparent. Finally this is the most damming comment, it says, "In fact the entire sequence culminating in imposition of the ban order by CEO of the FSSAI shows that there is something more than what meets the eye." How is the National Consumer Dispute Redressal Commission going to look at the Bombay High Court order and then look at this case? What weight will the order have?

Desai: I think the order is not final. Supreme Court is still there in case the government goes to Supreme Court and I believe they will, that is what I have been reading. So, this is not a final order in that sense. Having said that given the findings of the Bombay High Court it will be difficult with these findings to sustain this action they filed. In a sense it is premature having jumped the gun without having complaints from consumers, without having findings of the court, I think they have jumped the gun. We have to wait and see what the findings now are of the three laboratories. If that helps them they may use that  to support the action, if it doesn't help them, I think they fall flat.

Doshi: To undertake this kind of unprecedented action and may be I am asking you to repeat yourself, but hasn’t the government bitten off more than it can chew at this point in time. May be you want to defend consumer rights in this country, may be you want to send a message out by taking a large multi-national to task but when your own processes are so flawed as the Bombay High Court has pointed out, you ought to be fixing what is wrong in your own house first before going after companies?

Jain: Exactly. This required unprecedented thinking, out of the box thinking and preparation and planning, which is to have outstanding laboratories, world class laboratories, very well-defined norms and parameters and that is where the government and the authority could have played a pro-active role. Merely by going to court  as you said you have sometimes bitten off more than you can chew because if these laboratories were to give a clean chit then that is really egg on the face of that complaint which has been filed. It also sends out such mixed signals to consumers in whose interest ostensibly the case has been filed. So, what it really requires is for a correct framework to be put in place which adequately addresses this as the Bombay High Court has said - strengthen the authority, give it experts, lay down world class standards and then ensure effective implementation. Fighting a case or filing a case in this case according to me was not the right way forward.

Doshi: These three laboratories are going to be under immense pressure because if there is excess lead in this Maggi product then Nestlé's most popular product dies virtually but if there isn’t the government ends up with egg on its face.

Desai: Yes, very seriously. Another question is going to be if one decides that it is contaminated or it has got excess lead and the other two do not, another question arises, now, where do we go from here?
 
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