News Flash: Litigation & Dispute Resolution | Drugs and Cosmetics Act, 1940 – Madras High Court holds that all the directors of a pharmaceutical company will be vicariously liable for the production / manufacture of sub-standard drugs and fastens criminal liability on them
Authored by Zenia Cassinath (Principal Associate)
Drugs and Cosmetics Act, 1940 – Madras High Court holds that all the directors of a pharmaceutical company will be vicariously liable for the production/manufacture of sub-standard drugs and fastens criminal liability on them.
Deviating from the well-settled legal principle of strict interpretation of vicarious liability in criminal jurisprudence, a single judge of the Madras High Court in the case of Vikas Rambal and others vs. State [Crl. O. P. No. 11184 of 2019] on 12th October, 2022, while hearing a criminal original petition filed under Section 482 of the Code of Criminal Procedure, 1973 for quashing a criminal complaint filed against directors of Sunrise International Labs Ltd. filed under Section 32 of the Drugs and Cosmetics Act, 1940 (“the Act”), has dismissed the petition and has refused to quash the prosecution initiated against such non-executive directors. The Hon’ble Madras High Court proceeded on the premise that manufacturing and distribution of sub-standard drugs by a company, is managed by its board of directors, and the decision to manufacture the drugs is the collective decision of the board of directors and therefore held that the directors cannot claim that they were not directly involved in the production of the drugs, when the decision to produce the drugs, itself is the outcome of their decision. The Hon’ble Madras High Court, therefore, held the petitioner directors (including the non-executive directors) vicariously liable for producing sub-standard drugs.
Legal issue in consideration before the Court
The primary question which arose before the Hon’ble High Court was whether the directors can wriggle out of criminal liability on the ground that they are not directly involved in the production of sub-standard pharmaceutical products and whether if sub-standard products are sold to the public, only the person responsible for the production of the drugs should be held liable and if others cannot be held vicariously liable.
Liability of the directors
Vicarious liability of directors has been stipulated under Section 34 of the Act for violation of the provisions thereof by a company and it prescribes that every person who, at the time the offence was committed, was in charge of the company and responsible for the conduct of its business, as well as the company, shall be deemed to be guilty of the offence. The proviso to Section 34(1), however, provides that if such person proves that the offence was committed without his/her knowledge, or that he/she had exercised due diligence to prevent the commission of such offence, then liability may be avoided under the Act. Further, Section 34(2) of the Act specifies that in the event the offence is committed by the company, and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary, or other officer of the company, then such person will also be held liable.
Relying upon the judgment of the Hon’ble Supreme Court in State of Haryana vs Brij Lal Mittal [1998 CrLJ 3287], it was contended on behalf of the petitioner directors that they ought not to have been prosecuted as Section 34 of the Act mandates that apart from showing the directors as accused, the complaint must indicate the offence has been committed with the consent or connivance of the said directors, or that the negligence should be attributable to the directors who are arrayed as accused.
On the other hand, the respondent argued that when an offence is committed against the Society at large and the said offence is committed by a company, all the directors who accrued benefit out of the said act of crime ought to be prosecuted and they are all vicariously liable. It was further argued that such directors cannot escape criminal liability by indicating one of the directors as a person responsible for the offence of the company and that they are not connected with the day-to-day affairs of the company. As long as their names are on the board of directors, for violation of the provisions of the Act, criminal liability shall fall on all the directors for an offence committed by the Company, as the same is against the society at large.
The Hon’ble Madras High Court accordingly held that the contention of the petitioner directors that they are not directly involved in the product of the drugs, when the decision to produce the drugs, itself is the outcome of their decision, is wholly unsustainable, and if the said preposition is accepted it will go against the object and reasons of the Act.
Analysis of Section 34 of the Act vis-à-vis Section 141 of the Negotiable Instruments Act (“NI Act”)
The Hon’ble High Court analysed Section 34 of the Act vis-à-vis Section 141 of the NI Act, which is in pari materia. In this regard, relying upon the decision of the Hon’ble Supreme Court in the case of S. Mohan Lal vs R. Kondiah [(1979) 2 SCC 616], the Hon’ble High Court held that the interpretation of the expressions used in Section 141 of the NI Act cannot be applied to Section 34 of the Act since the offences are not cognate and the enabling section to prosecute the company has to be read with the offence charged. Applying the interpretation of Section 141 of the NI Act to the other acts and ignoring the nature of offence charged, would according to the Hon’ble High Court lead to a miscarriage of justice.