Johnson & Johnson (J&J) is in "ongoing discussions" with Indian regulators, it said on Friday.
"We understand their concerns and are diligently working with them to resolve the issue," Peggy Ballman, a J&J spokeswoman, said in a statement, adding that there were no consumer complaints or adverse events reported due to its use of the process.
An investigation by the Maharashtra food and drug administration revealed that J&J, at its plant in Mulund, had used ethylene oxide - a substance used to produce industrial chemicals and to sterilise medical equipment - to kill bacteria in its baby powder and had not conducted mandatory tests to make sure there were no remaining traces in the powder.
According to the US Labor Department, acute exposure to ethylene oxide can cause lung damage, nausea, vomiting and cancer.
Ms Ballman said the plant has not been shut down and the company is appealing the decision. She said the sterilisation process in question was used on a one-time basis on a limited amount of baby powder. Baby powder is made from corn or talc and is usually sterilised using steam, she said.
"For a brief time in 2007, we used an alternative sterilisation process," she said.
Ms Ballman was unable to explain why the alternative process was used but said it is a "widely accepted and safe practice of sterilisation used when making many medical devices and consumer products and leaves no harmful residue."
"However," she said, "the process was not registered with the local FDA and they viewed this step as out of compliance."
The news is the latest in a long list of quality control problems at J&J facilities. Its consumer healthcare division has, over the past few years, recalled millions of bottles of over-the-counter products such as Motrin and children's Tylenol.
And it comes just as J&J is seeking to rebuild its image as a trusted family brand. Last month it launched an ad campaign, "For All You Love," with a black-and-white video full of babies and parents, with lines including, "Love is family, love is life, and for that life, you sacrifice it all."
In her statement, Ms Ballman said the company wants to assure people that "the baby powder manufactured and sold only in India was safe and did not pose any health risk at any time."
Copyright @ Thomson Reuters 2013