Re- Labellers Under Food Laws in India
Although the concept of re-labelling has been unclear under law, these proposed changes can be viewed as putting an additional burden on re-labelling companies. If a company sells a food product under its brand name and sets consumers’ expectation for a minimum quality or standard, then it is only fair that such companies should be held liable for any issues with the products. The consumers will derive additional comfort about the safety and the quality of the products as a result of the proposed changes and should be viewed in a positive light write authors Bhavik Narsana, Deepali Menghwani, Siddesh Biyani from Khaitan & Co
It is a fairly common practice for large companies to outsource food manufacturing to smaller companies and sell such third party manufactured products under their own brand name, such that the label on the product states that the product is ‘manufactured by’ the smaller company and ‘marketed by the larger company. By following this practice, the large companies avoid being held liable for the consequences including penalties for non-compliances by a manufacturer of the various provisions of the Food and Safety Act 2006 (FSS Act).
As the products in question are sold under the brand name of the large companies the consumers derive additional comfort as regards the quality and standard of the product. However, if such large companies use their name to sell the products, it is only natural, for such large companies to be held accountable if there is an issue with the manufacturing quality and standard of the food products. This aspect is sought to be provided by some legal changes covered in this article.
The primary legislation governing the Indian food industry is the FSS Act and the various regulations framed thereunder, in relation to inter alia licensing, packaging, labelling of products. The Food Safety and Standards Authority of India (FSSAI) is the primary regulator enforcing the provisions of the FSS Act and regulating the quality and standards of food.
The FSS Act describes a “food business operator” as any undertaking inter alia carrying out an activity of manufacturing, processing, packaging, storage, transportation, distribution of food, import, and includes food services, catering services, sale of food or food ingredients.
The FSS Act mandates every food business operator to obtain a licence or registration dependent upon the kind of business (“KOB”) activities being undertaken.. The Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations 2011 (“Licensing Regulations 2011”) provide for the licensing and registration requirements for the food business operators and requires a licence to be obtained for each KOB carried out by a food business operator.
WHO IS A RE-LABELLER?
The term “re-labeller” is not defined under the FSS Act or the Licensing Regulations 2011. Further, the Licensing Regulations 2011 also do not expressly provide for a separate licensing requirement for a re-labeller or the responsibilities and the associated liabilities for the re-labeller.
Application format: The prescribed format of application to apply for a licence under the Licensing Regulations 2011 contemplates “re-labelling (manufactured by a third party under own packaging and labelling)” as a KOB, such as manufacturing, distributor/supplier, retail trade wholesale trade. It is important to note that none of these KOBs are defined under the FSS Act or the Licensing Regulations 2011. The food business operators can apply for a license on the FSSAI online portal (i.e., Food safety and compliance system, “FoSCoS”) which provides for licensing under various KOBs and also provides some description of each KOB. However, it is interesting to note that as per the current KOB categories on the FoSCoS website, “re-labeller” is not recognised as a separate KOB and one needs to apply under the “Manufacturer” category for obtaining re-labeller license, and thereafter the FoSCoS portal provides an option to select the re-labeller KOB category.
Office Memos: In April 2013, FSSAI issued two office memoranda (“Office Memos”) that inter alia provide for clarifications on re-labeller and licensing requirements, such as relabeller is a deemed manufacturer, re-labeller is responsible for the safety and standards of all products manufactured/packed under his/her license, etc. However, the Licensing Regulations 2011 were not modified to reflect and incorporate these clarifications, with consequent ambiguities regarding the enforceability of the Office Memos.
FAQs on licensing and registration: The frequently asked questions on FSSAI Licensing and Registration (last updated on 12 Aug 2020) uploaded on the FSSAI website5 (“FAQs”) inter alia provide that “FBOs who get their products manufactured through third party manufacturers need to obtain FSSAI License under “Re-labeller” KOB.” The FAQs further provide that “Re-labellers are deemed manufacturers and shall ensure all Schedule 4 (General Hygienic and Sanitary Practices to be followed by food business operators) conditions laid down for manufacturers. A Relabeller does not manufacture the product by own instead do agreement/contract with third-party manufacturers for product manufacturing.”
Draft Licensing Amendment Regulations, 2020: The draft Food Safety and Standards (Licensing and Registration of Food Businesses) Amendment Regulations, 2020 dated 17 November 20206 (“Draft Licensing Amendment Regulations 2020”) provide for the definition of “re-labeller” as: “Re-labeller” means a food business operator who gets his/her product(s) manufactured/packed from a third-party manufacturer/processor” and also provide for various other provisions, such as re-labeller is a deemed manufacturer and shall be required to obtain a separate license/ registration for each third party manufacturer. etc. It also mandates all food business operators to have a documented product recall plan in accordance with the Food Safety & Standards (Food Recall) Regulations, 2017. However, these are draft regulations and not applicable presently.
REASON FOR INTRODUCING “RE-LABELLER” IN DRAFT LICENSING AMENDMENT REGULATIONS 2020
The Draft Licensing Amendment Regulations 2020 propose to classify the food companies outsourcing their manufacturing activities as “deemed manufacturers”, thereby imposing responsibilities and liabilities on such companies. Accordingly, it seems to be clear that the authorities want to stop the practice of large companies selling goods under their name and not being liable for the safety and standards for the food products.
MARKETER LICENSE AND RE-LABELLER LICENSE - OVERLAPS
Many companies presently operate under a marketer license and do not obtain a re-labeller licence.
It is interesting to note that the Licencing Regulations 2011 do not define or expressly provide for a marketer license. The FoSCos website, however, provides for a marketer KOB under the “Trade/Retail” KOB. Marketing (self) is explained as promoting the food product of a brand in the market that is owned by itself and marketing (third party) is explained as promoting the food product of a brand in the market that is not owned by itself.
While the re-labeller licence requirement is triggered if the branded products are manufactured by third parties, the marketer licence requirement is primarily associated with the marketing/sales related activities and does not expressly mention the manufacturing aspect. Accordingly, if a company gets its branded product manufactured by a third party, it would be specifically covered under the re-labeller licence category. In such cases, it would be safe to obtain both, marketer and re-labeller licences.
WHAT SHOULD COMPANIES DO?
The Licencing Regulations 2011 read with the Office Memos, FAQs and the Draft Licencing Amendment Regulations 2020 suggest that the intention of the authorities has always been to require food business companies outsourcing their manufacturing activities to obtain a re-labeller licence. However, the Licencing Regulations 2011 do not clearly define the term re-labeller or provide for liabilities of a re-labeller. There is however no clarity as regards the enforceability of the Office Memos and FAQs.
Upon the Draft Licencing Amendment Regulations 2020 coming into force, it will become clear that the re-labellers will also be deemed manufacturers and accordingly can be held liable as manufacturers. As such, companies that continue with this arrangement will inter alia need to revisit their arrangements with third party manufacturers and increase control, supervision and scrutiny on the manufacturing process to ensure that such manufacturers comply with the legal requirements and comply with the quality standards. Re-labellers may obtain additional contractual protection and/or other comfort to cover their liability arising from quality and manufacturing issues in the form of warranties and indemnities. Re-labellers can also consider obtaining product liability insurance of adequate value to cover any liabilities in relation to products manufactured by a third party.
Although the concept of re-labelling has been unclear under law, these proposed changes can be viewed as putting an additional burden on re-labelling companies. If a company sells a food product under its brand name and sets consumers’ expectation for a minimum quality or standard, then it is only fair that such companies should be held liable for any issues with the products. The consumers will derive additional comfort about the safety and the quality of the products as a result of the proposed changes and should be viewed in a positive light.
Bhavik Narsana (Partner), Deepali Menghwani (Associate) and Siddesh Biyani (Associate) are part of the corporate team at Khaitan & Co.
Note: The views expressed in this article are personal views of the authors.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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