Nestle Granted Relief as India Court Overturns Noodle Recall

Updated on
Maggi Noodles Returns to Shelves in India

An Indian court granted relief to Nestle SA in a case that has pitted the nation’s food regulator against the Swiss giant over the quality of its iconic Maggi noodles. Shares of the company’s local unit rallied.

The two-judge panel of the Bombay High Court found the June 5 order by the Food Safety and Standards Authority of India to be arbitrary, said A. Sethna, the government’s lawyer. Sales of the snack can resume if new tests done at a certified laboratory were found to be acceptable, and Nestle needs to submit those test reports within six weeks, the judges said.

Nestle is the undisputed leader with a 63% market share
Nestle is the undisputed leader with a 63% market share

“It looks like the court has found fault with the process followed” by the FSSAI, H. Jayesh, a co-founder at law firm Juris Corp., said in a Bloomberg TV India interview after the ruling. “It’s definitely a big positive” for Nestle.

The incident could become a “big embarrassment” for the Indian government as it makes it appear as if the state’s own laboratories aren’t able to carry out basic tests of food quality, said Naveen Trivedi, an analyst at Trust Financial Consultancy Services Pvt., before the judgment. The government is also seeking 6.4 billion rupees ($99 million) from Nestle in punitive damages.

In an e-mailed statement, Nestle said it will comply with the court’s order for fresh tests on Maggi noodles and try to get the products back on sale as soon as possible.

Quality Clearance

Regulators from Singapore, Canada, the U.S. and the U.K. carried out their own tests and found India-made Maggi noodles to be safe for consumption.

Nestle India Ltd.’s shares rose 2 percent to 6,361 rupees as of 2:41 p.m. in Mumbai, after rallying as much as 5 percent following the judgment.

Sales of the noodles had stopped two months ago after the food regulator ordered the nationwide recall as it said government tests found the noodles contained too much lead. Nestle India, the country’s top seller of noodles, filed the case on June 11 challenging the recall, insisting its products had been tested without finding abnormal levels of lead.

Nestle’s India unit last month reported its first quarterly loss in at least 15 years due to the recall and sales halt on its biggest product. The cost of removing the product from the market led to a one-time exceptional loss of 4.52 billion rupees ($69 million) -- nearly 1.5 times the average profit in the last four quarters, the New Delhi-based company reported.

Nestle’s iconic noodles could be a few steps away from returning to market shelves after the Thursday ruling.

“They really need to spend on promotions and ads to get back to the brand equity before this,” Sanjay Manyal, a consumer analyst at brokerage ICICI Direct.

Testing methodology

The controversy has hinged around the testing methodology. The government said the seasoning and noodles should be tested separately, whereas Nestle insisted that the product must be tested in its final, cooked form.

India’s Department of Consumer Affairs said Wednesday it has filed a class-action suit on behalf of consumers for the sale of “defective goods” and a product without the regulator’s approval.

Maggi noodles have been sold in India for the past three decades and Nestle dominates the local market with a 63 percent share in 2014, six times more than its nearest rival ITC Ltd., according to Euromonitor data.

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