US litigations, GST notices put Dabur India under spotlight

Leading consumer goods company Dabur India is facing legal and tax-related challenges that have sent its shares into a downward spiral. The company has revealed that three of its international subsidiaries are among the defendants in a series of lawsuits in the United States and Canada. These legal actions allege that the use of their hair relaxer products has resulted in health issues, including ovarian and uterine cancer.

Dabur India identified the three international subsidiaries as Namaste Laboratories LLC, Dermoviva Skin Essentials Inc, and Dabur International Ltd. In a late-night filing with the Bombay Stock Exchange (BSE), the company disclosed that these subsidiaries are now contending with multiple lawsuits in both federal and state courts in the United States and Canada.

The federal cases have been consolidated as a Multi-District Litigation (MDL) before the United States District Court for the Northern District of Illinois. These cases are in the early stages of litigation, involving pleadings and early discovery phases, with various motions pending.

Dabur India acknowledged the uncertainty surrounding the financial implications of these disputes, stating that it is challenging to determine the final claim amount at this preliminary stage. However, the company emphasised that it is disclosing these litigations owing to the anticipated material impact on legal defence costs as it progresses through the litigation process.

As of now, there are approximately 5,400 cases in the MDL, with Namaste Laboratories LLC, Dermoviva Skin Essentials Inc, and Dabur International Ltd as well as other industry players named as defendants. The lawsuits claim that the use of certain hair relaxer products containing specific chemicals has resulted in ovarian cancer, uterine cancer, and other health issues.

Namaste, Dermoviva, and Dabur International deny any liability and have retained legal counsel to defend them against the allegations, citing that the claims are based on unsubstantiated and incomplete studies. The legal proceedings are still in their early stages, with parties challenging the adequacy of the plaintiffs' complaints and exchanging requests for information and documents.

Apart from these legal troubles, Dabur India has also received intimation from the Goods and Services Tax (GST) Intelligence regarding a tax that the company is required to pay. Dabur India is reviewing this intimation and evaluating the next steps in response to it.

In its regulatory filing, Dabur said it had received a GST demand notice of Rs 320.6 crore. The company said it was reviewing the intimation and evaluating the next steps in this matter. The notice was issued by the Gurugram zonal unit of the Directorate General of GST Intelligence (DGGI) on 16 October, the company said.

In response to the developments, Dabur's share price experienced selling pressure. On the day of the announcement, the company's shares opened lower and dipped by nearly 2 per cent, trading at an intraday low of Rs 520.50 per share on the National Stock Exchange.

Dabur India has issued clarifications regarding both the US litigations and the GST intelligence notice in compliance with regulatory obligations. The company emphasised that it would continue to keep Indian stock market exchanges informed if there are any further developments in these matters.

The legal and tax challenges faced by Dabur India have created uncertainty around the company's financial outlook and regulatory compliance. Investors and industry observers are closely monitoring the situation as it unfolds.