The Madras High Court, in an interim order, has allowed India Household and Healthcare (IHHL) to start manufacturing LG Care's FMCG products in small pack sizes with the LG's Logo, citing a violation of the Indian Contracts Act by the Korean major.
LG Care, which is in the FMCG category in over 40 countries, made its entry into India through its sole licensee IHHL in April 2004. IHHL did not manufacture LG products for the Indian market, but resold the FMCG goods in multiple categories including soaps and toothpastes imported from Korea.
According to IHHL, the parent company raised an issue over the usage of the LG's logo in India last year, and shipments stopped arriving in India in October 2004. In February 2005, LG Care faxed a letter to IHHL stating that the contract was signed by 'working-level officers' and was therefore unacceptable.
IHHL had alleged that the LG Group's intention was 'malafide', and that it was arbitrarily seeking to dissociate from the Indian partner after making inroads through the Indian partner to exploit the FMCG market on their own. The court ruling was in response to this argument.
In a press conference convened at the Madras High Court premises on Wednesday afternoon, Nalini Chidambaram, Senior Counsel to IHHL, said that the LG Group had misinterpreted the removal of Press Note 18 by the Indian Government.
"They seem to be under the mistaken impression that they are at liberty to renege on even existing JV commitments. That is why within days of scrapping of press note 18 they chose to unilaterally and arbitrarily terminate the contract with the Indian partner", she said.
Stating that according to preliminary estimates, IHHL's losses are around Rs 500 crore, R Venkatesh, Corporate & Legal Advisor, IHHL, said, "We have lined up the manufacturing over the last few months. We are ready to start it at the earliest."
However, IHHL can now manufacture small pack sizes of LG Care products and market them with the LG Logo, as per the contract entered into by both parties initially.