Legal Advice for Corporates before they commence Manufacturing of Beauty Products & Cosmetics in India
The Indian Beauty and Personal Care Industry (BPC) is expected to grow at a whopping 25% by the year 2025, covering US$ 20 billion share in the global market. According to experts in this area, the growing awareness in beauty products, purchasing power of individuals and the change in consumption patterns of consumers are a few amongst many reasons for the growth of the industry. While the market is largely dominated by international brands, domestic players have been emerging to capture their share in the ever increasing market. As the country witnesses a constant growth of new brands/companies being either manufactured in India or imported from other countries, it is imperative to be well informed of the laws that govern and regulate the standards, manufacture, sale, import and clinical research of drugs & cosmetics in India. This write-up shall address the laws separately in two different scenarios. First half being, legal compliance while manufacturing cosmetics in India and the latter half, addressing the laws governing import of cosmetics in India. Irrespective of whether cosmetics are being manufactured or imported into the country, there are several legal compliances that are crucial to conform to in order to successfully sell, import or manufacture cosmetics in the country.
Legal Compliance under the Drugs and Cosmetics Act, 1940 & Cosmetics Rules, 2020
The Act has very precisely defined the term “cosmetic” and “manufacture” under Section 3(aaa) and 3(f) respectively. In order to move ahead, it is important to take into consideration the definition clause that the act enumerates. The term “cosmetic” has been defined as any kind of article that is intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or applied to, the human body or any part of the human body for cleansing, beautifying, promoting attractiveness, or altering the appearance, and also includes any article which is a part or an element intended for the use as a component for the cosmetic. The term “manufacture” in relation to cosmetic has been defined as a process or a part of a process for making, altering, ornamenting, finishing, packing, labelling, breaking up or otherwise treating or adopting any cosmetic with a view to its sale or distribution. However, there is an exception here that the term “manufacture” does not include the compounding or dispensing or even the packing of any cosmetic in the ordinary course of retail business. In order to start manufacturing cosmetics in India, a license is required. The new Cosmetic Rules, 2020 deals with the manufacturing of cosmetics for sale and distribution in India and prescribes the legal provisions that are necessarily required to be complied with before any such sale or distribution takes place within the country.
Obtaining a Manufacturing License: First, as per rule 24 if a license is to be obtained for manufacturing cosmetics in more than one premise for such manufacture, separate applications are to be applied for each such premise with separate licenses. An application is to be made for each category (up to 10 items) of cosmetic through Form COS-5 along with the license fee of Rs 10,000. What happens in case if a licensee does not have his/her own manufacturing unit ? In this case, the provisions stipulate for a “loan license”. A loan license is applied for through Form COS-6 with the same fees as prescribed above and in the same manner as well, as per rule 23 of the Cosmetics Rules, 2020. However, the grant of a loan license is subject to discretion of the licensing authority depending upon the availability of adequate equipment, staff and facilities to manufacture the cosmetic.
Conditions for granting a license enumerated under rule 26 :
In order to receive a grant from the licensing authority, the applicant must comply with the following conditions :
i. The manufacture must be conducted under the direction and personal supervision of a competent technical staff consisting of at least one person who is a full time employee and who also possesses any of the following qualifications:
(a) Holds a Diploma in Pharmacy approved by the Pharmacy Council of India under the Pharmacy Act, 1948 (8 of 1948), or
(b) Is registered under the Pharmacy Act, 1948 (8 of 1948), or
(c) Has passed an Intermediate Examination with Chemistry as one of the subjects or has passed an examination which is recognised by the Licensing Authority as an equivalent to, or
(d) Holds a bachelor degree in Cosmetic Technology from recognised university.
ii. The factory premises shall comply with the requirements and conditions specified in Schedule M-II
iii. The applicant shall either
(a) provide and maintain adequate staff, premises and laboratory equipment for testing the cosmetic manufactured, and the raw materials used in the manufacture; or
(b) make arrangements with a laboratory approved by the Central Licensing Authority under Chapter VIII of the rules and accredited by National Accreditation Board for Testing & Calibration Laboratories (NABL) for carrying out such tests.
iii. Rule 26 also provides for furnishing documentary evidence in respect of the ownership, occupation on rental or other basis of the premises, specified in the application for licence or in the licence granted, constitution of the firm, or any other relevant matter which may be required for the purpose of verifying the correctness of the statements made by the applicant or the licensee, while applying for or after obtaining the licence as the case may be.
Inspection & Grant: Further, rule 27, provides that an inspection of the premises, process and technical staff is carried out by a competent inspector. A report is then compiled by the inspector consisting of all of his findings and recommendations, submitted to the licensing authority. Based on the report, and any such further inquiry as the authority may deem fit, the license is either granted or rejected ( with conditions that are required to be satisfied ).
Validity of License: A license is valid for a period of five years from the date on which it was granted, provided that no suspension or cancellation has taken place at an earlier stage. This is provided for under rule 30 of the Cosmetics Rules, 2020. A license has to be kept in the premise at all times and shall be produced when an inspector requires it. It must be endorsed as provided under rule 26 for any additional items of cosmetics. Any significant change in the constitution of the the firm/company/organisation or whatever the case maybe has to be informed to the licensing authority for issuance of a fresh license within three months from the date on which such constitution was deemed to be as changed. In addition to the above, the licensee must keep a record of each batch of cosmetic and maintain staff, premises and equipments. A licensee must test every batch of raw material as well as finished product for manufacture of cosmetics and keep a record of the same. He must also allow an inspector to enter the premise, inspect, or collect samples of any product or records/ registers as the inspector may deem necessary under a receipt in order to ascertain if provisions of this act are being complied with. A record book is to be made for recording of such inspection.
Labelling, Packing and Standards the Cosmetics must comply to: Rule 34 of the Cosmetics Rules, 2020 specifically mentions that all cosmetics being manufacture in India, i.e, of Indian origin, can only be manufactured by a licensed manufacturer and must be labelled, packed and comply to the standards as provided for in accordance with the rules.
Labelling Rule 34 (1) : The inner as well as outer labels must carry the name of the cosmetic, name and address of the manufacturer and its premises of manufacture. For small sized containers, the same can carry the name of the cosmetic along with the principal address of the manufacturing premises (pin code included). Use before or date of expiry or use by or expiry date or expiry months from manufactured or date of manufacturing or expiry date is also crucial to be mentioned. The manufacturing license number must be either on the inner or outer label. The inner label must carry a declaration stating the net content in terms of weight for solids, liquids or semi-solids. However, there is an exception for cosmetic products such as perfumes, toilet water or any similar product which does not exceed the net content of 60ml or any package of solid or semi-solid cosmetic the net contents of which does not exceed 30 grams.
For consumer safety and precaution, the rules state that the inner labels must specify any hazardous or poisonous substance which may exist in the cosmetic. The direction to use safely, any warnings, cautions, special directions, name and quantity of hazardous substance, a distinctive batch number ( except cosmetics which are solid or semi-solids less than 10 grams in net content and liquids less than 25 ml ), manufacturing license number, ingredients present in concentration of more than one percent in descending order, followed by ingredients in less than or equal to one percent in concentration, must be specified on the inner labels. Soaps must stay the month and year of manufacture instead of batch number. Specific cosmetic products such as hair dyes which contain Para-Phenylenediamine, dyes, pigments or colour must, as per rule 37, contain a caution/disclaimer as specified under the rule.
Provided further that all labelling requirements must conform to the Bureau of Indian Standards ( Schedule S). In addition to this, rule 39 (4) & (5) mentions that cosmetic containing hexachlorophene shall not be manufactured unless they comply with the following specifications :
• Soaps can contain hexachlorophene in concentrations not exceeding one per cent by weight.
• Provided further that the a cautionary note must in all cases be printed and should be conspicuous displayed on the wrapper of each soap “Contains hexachlorophene – not to be used on babies”.
• Cosmetics manufactured in the country shall contain mercury in the following proportions i.e. for cosmetics specifically used near the eye, the level of mercury must not exceed 0.007 per cent. of mercury. Secondly, in any other finished cosmetic products, unintentional mercury shall not exceed one part per million. The use of lead and arsenic compounds for the purpose of colouring cosmetics is strictly prohibited. Lastly, animal testing is strictly prohibited.
Prohibitions: The Bureau of Indian Standards prescribes lists of dyes, colours and pigments that can be used in manufacturing cosmetics such as Guinea Green B, Tartrazine, Alba Red etc which are enumerated under Cosmetics Rules, 2020. Further, cosmetics containing hexachlorophene are prohibited from being manufactured. Lead and Arsenic compounds are also prohibited from being used in the manufacturing process of cosmetics.
If a cosmetic contains a colour that is not prescribed or is not labelled in the prescribed manner or if such labelling, packing or container is accompanied by any kind of statement that is deemed to be false or misleading, the cosmetic is termed as a “misbranded cosmetic”. If a cosmetic is an imitation of, or is a substitute for any other cosmetic or if it resembles another cosmetic in a manner which may be deceptive or if it bears upon it or upon its label or container the name of another cosmetic, unless it is plainly or conspicuously marked so as to reveal its true character and its lack of identity with such other cosmetic; or if the label or the container bears the name of an individual or company purporting to be the manufacturer of the cosmetic, where such individual or company is fictitious or does not exist; or if it purports to be the product of a manufacturer of whom it is not truly a product, it is deemed to be a “spurious cosmetic”.
If a cosmetic contains in whole or in part any filthy or decomposed substance or has been prepared, packed or stored under insanitary conditions where it may have been contaminated with filth or where it may have been rendered injurious to health or if its container is composed, in whole or in part, of any poisonous substance which may render the contents of the cosmetic injurious to health or if it bears or contains, for purposes of colouring only, a colour other than one which is prescribed or if it contains any harmful or toxic substance which may render it injurious to health or if any substance has been mixed therewith so as to reduce its quality or strength, it is deemed to be a “adulterated cosmetic”.
In the case of M/S Syndicate Pharma v. Secretary to the Government (2019), a drug manufactured and supplied by the petitioners was regularly purchased by the second respondents. The respondents had conducted a sample test before making payment for purchase as per the tender agreement between two parties. The drug report was “not of standard quality” as per the Government analysis report. The second respondent had therefore, blacklisted the company’s drug for faulty supply of drugs not conforming to standard quality. The government analyst’s report was challenged along with the blacklisting of the petitioner’s drug in a writ petition. After careful analysis of the case, the Court was of the view that the government analyst’s report is final and conclusive and the blacklisting was therefore, correct and in order.
An interesting question that may crop up is if a dealer of any drug or cosmetic can be held liable for dealing in prohibited drugs or cosmetics without the manufacturer being a co-accused ? In the case of State of Andhra Pradesh v. Venu Veterinary Division and Another (2009) 16 SCC 282 , there exists no prohibition in the Drugs and Cosmetics Act, 1940 where a dealer cannot be prosecuted for selling spurious drugs/cosmetics or drugs/cosmetics of below tankard quality without making the manufacturer co-accused. The Court also goes on to mentioning that it is no defence in a prosecution to prove that the dealer was not aware of the nature, content or quality of the drug.
Manufacturing a New Cosmetic: In order to manufacture a new cosmetic in India, the manufacturer must apply to the Central Licensing Authority in Form COS- 12 along with the requisite fees and the required data on safety and effectiveness of the cosmetic. Further, if the licensing authority, after being satisfied that the cosmetic is deemed to be safe and effective for use in the country, may issue a permit, subject to the condition specified. Next, the permit is to be furnished along with the application for manufacture of such new cosmetics. Lastly, the manufacturer must comply with the methods of test/analysis for safety evaluation of the new cosmetic as specified in the IS 4011 : 2018, published by the Bureau of Indian Standards.
Legal Compliance under the Advertising Standards Council of India (Code for Self-Regulation) ASCI
The Drug Controller General of India recognises the guidelines for self-regulation laid down by the Advertising Standards Council of India, 2000. Keeping the welfare of consumers/customers towards whom advertisements are directed, the council ensures that advertisements conform to the self-regulation code. Facilitating truthfulness, honestly, legal, decent and non hazardous advertisement claims, the council has set its standards for every company, brand, organisation or individual that aim to commit, create, place or publish or assist in the commission, creation, placement or publication of advertisement. The guidelines are self imposed and the responsibility to comply with the code lies in the hands of those to aim to advertise their product or services in India. Now, it goes without saying that every product or service that is manufactured, must, for obvious reasons be advertised to the right consumers and market that it is aimed for, to facilitate sale. So what comes within the ambit of the term “advertisement” ? As per the definition clause, any communication aimed towards the general public in order to influence the opinion or behaviour to whom it is addressed. To publish is to carry the advertisement so mentioned, in any media/platform in the form of writing, exhibition, printing, broadcasting, displaying or distributing etc. Other than the legl compliances that the cosmetic label or package must contain according to the Drugs and Cosmetics Act 1940, any written or graphical publication on the package, whether in bulk or unitary, or contained in it, is also subject to the code of self-regulation as prescribed by the council.
Truthfulness and Honesty: The first chapter of the code of self-regulation deals with requirement of truthfulness and honesty of any advertisement or claim in order to safeguard consumers from misleading advertisements. If we go back to the Drugs and Cosmetics Act of 1940, section 17C(c) deals with “misbranded cosmetics” and specifies the same as, any kind of statement in the label, package or container that is deemed to be false or misleading. The manufacture, sale or distribution of misbranded cosmetics are strictly prohibited under the same act section 18(a)(i) & (ii). It is imperative to note here that the advertising guidelines do not replace such legal controls and complement them. Therefore, besides the fact that the cosmetic must comply with the provisions of the Drugs and Cosmetics Act, 1940, it must also comply with the self-regulated advertising rules as mentioned below(as mentioned in the “code and the law” section of the code).
• As per code 1.1, the advertisement description, claim or comparison of the subject matter must be truthful and should be capable of being substantiated as and when required.
• The source and date of any claim based on independent research or assessment should be clearly indicated, as per code 1.2.
• Any reference to any firm, individual or institution which may confer unjustified advantage on the product must be done with prior permission of such firm, individual or institution.
• Any distorted or misleading facts or claims which may directly or by implication, ambiguity, omission or exaggeration, mislead the consumer about the product advertised or the advertiser or any product or advertiser, shall not be allowed in accordance with code 1.4.
Here, in case of any ambiguities or claims that may mislead consumers or may reasonably be accrued to mislead consumers shall provide appropriate disclaimers, as per the Advertising Standards Council of India’s disclaimer guideline enumerated within the code. This disclaimer shall explain, expand, clarify or resolve any ambiguities that may occur on the minds of the consumers. Material information should not be withheld while making such claims, language of the disclaimer should be the same as the advertisement, the font must not be italicised and should also be the same as advertised. Further, it must be visible and clear. Comparative claims, the basis of such claim should be stated and should also be 25% of the size of the claim. Disclaimers also apply to voice over advertisements.
• The trust of the consumers must not be abused or exploited due to their lack of knowledge or experience of the advertised product.
• As per the combined reading of code 1.6 ans 1.7, obvious untruths and exaggerations intended to amuse or cash the eye of consumers are permitted as long as any prudent consumer would see the same as humorous or hyperbolic and not as a literal or misleading claim for the product. Further, in cases of mass manufacturing or distribution there may be an unintentional lapse in fulfilling advertised promise or claim. Such occasional, unintentional lapse does not invalidate the advertisement as per the code.
However, unintentional is the key word in this case and the same must be caused by unreasonable negligence of the manufacturers own accord.
In the case of Horlicks Ltd and Another v. Heinz India Private Limited (2018) 9 SCC 182, the Supreme Court established two essential elements that need tone fulfilled in case of misleading advertisements. First, the advertisement must deceive the person to whom it is addressed or must have the potential to deceive them and secondly, as a consequence of the such deception, it musta affect the consumption behaviour of customers or harm the competitors in the market.
Non-Offensive to Public: Cosmetics, being products that are widely used and purchased by women around the globe, their advertisements can often fall prey to being offensive to the public. Therefore, the code strictly but simply enumerates that any advertised claim must not be indecent or vulgar especially while depicting women. It must not contain anything that is deemed to be repulsive or indecent to cause grave and widespread offence.
Harmful and Hazardous Products: No advertisement shall :
• Incite people to commit crime, disorder, or intolerance and violence of any kind.
• Deride any caste, creed, religion, sex or nationality.
• Stimulate or create desire for any kind of crime or criminal intention.
• Sabotage foreign relations with any friendly state.
Advertisement for minors : Any kind of advertisement aimed towards minors must be dealt pre-cautiously. The minds of minors are underdeveloped/vulnerable and are in capable of understanding the gravity of any situation or circumstance. Therefore, it is crucial for advertisers to refrain from illustrating any kind of advertisement which may affect the physical, mental, moral or vulnerability of minors.
In addition to above, advertisements should comply to all provisions that the law require and shall not propagate products which are prohibited by law. Section 17E of the Drugs and Cosmetics Act, 1940 provides for “adulterated cosmetics”. Adulterated cosmetics are those which contain any kind of filthy, putrid or decomposed substance whether in whole or in part. It also brings within its ambit any cosmetic prepared in insanitary conditions rendering it injurious to health or containing any poisonous or deleterious substance etc. Adulterated cosmetics are prohibited from being manufactured, sold, distributed or even offered to be sold.
Fair Competition: Comparisons with any other product in order to enlighten or amplify unvigorous competition, are permitted. However, the same has been curbed by the code to facilitate fair and ethical competition. Chapter four deals with fair competition and allows advertisers to create a clear comparison with other products provided that the subject matter, aspect being advertised are factual and accurate. They must not degrade or take unfair advantage of any goodwill attached to the compared product or make unfair use of the trademark associated with the product in comparison etc. Further, no advertisement is permitted to be plagiarised and be similar to any earlier run advertisement.
In the case of Dabur India v. Ms Colortek Meghalaya Pvt Ltd 2010 (42) PTC 88 (Del.) , the High Court had observed the possibility of “trade libel” relating to slander of goods or malicious and injurious falsehood of goods by one part to a competitor’s product. The Court laid down certain rules with regard to “trade libel” and what are necessary ingredients to constitute the same. First, the statement made is false and results in financial damage. The statement is maliciously made with the intention to cause injury. Third, the impugned statements must result in some special damage. However, different form a case of defamation tort, “trade libel” in this case puts the burden of proving malice on the plaintiff in order to succeed in an action.
What happens if any advertisement has already run abroad and the same has been deceptively similarly run in India ? In this case, the complaints of such plagiarised advertisements already been run abroad, lies outside the scope of this code except if the complaint is made within 12 months of the first circulation of the plagiarised advertisement and complainant can provide sufficient evidence of prior usage/invention abroad.
Guidelines for Celebrities and Fairness/ Skin Lightening Products: This has been separately provided for as there was a rise of opinion amongst many sections of the society that dark skin is inferior. Therefore, when advertisements of fairness creams are done, the following must be kept in mind :
• It should not communicate any discrimination as a result of skin colour.
• Pre-usage depiction should not imply that the model is unhappy, dissatisfied or concerned in any way.
• It should not target or associate any particular nationality, religion, caste or socio-economic strata.
• It must not be gender discriminatory.
Considering the fact that celebrity advertising is done to enhance the brand reputation and build a sense of trust amongst the consumers, there are some guidelines which are essential to be followed for all kinds of celebrity advertisements. First, who is a celebrity according to the code ? A celebrity is a well known and famous individual in the field of entertainment and sports and includes other personalities such as doctors, activists, authors etc who are compensated for their appearance in advertisements. Celebrities must be made aware of the guidelines of the code and must ensure all advertisements are in compliance with the code. Any testimonials, representations or opinions must be credible and assessed by such individual first and must be true. Celebrities can easily influence the market and therefore must conduct due diligence before making any claims and must not mislead or deceive any consumers. Lastly, celebrities engaged in advertisements must be well advised of the guidelines to be followed.
Legal Compliance with Consumer Protection Act, 2019
The Consumer Protection Act, 2019 applies to all products and services, this has been specifically mentioned in the initial section 1(4). Who is considered a product manufacturer under the Act ? A product manufacturer as per Section 2(36) is any person who makes the product or any part of the product or assembles parts of it made by others or who puts his own mark on any product made by others or someone who makes the product and is also involved in the placing the product for commercial use or someone who is a product seller is also the manufacturer of such product.
What has the at Act defined as unfair trade practise ? It is the practise of any unfair, deceptive, false/misleading representations by the manufacturer or service provider as defined under Section 2(47). Every manufacturer must comply with the provisions of not practising any unfair means on its consumers. Any claim made by a consumer for any harm caused by the manufacturer of the product, falls under the product liability claim. So, when is a manufacturer liable in a product liability claim ? When a product contains any manufacturing/design defect or the manufacturing specifications do not comply or the product warranty is not in conformity or of the product lacks appropriate specifications for correct usage. As a product manufacturer it is essential to remember that proving that the manufacturer was not negligent or fraudulent in manufacturing the product or the express warranty, is no defence.
The Act provides for exemptions in certain circumstances which are provided for under Section 87. At the time when harm was caused and if it can be shown that the product was misused, altered or modified by the user of the product, a claim cannot be brought against the manufacturer. Failure to provide sufficient specification for any warning or instructions on usage does not make the product manufacturer liable if, he can prove that :
• If the product was to be used as a component in another and the manufacturer provided sufficient instruction and direction to the purchaser, however, the instructions were not effectively complied with in the end product and the complainant suffered harm.
• The product is one which must only be used by expert or class of experts and the manufacturer provided sufficient inspections to such experts.
• The complainant, while using the product, was under the use of alcohol or any other drug which was not prescribed by a medical practitioner.
• Failure to provide instructions regarding something which any prudent person ought to know or the existence of any danger which any reasonable person is bound to know or the characteristics of the product are such that any one using it is bound to know the obvious dangers, does not make the manufacturer liable.
Physical and mental injury caused due to any misleading advertisements leading to unfair trade practise resulted in enhanced compensation in the case of Bhanwar Kanwar v. R.K.Gupta and Another (2013) 4 SCC 252. Here, respondent wrongfully made the appellant believe that he could cure epilepsy through Ayurvedic medication. The respondent misrepresented to the appellant and used allopathic medications instead. It was thus held that the unfair trade practise and negligence resulted in not just physical but also mental agony to the appellants. The compensation was enhanced to 15 lakhs from 5 lakhs.
Legal Compliance under the E-commerce Rules, 2020
Considering that the world is witnessing a significant transformation digitally, upcoming businesses are making use of online platforms to reach out to their niche conveniently and with more flexibility. This is one of crucial reasons why it is important to conform to the newly drafted E-commerce rules which govern all kinds of transactions that take place on online platforms. Rule 2(1)(a), has included within its domain, all products and services that are either bought or sold over digital or electronic network. Excluding any activity undertaken by a natural person in a personal capacity, not being part of any commercial or professional activity. Now, how do we know who exactly is an e-commerce entity ? Rule 3(1)(b) has defined an e-commerce entity as any person who owns, manages or operates a digital or any electronic facility or any electronic platform for commercial activities. Here, it is important to remember that the legislation excludes a seller who sells his products or services in any platform of an e-commerce entity. Further, the duties and liabilities that an e-commerce entity are lucidly enumerated under rule 4 and 5. It is necessary for an Indian e-commerce entity to be a company incorporated under the companies act, 1956 or 2013. Further, the e-commerce entity must also appoint a nodal person of contact who is a resident in India, in order to ensure that compliances are met with. Under rule 4(2), Every entity has to provide the legal name of the e-commerce entity, the principal address of its headquarters and branches, the name and details of its website, the contact details as well as the grievance officer. The grievance redressal mechanism must be well established and the details of the officer so appointed shall be displayed on the website. The officer must acknowledge receipt of any complaint within 48 hours and must redress the complaint within a month of the date of such receipt. Now unfair trade practice has been defined under the consumer protection act, 2019, the rules also ensure that no entity should adopt any such unfair trade practice whether on its platform or otherwise. Therefore, must ensure transparency and disclose all kinds of information easily accessible to consumers. Cancellation charges and it’s applicability has been clearly enumerated by stating that No cancellation will be imposed on consumers even after confirmation of purchase and less similar charges of borne by the e-commerce entity unilaterally. Further only expressed consent shall be considered as consent of the consumer to purchase any good or service and not otherwise.
It is essential to carry out proper due diligence and ensure that the legal provisions provided for by the country where the course of business is to take place, is complied with. India has its own new rules with regard to the manufacturing as well as import and registration of cosmetics. There are a number of provisions that need to be adhered to and failing which, may lead to disqualification or revocation of the license to carry on business, attracting penal provisions and in some cases imprisonment.
Authored By: Adv. Anant Sharma & Zeba Khan