Madras High Court | Criminal Complaint Under Drugs and Cosmetics Act Quashed Against Director | Mere Designation as Managing Director Not Enough for Vicarious Liability Under Section 34
Safiya Malik
The High Court of Judicature at Madras Single Bench of Justice N. Sathish Kumar allowed a criminal original petition and quashed pending criminal proceedings before the Metropolitan Magistrate Court at Saidapet. The court directed that the prosecution initiated under the Drugs and Cosmetics Act, 1940 could not be maintained against the petitioner in the absence of specific allegations regarding his role or responsibility in the conduct of the company’s affairs. The bench further recorded that an individual cannot be subjected to criminal liability solely on the basis of his designation as Managing Director or Director, without clear averments indicating consent, connivance, or neglect in connection with the alleged offences. The petition was accordingly allowed, and the complaint proceedings were set aside against the petitioner, while leaving them to continue against others.
The matter arose from a criminal original petition seeking to quash proceedings in a complaint case pending before the IV Metropolitan Magistrate, Saidapet. The petitioner, arrayed as A4, was one of the Directors of a pharmaceutical company. The allegations originated from an inspection conducted by the Drugs Inspector at the premises of the company in February 2016. This inspection followed an earlier investigation carried out by the Triplicane Range Drugs Inspector in coordination with Narcotics Control Bureau officials.
During the inspection, the authorised signatory of the company was present, and the purchase and sale records of several pharmaceutical products, including Intagra 100 mg, Zolax 0.5 mg, and Zolax 1 mg, for the period between June 2015 and February 2016 were verified. The inspection revealed that the company had purchased Intagra 100 mg tablets under multiple invoices from its Ghaziabad manufacturing unit. The invoices included a consignment of 600 strips dated 31 July 2015, a further 30,000 strips dated 11 August 2015, and 15,000 strips dated 17 November 2015.
It was further alleged that the drugs were subsequently sold to distributors and firms in Tamil Nadu. These included Oekar Pharma & Surgicals, Panruti, and Kapital Care, Chennai. The sales invoices reflected consignments of 600 strips on 10 August 2015, 28,800 strips on 21 August 2015, 1,200 strips on 30 September 2015, and 15,000 strips on 30 November 2015.
Upon further verification at the premises of Kapital Care, it was found that consignments of 28,800 strips and 15,000 strips were accounted for. However, with respect to the invoice dated 30 September 2015 for 1,200 strips, the authorised signatory of the company explained that the full quantity of 30,000 strips had not been received due to loss during transit. The statement recorded indicated that 1,200 strips were lost during shipping, yet the system did not deduct the lost stock, and a sales invoice was raised erroneously.
Subsequently, a show cause notice was issued to the company, and a reply was received in August 2016. The reply, however, was found unsatisfactory by the authorities. The complainant noted that while 600 strips had been returned, the company claimed that the remaining 600 strips were destroyed. The destruction certificate produced was found to contain discrepancies regarding batch numbers and expiry dates when compared with the consignment details. On this basis, it was alleged that the company contravened Section 18(c) of the Drugs and Cosmetics Act, 1940 read with Rule 65 and condition 3(ii) of the drug licence in Form 20-B of the Drugs and Cosmetics Rules, 1945. The complaint alleged that the drugs were sold to persons who were not holding the requisite drug licence, thereby attracting penal consequences under Section 27(d) of the Act.
The petitioner, represented as A4, contended that his inclusion as an accused was erroneous. He asserted that the complaint provided his Chennai address, whereas the company’s head office was located at Ghaziabad. He further argued that the Magistrate had not followed mandatory procedure under Section 202 of the Criminal Procedure Code before taking cognisance. It was also submitted that his reply and other documentary materials, including an affidavit from the transporter regarding loss of goods in transit, were not duly considered. Importantly, the petitioner stressed that no averments in the complaint connected him personally with the alleged offence or the management of the company’s day-to-day affairs. It was pointed out that the complaint itself named one Ajith Kumar Dugar, the authorised signatory, as the person in charge during inspection.
The prosecution, represented by the Additional Public Prosecutor, countered that during inspection, it was confirmed that the company had purchased 30,000 strips, but only 28,800 strips were accounted for in sales. The reply notice claiming loss in transit and subsequent destruction was inconsistent, as the destruction certificate contained batch number discrepancies. Thus, the complaint was maintainable.
Both sides placed reliance on various precedents. The petitioner cited judgments including Cheminova India Ltd. v. State of Punjab (2021), Sanjeev Wasan v. Union of India, Lupin Ltd. v. State (2023), and Y.K. Hamied v. State (2021), all of which dealt with the principle that directors cannot be held vicariously liable without specific allegations. The respondent relied on the discrepancies in destruction records to justify continuation of proceedings.
Justice N. Sathish Kumar examined the allegations in detail. The court noted that the petitioner was described as a Managing Director, but the complaint also arrayed others as Managing Directors. The court observed: “This Court is of the view that with regard to the affairs of the company, only one can be a Managing Director, others are directors, but the petitioner/A4 herein is also arrayed as Managing Director.”
The court further recorded: “The only allegations against the petitioner is that out of 30000 strips purchased by the company from M/s. Intas Pharmaceutical Ltd, Ghaziabad, on enquiry with M/s. Kapital Care, it was found that 28800 strips have been sold, therefore, show cause notice was issued.”
On analysing the role of the authorised signatory, the court noted: “The complaint itself indicate that one Ajith Kumar Dugar/5th accused was in charge and competent person of the firm and he was present during the inspection. When the entire private complaint perused on a whole, nowhere, it is averred that the petitioner or other directors were in charge of the company.”
The court then referred to Section 34 of the Drugs and Cosmetics Act, 1940. The provision was quoted in full, including the requirement that criminal liability of directors arises only when offences are committed with their consent, connivance, or neglect. The court observed: “The above makes it very clear that the basic ingredients to maintain a prosecution, at-least minimum requirements to maintain the prosecution, necessary averments with regard to the specific role of the Director or Managing Director has to be averred in the complaint as to their consent or connivance of, or is attributable to any neglect on their part to clothe with the criminal liability.”
It was further recorded: “Absence of this basic averment is itself sufficient to quash the proceedings. Having pleaded in the complaint that one Ajith Kumar Dugar was in charge of the company and competent person of Company, no whisper whatsoever was made in the complaint as to the role played by the other directors.”
The judgment also relied upon precedents. Referring to Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd (2021), the court quoted: “Merely because Respondents 2 to 5 and 7 and 8 are the Chairman/Managing Director/Executive Director/Deputy General Manager/Planner & Executor, automatically they cannot be held vicariously liable, unless, as observed hereinabove, there are specific allegations and averments against them with respect to their individual role.”
In a similar vein, the court cited Cheminova India Ltd. v. State of Punjab (2021) and State of Haryana v. Brijlal Mittal (1998). In Brijlal Mittal, the Supreme Court held: “Simply because a person is a director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business.”
The court also considered whether non-placement of the matter before a Screening Committee, as per Central Drugs Standard Control Organisation guidelines, affected the prosecution. It recorded: “Though placing the matters before the Screening Committee arises only for minor offences, this Court is of the view that mere non placing the matter to the Screening Committee will not affect the prosecution, but the fact remains that since there is no averments made against the accused to maintain the prosecution and merely on the basis of designation, one cannot be prosecuted.”
After analysing the facts and law, the High Court issued its operative direction. It held: “Such view of the matter, this Criminal Original Petition stands allowed and the complaint in C.C.No.555 of 2022, pending on the file of the learned Metropolitan Magistrate No.IV, Saidapet stands quashed as against the petitioner alone. Consequently, the connected miscellaneous petitions are closed.”
Advocates Representing the Parties
For the Petitioner: Mr. K.P. Ananth Krishna, Advocate
For the Respondent: Mr. K.M.D. Muhilan, Additional Public Prosecutor
Case Title: Thiru Nimish Hasmukh Bhai Chugar v. State Rep by Drugs Inspector
Case Number: Crl.O.P.No.24012 of 2022 and Crl.MP.Nos.15245 & 15246 of 2022
Bench: Justice N. Sathish Kumar
