Holding

Directors cannot be held liable under Section 34(1) without proof that they were in charge of and responsible for the company's business, and thus the High Court's order quashing the prosecution is upheld.

Summary

The State of Haryana filed a complaint alleging that two batches of sodium chloride injections purchased by a district inspector were adulterated, as reported by the Government Analyst under the Drugs and Cosmetics Act. The manufacturers, Mis Mittal Pharmaceutical Pvt. Ltd., were served with the analyst's report but failed to notify the inspector within 28 days of their intention to contest the report, thereby losing the right under Section 25(4) to have the sample re‑tested by the Central Drugs Laboratory. The Director‑level directors of the company were subsequently prosecuted under Section 27 and Section 34(1) of the Act, but they sought quashing of the proceedings under Section 482 of the CrPC. The High Court quashed the prosecution on the ground that the right to re‑test had been lost due to the expiry of the drugs' shelf‑life, a reasoning the Supreme Court rejected. The Supreme Court held that the directors could not be held vicariously liable because the complaint did not show they were in charge of and responsible for the company's business, and therefore upheld the High Court's order on this ground. Consequently, the appeal by the State was dismissed.

Issues considered

Whether the manufacturers' failure to give notice under Section 25(3) of the Drugs and Cosmetics Act extinguished their right to have the sample tested by the Central Drugs Laboratory under Section 25(4).
Whether the directors of the manufacturing company can be held liable under Section 34(1) of the Act without proof that they were in charge of and responsible for the conduct of the business.
Whether the High Court was correct in quashing the prosecution against the directors.

Legislation cited

Code of Criminal Procedure, 1973s. 482
Drugs and Cosmetics Act, 1940s. 17, s. 17-A, s. 18-A, s. 25(3), s. 25(4), s. 27, s. 34(1)

Subjects

drug adulterationgovernment analyst reportright to controvertcentral drugs laboratoryvicarious liabilitydirectors liabilitysection 25section 34quashing of prosecutionCriminal Procedure Code

Judgment

A STATE OF HARYANA
v.
BRIJ LAL MITTAL AND ORS.

APRIL 30, 1998

B [M.K. MUKHERJEE AND S.S. MOHAMMED QUADRI, JJ.]

Drugs and Cosmetics Act, 194!): Sections 17.17-A, 18-A, 25(3), (4) and
27.

C Drug adulteration-Report of Government Analyst-Right to
controvert-Necessary condition for-Compliance with requirement ofsection
25(3)-Sodium Chlori.de Injections-Adulteration of-Analyst Report-
Notijied to manufacturer company-Failure of company to notifY that it
intended to adduce evidence to controvert report within twenty eight days-
D Proceedings against Directors of Company-Directors' petition to High Court
under section 482 Cr. P. C.-Quashing ofproceedings by High Court-Ground
that they were deprived of right to get drugs tested by Central Drugs
Laboratory-Appeal by State-Held : Directors having failed to comply with
section 25(3) benefits of section 25(4) was not available to them-Quashing
of order against directors upheld on different ground i.e. failure to prove that
E they were Jncharge of Company and responsible for conduct of business.

Section 34(1)-0ffences by Company-Prosecution of Directors-
Necessary conditions for.

Code of Criminal Procedure, 1973: Section 482.
F
Company-Directors-Prosecution for adulteration of drugs-Quashing
of proceedings-Validity of

Two injections of Sodium Chloride purchased by the District Drugs
Inspector, H:Ssar from Mis Naresh Medical Agencies were found adultered,
G within the meaning of sections 17 and 17-A of the Drugs and Cosmetics
Act, 1940 by the Government Analyst Under section 18-A the seller disclosed
that Mis Ajay Medical Agencies, Hissar and National Distributors, Sirsa
were the distributors of the drugs and Mis Mitson Pharmaceutical Pvt. Ltd.
were the manufacturers. The Inspector apprised those firms and the company
of his having purchased the drugs and the report of the Analyst. Inspite of
H it the manufacturers failed to notify that they intended to adduce evidence in
104
STATE OF HARYANA v. B.L. MITT AL [M.K. MUKHERJEE, J.] 105
controversion of the Government Analyst report within twenty eight days as A
required under section 25(3). The Inspector then filed a complaint against
the firms/company and their partners/Directors in the Court of Chief Judicial
Magistrate, Hissar alleging commission of offence under section 27 of the
Act. The th tee directors of the manufacturers' company (the respondents)
filed a petition in the High Court under Section 482 of the Code of Criminal B
Procedure, 1973~ The High Court quashed the proceedings against the
respondents on the ground that the prosecution was launched after the shelf
life of the drugs had expired in the month of July, 1991 and as a consequence
thereof they were deprived of their right under section 25(4) of the Act to
get the drugs tested by the Central Drugs Laboratory. State oLHaryana
preferred appeal before this Court. C

Dismissing the appeal, this Court

HELD : I. The reasoning of the High Court for quashing the prosecution
against the three respondents is not sustainable. It did not properly consider
the provisions of sub-section (3) of Section 25 nor did it appear to have D
perused the complaint and the documents annexed thereto before concluding
that the respondents were deprived of their right under sub-section (4).
Unless requirement of sub-section (3) is complied with by the person
concerned he cannot avail of this right under sub-section (4). [109-B-A)

2. From a bare perusal of sub-section (3) it is manifest that the report E
of the Government Analyst shall be evidence of the facts stated therein and
such evidence shall be conclusive unless the person from whom the sample
was taken or the person whose name, address or other particulars have been
disclosed under Section ISA has within 28 days of the receipt of the report
notified in writing the Inspector or the Court before which any proceeding F
in respect of the sample are pending that he intends to adduce evidence in
coutroversion of the report. Under sub-section (4) the right to get the sample
tested by Central Government Laboratory (so as to make its report override
the report of then Analyst) through the Court accrues to a person accused
in the case only if he had earlier notified in accordance with sub-section (3) G
his intention of adducing evidence in controversion of the report of the
Government Analyst. Consequent upon respondents' failure to notify the
Inspector within 28 days of the receipt of a copy of the report that they
intended to adduce evidence in controversion of the report, not only the right
of the manufacturers to get the sample tested by the Central Drugs Laboratory
through the Court concerned stood extinguished but the report of the H
106 SUPREME COURT REPORTS [ 1998] 3 S.C.R.

A Government Analyst also became conclusive evidence under sub-section (3).
The delay in filling the complaint till the expiry of the shelflife of the drugs
could not, therefore, have been made a ground by the High Court to quash
the prosecution. [108-G-H; 110-CJ

3. Under section 34(1) the vicarious liability of a person for being
B 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 fulfils both the
above requirements so as to make him liable. Conversely, without being a
C director a person can be in-charge of and responsible to the company for
the conduct of its business. In the instant case except of 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.
On this ground the order of the High Court quashing the prosecution of
D three respondents is upheld. (111-A-B)

Delhi Municipality v. Ram Kishan, [1983) 1 SCC 1, relied on.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No,
529 of 1998.
E
From the Judgment and Order dated 9.8.96 of the Punjab & Haryana.
High Court in Crl. M. No. 13534of1995.

Prem Malhotra for the Appellant.

F Pawan Bansal and R.D. Upadhyay for the Respondents.

The Judgment of the Court was delivered by -
M.K. MUKHERJEE, J. Leave granted.

G Heard the learned counsel for the parties.

2. On August 7, 1990 the District Drugs' Inspector, Hisar (Haryana:)
visited the premise of Mis. Naresh Medical Agencies, (hereinafter referred to
as the 'firm'), purchased two samples of sodium chloride injections (hereinafter
referred to as the 'drugs') and sent portions of each of those samples to the
H Government Analyst for analysis. The Analyst submitted his reports on
STATE OF llARYANA v. BL. MITT AL (M.K. MUKHERJEE, J.] 107
September I 0 and 11, 1990 to the effect that both the samples were not of A
1 standard quality and were misbranded and adulterated within the meaning of
Sections 17 and 17 A of the Drugs and Cosmetics Act, 1940 ('Act' for short).
The Inspector. on receipt of those reports, delivered copies thereof to the film
on September I 7, I 990 along with a letter asking it to disclose the names and
addresses and other particulars of the persons from whom the drugs had been B
purchased. In compliance therewith the firm, by its letter dated October I,
1990, intimated the Inspector that Mis. Ajay Medical Agencies, Hisar and
National Distributors, Sirsa, were the distributors of the drugs and Mis
Mitson Pharmecutial Pvt. Ltd., Sibian, were the manufactu~ers. On getting that
information the inspector apprised those firms/company of his having
purchased the drugs from the finn and the reports of the Analyst. C
3. The Inspector then filed a complaint against the above firms/company
and their partners/directors in the Court of the Chief Judicial Magistrate, Hisar
on August 31, 1992 alleging commission of offence under Section 27 of the
Act by them. The Magistrate took cognizance upon the complaint and issued
processes against the persons arraigned. Aggrieved thereby the three directors D
of the manufacturers (the respondents before us) moved the High Court
under Section 482 of the Code of Criminal Procedure for quashing the
proceeding initiated against them. By the impugned judgment the High Court
quashed the proceeding as against the respondents on the ground that the
prosecution was launched after the shelf life of the drugs had expired in the E
month of July, 1991 and as a consequence thereof they were deprived of their
right under Section 25(4) of the Act to get the drugs tested by the Central
Drugs Laboratory. Hence this appeal at the instance of the State of Haryana.

4. At the outset, it will be apposite to extract Section 25 of the Act. It
reads as under:- F
"REPORT OF GOVERNMENT ANALYSTS :

(I) The Government Analyst to whom a sample of any drug or
cosmetic has been submitted for test or analysis under sub-
section (4) of Section 23, shall deliver to the Inspector submitting G
it a signed report in triplicate 'in the prescribed form.

(2) The Inspector on receipt thereof shall deliver one copy of the
report to the person from whom the sample was taken and
another copy to the person, if any, whose name, address and
other particulars have been disclosed under Section I SA, and H
108 SUPREME COURT REPORTS [1998) 3 S.C.R.

A shall retain the third copy for use in any prosecution in respect
of the sample.

(3) Any document purporting to be a report signed by a Government
Analyst under this Chapter shall be evidence of the fact stated
therein, and such evidence shall be conclusive unless the person
B from whom the sample was taken or the person whose name,
address and other particulars have been disclosed 1mder Section
18-A has, within twenty-eight days of the receipt of a copy of
the report, notified ;n writing the Inspector or the Court before
which any proceedings in respect of the sample are pending that
he intends to adduce evidence in controversion of the report.
c
(4) Unless the sample has already been tested or analysed in the
Central Drugs Laboratory, where a person has under sub-section
(3) notified his intention of adducing evidence in controversion
of a Government Analyst's report, the Court may, of its own
motion, or in its discretion at the request either of the complainant
D or the accused cause the sample of the drug or cosmetic produced
before the Magistrate under sub-section (4) of Section 23 to be
sent for test or analysis to the said Laboratory, which shall make
the test or analysis and report in writing signed by, or under the
authority of, the Director of the Central Drugs Laboratory the
E result thereof, and such report shall be conclusive evidence of
the facts stated therein.
'
(5) The cost of a test or analysis made by the Central Drugs
Laboratory under sub-section (4) shall be paid by the complainant
or accused as the Court shall direct."
F 5. From a bare perusal of sub-section (3) it is manifest that the report
of the Government Analyst shall .be evidence of the facts stated therein and
such evidence shall be conclusive unless the person from whom the sample
was taken or the person whose name, address or other particulars have been
disclosed under Section 18A (in this case the manufacturers) has within 28
G days of the receipt of the report notified in writing the Inspector or the Court
before which any proceeding in respect of the sample are pending. that he
intends to adduce evidence in controversion of the report. Sub-section (4)
also makes it abundantly clear that the right to get the sample tested by
Central Government Laboratory (so as to make its report override the report
of the Analyst) through the Court accrues to a person accused in the case
H only if he had earlier notified in accordance with sub-section (3) his intention
STA TE OF HARY ANA v. B.L. MITT AL [M.K. MUKHERJEE, J.] 109
of adducing evidence in controversion of the report of the Government A
Analyst. To put it differently, unless requirement of sub-section (3) is complied
with by the person concerned he cannot avail of his right under sub-section
(4).

6. On perusal of the impugned judgment we are constrained to say that
the High Court did not properly consider the provisions of sub-section (3) B
nor did it appear to have perused the complaint and the documents annexed
thereto before concluding that the respondents were deprived of their right
under sub-section (4). Indeed, in quashing the impugned notification the High
Court extracted Section 25 and then, without any discussion whatsoever,
recorded the following peremptory finding: C
"It is apparent from afore>aid (Section 25) that when the concerned
report is received, one copy has to be delivered to the person from
whom the same was taken. Within 28 days of the receipt of the copy,
the said person can show his intention to adduce defence in
contravention of the report. Sub-section (4) of Section 25 of the Drugs D
& Cosmetics Act, 1940 further makes the position clear. An accused
can request the Court to call for the sample and send it for analysis
to the Central Drugs Laboratory. By the time the petitioners were
summoned, the shelf life had expired. Jn this process the petitioners
(the respondents before us) lost their right to get the sample re- E
analysed from the Central Drugs Laboratory. The petitioners' counsel
rightly alleges that a valuable right has lost and this caused prejudice
to the petitioners."

7. At the risk of repetition, we wish to emphasis that the right to get
the sample examined by the Central Drugs Laboratory through the Court F
before which the prosecution is launched arises only after the person
concerned notifies in writing the Inspector or the Court concerned (here the
latter clause did not apply for the prosecution was set to be initiated) within
twenty eight days from the receipt of the copy of the report of the Government
Analyst that he intends to adduce evidence in controversion of the report. G
The complaint and its accompaniments (which include correspondences that
took place between the Inspector and the manufacturers) clearly disclose that
on February 19, 1991 the Inspector served the original copies of the Analyst's
report upon the Managii;g Director of the manufacturers along with two
letters asking for their comments. They further disclose that receiving no
reply from the manufacturers the Inspector again wrote a letter on March 6, H
110 SUPREME COURT REPORTS [ 1998] 3 S.C.R.

A 1991 directing them to reply to his letters dated February 19, 1991 and asked
whether they wanted to take benefit of the provisions of SectiolJ 25(3) of the
Act. lnspite thereof the manufacturers did not exercise their right (much less
within 28 days from the date of the receipt of the report of the Government
Analyst i.e. February 19, 1991); and, on the contrary, in their letter dated April
B 8, 1991 (annexed to the complaint), sent in response to the letter dated March
6, 1991, asserted that their quality control department examined and tested
samples of the two drugs and found that they complied with the test of
sterility. It must, therefore, be said that consequent upon their failure to notify
the Inspector that they intended to adduce evidence in controversion of the
report within 28 days, not only the right of the manufacturers to get the
C sample tested by the Central Drugs Laboratory through the Court concerned
stood extinguished but the report of the Government Analyst also became
conclusive evidence under sub-section (3). The delay in filing the complaint
till the expiry of the shelf life of the drugs could not, therefore, have been
made a ground by the High Court to quash the prosecution. It will not be out
D of place to mention that the manufacturers' right under sub-section (3) expired
four months before the expiry of the shelf life of the drugs. In view of the
above discussion, the reasoning of the High Court for quashing the
prosecution against the three respondents cannot at all be sustained.

8. Nonetheless, we find that the impugned judgment of the High Court
E 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:

p (I) 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.
G
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
H offence."
ST ATE OF HAR YANA v. B.L. MITTAL [M.K. MUKHERJEE, J.] 111
It is thus seen that the vicarious liability of a person for being prosecuted A
l' 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 fulfils both the above requirements so
as to make him liable. Conversely, without being a director a person can be B
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.

9. In Delhi Municipality v. Ram Kishan, [1983] l SCC 1 while dealing
c
with the applicability of Section 17(1) of the Prevention of the Food Adulteration
Act, 1954, which is in pari materia with Section 34(1) of the Act, on similar
facts, this Court observed as under:-

"So far as the Manager is concerned, we are satisfied that from the D
very nature of his duties it can be safely inferred that he would
undoubtedly be vicariously liable for the offence, vicarious liability
being an incident of an offence under the Act. So far as the Directors
are concerned, there is not even a whisper not a shred of evidence
nor anything to show, apart from the presumption drawn by the
complainant, that there is any act committed by the Directors from E
which a reasonable inference can be drawn that they could also be
vicariously liable. In these circumstances, therefore, we find ourselves
in complete agreement with the argument of the High Court that no
case against the Directors (accused Nos. 4 to 7) has been made out
ex facie on the allegations made in the complaint and the proceedings F
against them were rightly quashed."

(emphasis supplied)

10. Since we are in respectful agreement with the view so expressed we
dismiss this appeal and uphold the order of the High Court quashing the G
prosecution against the three respondents on a different ground.

T.N.A. Appeal dismissed.