Diageo challenges India rum ban, arguing lack of due process

By Aditya Kalra

NEW DELHI, Aug 11 (Reuters) - India's government prohibited a popular Diageo rum for misbranding without following due process and just as the food safety regulator began consulting on the labelling rules at the heart of the issue, the company has argued in court.

In the biggest such food safety crackdown in years, the Indian regulator shocked the $40 billion industry by banning a number of whisky and rum brands made by Diageo and India's Inbrew in some states, alleging mislabelling and improper addition of artificial flavours.

While Diageo has told India's stock exchanges it has mounted a court challenge, its non-public filing for the first time details its arguments against restrictions placed on "McDowell's No. 1 Celebration Matured XXX Rum" made in Maharashtra, which the company publicly calls one of its top-selling products. 

The Diageo India unit, United Spirits, argued in court the food safety officer who issued the prohibition was not empowered by law to do so, and bypassed the adjudicatory process by using a food analyst's report to impose the stop-sale order.

Further, the Food Safety and Standards Authority of India (FSSAI) started consulting the industry on regulatory aspects of flavours labelling days after the prohibition order. 

The "continued operation of the prohibition order, while the issues remained under active consideration by the FSSAI itself, was premature, disproportionate and commercially prejudicial," Diageo said in its August 1 court filing, seen by Reuters on Tuesday.

The FSSAI and Diageo did not immediately respond to Reuters queries. A government source disagreed with Diageo's position, and told Reuters the FSSAI was only discussing the matter with the industry at the request of alcohol companies.

Online court records show the challenge was briefly heard on Monday in Mumbai's High Court, but the judge denied any immediate relief and asked the federal government to respond by August 19.

Ingredients on the McDowell's bottle said it contained artificial flavour (rum), but FSSAI argued that "flavor of rum should be characteristic based on the natural ingredients, fermentation processes, and maturation techniques," according to the regulator's prohibition order contained in court papers.

Separately, Indian inspectors last week seized around 18,000 boxes of Diageo liquor bottles for allegedly lacking markings to show they were made using safe recycled plastic, widening the scrutiny, Reuters reported on Monday.

Diageo, which has dubbed India its "consumer market of the decade", has said it complies with the law.

(Reporting by Aditya KalraEditing by Keith Weir)