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“Reportable”

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1464 OF 2010 (Arising out of SLP (Crl.) 8700 of 2008)

Dinesh B. Patel & Ors. …. Appellants Versus

State of Gujarat & Anr. …. Respondents

J U D G M E N T

V.S. SIRPURKAR, J.

1. Leave granted.

2. The present appeal challenges the order of the High Court whereby the  

petition under Section 482 Cr.P.C. filed by the company and its directors (appellants  

herein) was dismissed by the High Court.  The High Court took the view that the  

directors are responsible for the affairs of the company and, therefore, when a drug  

manufactured by the company was found to be defective, all the directors could be  

prosecuted.  The High Court,  however, left  it  to  the concerned parties to  prove  

before the Trial Court that they were not in any way responsible for the manufacture  

process.  The High Court proceeded on the basis of specific language of Section  

34(2) of the Drugs & Cosmetics Act, 1940 (for short “the Act”) and proceeded to hold  

that the complaint filed against the directors could not be disposed of under Section  

482 Cr.P.C. as it required appreciation of the facts on the basis of the evidence to  

be led before the Trial Court.

3. When the matter came up before this Court, the Special Leave Petition

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filed on behalf of the company and Managing Director – Himanshu C. Patel was  

dismissed.  However, notice was issued in case of the remaining appellants No. 3 to  

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4. Mr. H.A. Raichura, learned Counsel appearing for the appellants contends  

before us that from the reading of language of Section 34(2) of the Act, it would be  

apparent that thereby criminal liability is created against the directors but their active  

involvement in the offence has to be pleaded and established.  He contends that, in  

fact, the complaint was totally silent about such involvement of any of the directors  

and a mere bald statement appeared in the complaint in para 6.  He, therefore,  

prays that the High Court erred in not quashing the complaint.  He relied on the  

decision of this case in the State of Haryana Vs. Brij lal Mittal & Ors. [1998 (5)  

SCC 343] and argues that the said case squarely covers the present case also.

5. Para 6 of the complaint reads as under:-

“Looking to the testing report of above medicine Denilyte M 506072,  presence of fungus is noted, hence it has been declared as uneven.  Therefore,  by manufacturing of  this  medicine for  sale,  firm of  M/s.  Denis Chem Lab. Ltd., Chhatral, Ta. Kalol, District Gandhinagar and  its Directors have made breach of this act.  Therefore, this is punitive  offence at first sight.”  (Emphasis supplied).

In para 8 of the complaint, it has been contended as under:-

“Thus, I request to carry out legal proceedings against above accused  M/s. Denis Chem Lab Ltd., Block No. 457, Chhatral, Ta. Kalol, District  Gandhinagar and its directors.”

Earlier to that, in para 4 of the complaint, the complainant had referred to  

the written representation given by accused No. 1 – director of the firm and accused  

No. 2 Himansu C. Patel and Quality Assurance Manager - Mr. Mehul M. Rao during  

the inspection to the inspecting authorities.  That representation is not before us.

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6. We have gone through the decision of Brij Lal Mittal (supra).  In Brij Lal  

Mittal case (supra), the offence complained of was under Section 27 of the Act.  

The  High  Court  had  quashed  the  proceedings  therein  on  the  ground  that  the  

prosecution was launched after shelf-life of drugs had expired in the month of July,  

1991 and as a consequence thereof, the accused were deprived of their right under  

Section 25 (4) of the Act to get the drugs tested by Central Drugs Laboratory.  This  

Court  did  not  agree with the reasoning of  the High Court,  however, upheld the  

quashing of the proceedings.  The Court went on to hold as under:

“Nonetheless, we find that the impugned judgment of the High Court has  got to be upheld for an altogether different reason. Admittedly, the three  respondents were being prosecuted as directors of the manufacturers with  the aid of Section 34(1) of the Act which reads as under:

    ‘OFFENCES BY COMPANIES:

    (1)  Where  an  offence  under  this  Act  has  been committed  by  a  company, every person who at the time the offence was committed, was in  charge of,  and was responsible to the company for the conduct of  the  business of the company, as well as the company shall be deemed to be  guilty  of  the  offence  and  shall  be  liable  to  be  proceeded against  and  punished accordingly:

    Provided that nothing contained in this sub-section  shall render  any  such person liable to any punishment provided  in this Act if he proves that  the offence was committed without his knowledge or that he  exercised all  due diligence to prevent the commission of such offence.’

It is thus seen that the vicarious liability of a person for being prosecuted  for  an offence committed under the Act  by a company arises if  at  the  material  time  he  was  in-charge  of  and  was  also  responsible  to  the  company for the conduct of its business.  Simply because a person is a  director of the company it does not necessarily mean that he fulfills 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.  From the complaint in question  we, however, find that except a bald statement that the respondents were  directors of  the manufacturers, there is  no other  allegation to  indicate,  even  prima  facie,  that  they  were  in-charge  of  the  company  and  also  responsible to the company for the conduct of its business.”

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7. In  our  opinion,  the  factual  situation  in  both  the  matters  is  quite  

different which is apparent from the fact that firstly the controversy of  the  

complaint not having any necessary averments was not present before the  

High Court in the reported decision.  Secondly, in that case, there was only a  

bald statement that the respondents were directors of the manufacturers.  In  

the present matter, however, the respondents were not arrayed only because  

they were the directors.  That is certainly one reason.  However, in addition to  

that, a statement has been made in paragraph 6 of the complaint that by  

manufacturing  of  the  concerned  medicine  for  sale,  the  company and  its  

directors had committed the breach of the Act.  Thus, there was an allegation  

that  the  directors  were  privy  to  the  manufacturing  of  medicine  by  the  

company.

8. In our opinion, the averments in paras 4, 5, 6 and 8 of the complaint  

cannot be described as the bald statements.  The emphasized portion in para  

6 of the complaint suggests manufacturing of the medicine by the company  

and its directors.  The averments in all these paras would have to be read  

together and the para 6 of the complaint would have to be read in the light of  

the other averments. It seems that in the reported decision in the complaint,  

there was no link pleaded in the directors and the manufacturing process.  

That is not the situation here. This was the case of the manufacture of the  

drug for human consumption and, after it was tested in laboratory, was found  

to be defective since there was a growth of fungus, which is a very serious

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matter related to public health.

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9. Under  the  peculiar  circumstances  of  this  case  and  realizing  the  

seriousness of the allegations, we would not take a technical view based on  

pleadings in the complaint.  Mr. Raichura contended that as per the settled  

law  by  this  Court  in  complaints  under  Section  138  of  the  Negotiable  

Instruments Act against company and directors also specific averment about  

the active role of directors in running the company has to be made, failing  

which the directors cannot be proceeded against.  Same logic should apply  

even in the present case.  We cannot agree.  Firstly, the language of Section  

34 (2) of the Act substantially differs from the language of Section 141 of the  

Negotiable Instruments Act.  Secondly, here we are dealing with the offence  

which  has  the  direct  impact  on  the  public  health.   We,  therefore,  would  

choose not to interfere with the order of the High Court.  It will be open for the  

directors  to  show to  the  Trial  Court  that  they had nothing to  do with the  

manufacture process and,  therefore,  they should  not  be held liable  under  

Section 34 (2) of the Act.

10. With these observations, the appeal stands dismissed.

 ……………………………..J.      [V.S. Sirpurkar]

    ……………………………..J.     [Cyriac Joseph]

August 6, 2010; New Delhi.