In fact: In first class action suit, boot may be on other foot now

The govt’s Rs 640 cr action against Nestle comes up before NCDRC today. But the Bombay HC has already cut the ground from under its feet.

Written by Utkarsh Anand | Published: August 17, 2015 1:54:27 am
maggi, Maggi ban, Maggi banned, Nestle India, Maggi, Maggi Nestle India, maggi ban, Nestle India Maggi, Maggi noodles,  Maggi ban, Nestle India consumer affairs, India news Consumer Affairs Ministry on August 11 decided to take Nestlé to court for damages worth nearly Rs 640 crore over allegedly unsafe Maggi noodles, it filed a complaint with the NCDRC.

The Consumer Protection Act, which came into force on December 24, 1986, aimed to “provide for better protection of the interests of consumers” and make provisions for setting up consumer councils and other authorities for the settlement of consumer disputes.

To achieve this objective, quasi-judicial bodies were set up in three layers — consumer forums at the district level, state consumer commissions at the state level, and a National Consumer Disputes Redressal Commission (NCDRC) as the apex body. The president of NCDRC is a former Supreme Court judge.

These bodies have both territorial and pecuniary jurisdictions. Thus, a district forum can entertain complaints where the value of goods or services and the compensation claimed is less than Rs 20 lakh; for a state commission, the ceiling is Rs 1 crore; and the NCDRC, which has all-India jurisdiction, entertains complaints for over Rs 1 crore.

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Therefore, when the union Consumer Affairs Ministry on August 11 decided to take Nestlé to court for damages worth nearly Rs 640 crore over allegedly unsafe Maggi noodles, it filed a complaint with the NCDRC.

The first ever class action by the Indian government was brought under Section 12 (1)(d) of the Consumer Protection Act, which entitles the central government or a state government to make a complaint, “either in its individual capacity or as a representative of interests of the consumers in general”.

This section is rooted in the doctrine of parens patriae, or parent of the country, which gives the state the authority to protect those who are legally unable to act on their own behalf. The doctrine evolved in English Common Law, where the king exercised this function as the ‘father’ of the country.

In nearly three decades of the Consumer Protection Act, Section 12 (1)(d) had never been used. The unprecedented action marked the discovery by the government of a pivotal instrument to intervene to protect the interests of the mass of the Indian people.

The government accused Nestlé of unfair trade practices, selling defective goods, and selling without product approval. It claimed the company was liable to pay Rs 284.5 crore, plus Rs 355.4 crore as punitive damages on account of gross negligence, apathy and callousness.

The suit followed the ban imposed on Maggi on the basis of adverse test reports by the Food Safety Standards Authority of India (FSSAI) on June 5. However, at the time the complaint was filed, Nestlé’s challenge against the ban was pending in the Bombay High Court. And on August 13, two days after the Ministry went to NCDRC, lightning struck its case — the Bombay High Court held the ban to be bad, and ordered the lifting of the prohibition on the manufacture and sale of Maggi after it cleared fresh tests in three independent laboratories.

Punching holes in the food safety regulatory regime, the High Court said that the labs in which the samples were tested were not affiliated to the National Accreditation Board for Testing and Calibration Laboratories (NABL), and that Nestlé had been denied the opportunity to be heard before Maggi was banned, thus breaching the principles of natural justice.

The Ministry’s complaint to the NCDRC banks heavily on the same test reports that have now been junked by the High Court. It is incontrovertible that evidence found to be sub-standard and unreliable in a judicial proceeding will be bereft of any credence before a quasi-judicial proceeding as well — and hence, the case before the NCDRC is certainly weakened.

Also, what the High Court said about not giving Nestlé a chance to explain would mean that the food regulator was in a hurry to impose the ban, and bypassed the established principles of legal jurisprudence.

The case comes up before the NCDRC on Monday, August 17. The Bombay High Court judgment will come in handy for Nestlé, while the Ministry will have to come up with something more concrete than the test results to corroborate its charges of apathy and sale of defective goods.

The Ministry will also find it very difficult to defend the punitive damages it has sought from Nestlé. A class action suit must demonstrate that the rights of the people were affected — and with the test reports having been denuded of credibility, the foundation of the Ministry’s case has been shaken.

The Ministry may, of course, decide to appeal the High Court order in the Supreme Court — but until there is a stay on that order, it cannot ask the NCDRC not to pay heed to findings already recorded.

And not to forget, if the food regulator is ultimately held to have acted wrongly, either by the NCDRC or by the Supreme Court, the boot will be on the other foot — and Nestlé will be well within its rights to seek damages from the government for unreasonably hurting its commercial interests.

The Nestlé stock dipped sharply after the ban was imposed, and the company had to destroy come 400 million tonnes of Maggi noodles.

Countries like the US, Britain and Singapore have found Maggi safe for consumption after they conducted tests in their accredited laboratories. In India, labs in Goa and Mysore found no problems with the noodles.

As the Ministry has sought damages for unfair trade practice, the onus of establishing wrongdoing by Nestlé lies on the government. Even if the NCDRC chooses to issue notice to Nestlé, the company has to simply whip out the High Court judgment to point out the holes in the government’s case.

Almost immediately after taking an unprecedented step, the Ministry faces the prospect of having to step back. After seeking to put Nestlé on the mat, it may struggle to defend its case in the NCDRC.

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