Wistron Corp, Apple Inc’s main iPhone assembler in India, slid as much as 4% after the US tech giant placed it on probation for lapses in labour practices that triggered a riot.

Apple said its preliminary investigations found the Taiwanese supplier - the first to produce the US company’s marquee device from India - failed to implement proper work-hour management processes for a rapidly growing staff. That delayed payment to some employees in October and November, and Apple said it’s now withholding new business until Wistron fixes the problems.

Hundreds of workers rampaged through Wistron’s plant in Narasapura near Bengaluru this month, damaging property and looting thousands of iPhones and laptops, according to local media. That brought into focus the challenges Apple faces as it tries to diversify its huge production base for everything from iPhones to Macs away from China because of Trump-era trade and political sanctions. The strife also dents Prime Minister Narendra Modi’s attempt to lure overseas investors for his flagship "Make in India” project, especially firms looking to leave the world’s No 2 economy.

"Wistron has taken disciplinary action and is restructuring their recruitment and payroll teams in Narasapura,” Apple said in a statement over the weekend. "We have placed Wistron on probation and they will not receive any new business from Apple before they complete corrective actions. Apple employees, along with independent auditors, will monitor their progress.”

The Taiwanese company said it’s removed the vice president who was overseeing operations in India and started a telephone hotline for workers to voice their concerns anonymously.

Wistron had quadrupled workers at that Indian plant over about eight months, ramping up production just as the world’s most valuable company began direct online sales in the South Asian nation. But its systems weren’t robust enough to handle the deluge, people familiar with the matter have said.

The incident could now affect the relationship with Apple, which has shown greater willingness to clamp down on violations at its hundreds of suppliers. The US giant and its production partners have been criticised in the past for allowing poor labour conditions in China. Last month, Apple suspended new business with Wistron’s larger rival, Pegatron Corp, after discovering violations at a student workers’ programme.

Wistron has estimated damages at as much as NT$200 million and said it’s doing its best to resume operations at the factory. The Hsinchu-based company has also said the protesters are not its own workers, suggesting they may have been hired by employment agencies, though it’s not clear who is responsible for paying them.

"This is a new facility and we recognise that we made mistakes as we expanded,” the Taiwanese company said in a statement on Dec 19. "We are deeply committed to our business and employees in India. We are working diligently on corrective actions to ensure this does not happen again.”

 - Bloomberg