THE HON’BLE SRI JUSTICE N. RAVI SHANKAR CRIMINAL PETITION No.3622 of 2011 Date: .06.2011 Between: …..Petitioner And and another …..Respondents THE COURT MADE THE FOLLOWING: THE HON’BLE SRI JUSTICE N. RAVI SHANKAR CRIMINAL PETITION No.3622 of 2011 ORDER:- This is a petition under Section 482 Criminal Procedure Code (Cr.P.C.) to quash the proceedings in the Criminal Case No.325 of 2010 on the file of the Court of Judicial First Class Magistrate, Kamareddy (trial Court) in so far as the petitioners are concerned. 2. The three petitioners herein are arrayed as A-1 to A-3 in the aforesaid criminal case and they are described as directors of the accused No.4 which is a limited company called M/s.Dolpha Laboratory Limited located in Solan District of State of Himachal Pradesh. This company is in the business of manufacture and sale of drugs covered by the Drugs and Cosmetics Act, 1940 (for short the Act). The Drugs Inspector, Kamareddy of Nizamabad District filed the aforesaid C.C.No.325 of 2010 as a complaint case in the trial Court against all the four accused alleging against them an offence punishable under Section 18(a)(i) read with Section 16 read with Section 23(d) of the Act on the plea that all the four accused manufactured and sold a drug called Clanoxy 375 Mg tablets which were not of standard quality according to the terms of the Act. The other details are not necessary. 3. It should be noted that in the complaint A-1 to A-3 i.e., the petitioners herein are simply described as directors of the A-4- company and it is pleaded that A-1 to A-3 and A-4- company manufactured the drug in question and sold it. Section 34 of the Act deals with prosecution of companies for the offences under the Act. The plea of the petitioners is that according to Section 34 of the Act not all directors or officials of the company are liable for prosecution for the offences under the Act which are committed by a company, but only those who were at the relevant time were in charge of and were 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. Their further plea is that since there are no averments in the complaint or any material is placed before the Court to show that they were responsible for the conduct of the business of the A-4-company i.e. manufacture and sale of the drug in question and also to the company for conducting such business, the prosecution against them is not maintainable and consequently it should be quashed. The learned Counsel for the petitioners in support of the above contentions of the petitioners also placed reliance upon two decisions, one of the Supreme Court and another of this Court and they will be referred to infra. 4. The learned Counsel for the petitioners in the course of arguments repeated the above pleas of the petitioners for quashing the case against them. On the other hand, the learned public prosecutor supported the prosecution and submitted that since all the three petitioners are directors of the company i.e. A-4, all of them can be held responsible for the business of the company and therefore, they can be prosecuted. Alternatively he argued that this is not such a case where this Court should interfere at the threshold and that petitioners can as well raise their defences in the trial of the case and that therefore, this Court should not interfere in the matter. 5. Thus, the point is whether there are grounds to quash the proceedings in the above criminal case against petitioners on the plea taken by them. 6. The circumstances under which the point has arisen and the relevant contentions of both sides have already been set out supra. It may be noted that neither side rightly went into the merits of the matter and therefore the point has to be answered with reference only to the validity of the prosecution against the petitioners having regard to their plea and requirement laid down under Section 34(1) of the Act which deals with prosecution of companies and its directors and officials or partners of a firm. 7. Now, Section 34 of the Act has to be seen and it reads as follows: “34. 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. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a 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, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.” 8. Thus, the language of Section 34 of the Act would show that a company in the business of manufacture and sale of drugs is undoubtedly liable for prosecution for the offences under the Act if the drugs manufactured by it are found to be spurious or misbranded or not of prescribed quality. So far as the liability of the persons associated with the company, Section 34 says that “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”. Then the proviso to sub-section (1) of Section 34 shifts the burden on to the aforesaid persons to prove their innocence in case their role is found. Then Section 34 (2) which starts with a non-obstante clause says that notwithstanding anything in Section 34(1), every person associated with the company which is prosecuted would be deemed to be guilty of offence for which the company is prosecuted if it is proved that he is also responsible for the same. The object of this Section is obvious and it has been enacted for the reason that a company being a body corporate, its business and affairs are looked after by those who manage it. This is usually called vicarious liability. 9. Now in the present case, the complaint first reads that A-1 to A-3 are directors of the A-4-company. It then reads that A-1 to A- 4 had manufactured and sold the drug in question and therefore, they are guilty of the offence. Except this averment, there is nothing in the complaint indicating in what manner or method A-1 to A-3 conducted the business of the company relating to the manufacture and sale of the drug in question and whether they were responsible for conduct of the business of the company and as well as to the company itself and if so how. It should be noted that the Drug Inspector should have taken care to gather information about the role of A-1 to A-3 in the affairs of the A-4 company and their responsibility for making of the chemical formulations or approving the same for the drug in question or they were in some manner or the other were associated with the manufacturing activity of the said drug or the sale of it. Nothing is mentioned about the nature of the activities undertaken by A-1 to A-3 in connection with the manufacture or sale of the drug. The learned Counsel for the petitioners relied upon this defect in the complaint for quashing the case against the petitioners. 10. In State of Karnataka Vs. Pratap Chand[1] relied upon by the petitioners Counsel, the Supreme Court dealt with the scope of Section 34 of the Act and held that only a partner of the concerned firm therein who was in overall control of day-to-day business of the firm was alone responsible for the offence and not the other partners who was not in control of the firm’s business. Of course, this was a case where the matter went up to the Supreme Court after convictions were recorded and confirmed. Then in the other two cases i.e., T.Kiran Kumar Vs. Drug Inspector, Tirupati[2] and Tumu Venkateswar Reddy Vs. State of A.P.[3] relied upon by the petitioners Counsel and which arose under the Act, this Court quashed the proceedings against partners who were not in control of the business of the partnership firm in question basing on the above principle laid down by the Supreme Court. 11. The learned Public Prosecutor sought to distinguish the above decisions on the ground that in the present case petitioners who are A-1 to A-3 are directors of the A-4-company and in the complaint it is alleged that A-1 to A-4 manufactured the drug in question and this is enough to sustain the prosecution against them and the repetition of the words that A-1 to A-3 should be in charge of the business of A-4-company as contemplated under Section 34 (1) of the Act is not necessary as the averments in the complaint indicate that A-1 to A-2 were looking after the business. This contention may apparently sound forceful, but cannot be accepted for the following reasons. 12. It may be noted that Section 141 of the Negotiable Instruments Act, 1881 (N.I.Act) deals with the liability of the companies and its directors and other officials or partners of a firm for the offence of cheque dishonour punishable under Section 138 of the N.I. Act. A perusal of Section 141 of N.I.Act would show that it is similarly worded or in pari materia with Section 34 of the Ac t. A Full Bench decision of the Supreme Court in SMS Pharmaceuticals Limited Vs. Neetha Bhalla[4] has dealt with the procedure and format in which a complaint should be filed against the directors of a company for the offence punishable under Section 138 of the N.I. Act. It has been laid down in the said decision that in case of directors or other officials who cannot prima facie be said to be having control of the business like a managing director or a joint managing director or a director who has himself issued the cheque in question, the complaint should contain specific averments that such directors or officials were in charge of or in control of business of the company. This has been again reiterated by the Supreme Court in K.K.Ahuja Vs. V.K.Vora[5] holding that on the failure of making such averments and also giving details or particulars relating to the role of such directors or officials in managing the business of the company, the prosecution must fail against such directors or officials. It may be noted that the above rule was laid in connection with a mere cheque bouncing offence. 13. In the present case, the offence relates to manufacture and sale of drugs which are not of quality prescribed by the Act and this can be said to be more serious offence as it relates to the very manufacturing process unlike maintaining a bank account without sufficient funds. It therefore follows that the principles laid down regarding prosecutions of the directors and officials of the company under Section 141 of the NI Act can be equally made applicable to the prosecutions under the present Act of companies as both the provisions are completely analogous. Thus, the prosecution must be more careful in giving out the necessary details and making the necessary averments regarding the role of the directors who are not shown as managing directors or joint managing directors of a drug company such as A-4 in this case for their prosecution for the offences under the Act with reference to Section 34 of the Act. Further it should be noted that the 1st and 3rd petitioners are ladies and the prosecution should have been more careful in furnishing the details of their role in the management of A-4 - company to show in what way they were connected with the manufacturing processes of the A-4 -company and how they can be held responsible for the offences in question under the Act. 14. No such details as are referred to supra have been given in the complaint against the petitioners. The only averment made is that petitioners are directors and they along with the A-4-company manufactured the drug in question. If this averment is to be accepted, it may be noted there may be about 100 officials dealing with the business of a company and the prosecution can rope in all the 100 officials and prosecute them by making similar bald averments. This, in my view, is not permissible in view of the principles laid down by the Supreme Court in the aforesaid decisions. It should also be noted that an accused should have definite information about the basis of the charges levelled against him so that he can defend himself and this is a fundamental requirement in a criminal prosecution which is not satisfied in this case by the complainant-Drug Inspector. However, A-4-company is shown as represented by A-1 i.e., the 1st petitioner as its officer and so the prosecution against A-4- company as represented by A-1 (1st petitioner) can continue as contemplated under Section 305 Cr.P.C which deals with procedure for prosecution of companies. 15. For the aforesaid reasons, I am of the opinion that the complaint in the present C.C.No.325 of 2010 on the file of the trial Court should be quashed in so far as the petitioners are concerned and consequently all further proceedings against them in the said case are set aside. 16. It may then be noted that A-4 in the case is company and the prosecution against it stands and can be continued as represented by the A-1 (1st petitioner) in view of Section 305 Cr.P.C. It shall be open for the prosecution to pursue its remedies against directors or other officials of the company who can be found guilty in view of Section 34 of the Act in accordance with law and this order shall not be understood to preclude the trial Court or fetter its discretion in any manner from proceeding against other accused including the petitioners herein if any material placed before it warrants such a course of action under law. Such other accused shall also have all opportunity to defend themselves in accordance with law. This petition is accordingly allowed but subject to the above observations. ______________________ N. RAVI SHANKAR, J 14th June, 2011 TJMR/CVRK [1] AIR 1981 SCC 872 [2] 2009 (3) ALT Crl.35 [3] 2010(1) ALT (Crl)-1-217 [4] 2005 SCC (Crl.) 875 [5] 2009(5) Supreme 300