News Update

 
Declaration on packages post restructuring: An efficient business solution

OCTOBER 01, 2021

By Apeksha Bansal,  Principal Associate, Lakshmikumaran & Sridharan, New Delhi

IN today's scenario, with increase in the pace of globalization and with industries venturing into new domains, the process of restructuring by the businesses by way of amalgamation, merger, transfer of business, demerger and change in constitution are significantly on the rise than ever before.

It becomes inevitable that companies abide by the various compliances for restructuring of business under different laws.

In this article, we will discuss the requirements to be fulfilled with respect to the declarations on the packages from the perspective of Legal Metrology Act, 2009 ("LM Act") read with Legal Metrology (Packaged Commodities) Rules, 2011 ("PC Rules").

Requirement of declaration

The manufacturer, packer or importer are required to make certain declarations on the packages which are intended for retail sale 1 . The requirement of mandatory declarations on packages is to be ensured at the factory level itself and at the depot of the factory 2 .

Considering the nature of restructuring, different scenarios may arise which can trigger the requirement for change in declarations made on the package. A few of the scenarios are as follows:

(a) Where packaged goods or packaging materials are lying in the factory or depot on the date of restructuring

(b) Where packaged goods are lying in the market (with retailers and wholesalers) on the date of restructuring

(c) Where packaged goods are in transit on the date of restructuring (from factory to depot)

(d) Where packaging materials are lying with the vendor on the date of restructuring

It is worthwhile to note that there is no specific provision under LM Act read with PC Rules which deals with the situation of restructuring by companies. Further, no provision prescribes the manner for change in declarations on the packages on the date of restructuring i.e. date of merger or date of demerger or date of conversion etc. In other words, there is no provision which deals with the fate of packaged goods and packaging materials already lying on the date of restructuring.

In the absence of any specific legal provisions, as a prudent measure, companies may, in some of the scenarios, consider adopting either of the following measures:

(a) Affix a new label (containing all declarations) over the existing label on the packaged products;

or

(b) Change the package itself with the new package having new details on the label affixed or printed thereon.

It is interesting to note that one can argue that since there was no change on the date of manufacturing or packaging or import prior to restructuring, no change with respect to the declarations on the packages of the products is required to be made on or post restructuring.

In such a case, a counter-argument can be that an intent behind PC Rules is to make the consumers aware about the details related to pre-packaged commodities since the commodity was packed in the absence of consumers. Therefore, all the declarations on the package of commodity should be updated so that consumers can identify the product and approach the concerned person, if needed.

Change in registration

The resultant entities are required to either obtain new registration certificate or amend the existing registration certificate, on payment of prescribed fee. An appropriate application stating reasons along with the prescribed fee may be submitted by the concerned manufacturer or packer or importer with the office of the director or controller of legal metrology. 3

Relaxation from Central Government 4

The Central Government can suo motu relax the provisions (including declaration related) of PC Rules and permit the manufacturer or packer to pack for sale the packages for a reasonable period.

Also, the Central Government can, on receipt of an application from a manufacturer or packer or importer, relax the provisions of PC Rules including declaration related requirements, for a maximum period of one year.

However, the above relaxations will be allowed by the Central Government post ascertaining the genuineness of the case.

It is important to highlight that businesses may avail the benefit of the said rule and approach the Central Government for allowing relaxation with respect to mentioning declaration(s) on the packages, for a certain duration post the date of restructuring.

Penal provisions

Where any pre-packaged commodity does not conform to the requisite declarations on the package, then fine (a) upto INR 25,000 for the first offence, (b) upto INR 50,000 for the second offence and (c) not less than INR 50,000 but upto INR 1 lakh or with imprisonment for a term which may extend to one year or with both, for the subsequent offence, can be imposed 5 .

To summarize , while undertaking a restructuring exercise the impact of the PC Rules should be appropriately dealt with by the businesses after considering all the aspects such as value of the inventory of packaged materials, change in brand name, change in legal entity and the methodology to be adopted for dealing with the same.

1 Rule 6 of PC Rules

2 Rule 19(7) of PC Rules

3 Rule 27(3) of PC Rules

4 Rule 33 of PC Rules

5 Section 36 of LM Act

[The views expressed are strictly personal.]

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