LALANKUMAR SINGH & ORS. versus STATE OF MAHARASHTRA
[2022] 14 S.C.R. 573, Supreme Court of India, 2022
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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LALANKUMAR SINGH & ORS.
v.
STATE OF MAHARASHTRA
(Criminal Appeal No. 1757 of 2022)
OCTOBER 11, 2022
[B. R. GAVAI AND C. T. RAVIKUMAR, JJ.]
Drugs and Cosmetics Act, 1940: ss.34, 16, 18 – Vicarious
liability – Appellants are the directors of M/s Cachet
Pharmaceuticals Private Ltd. (CPPL) – Test report of the sample of
the drug manufactured by CPPL stated that it was not of standard
quality – Complaint filed before CJM u/s.18(a)(i) r/w ss. 16 and 34
of the Act – CJM issued summons to all the accused including the
appellants – Appellants filed revision petition against the summoning
order before the Sessions Judge which was rejected on the ground
that there was a specific averment in the complaint that the appellants
were concerned with the manufacture, distribution and sale of drug
in question – Writ petition by appellants before High Court was
also dismissed – On appeal, held: A person cannot be made liable
u/s.34 of the Act unless at the material time, he was in-charge of
and was also responsible to the company for the conduct of its
business – Merely because a person is a director of a company, it is
not necessary that he is aware about its day-to-day functioning –
There is no universal rule that a director of a company is in-charge
of its everyday affairs – It is necessary to aver as to how the director
of the company was in charge of day-to-day affairs or responsible
to the affairs of the company – The managing director or a
joint
managing director in a company, as the designation of their office
suggests, are in-charge of a company and are responsible for the
conduct of the business of the company – Appellants are neither
the managing director nor the whole-time directors of the accused
company – Complaint totally lacked requirement of s.34 of the Act
– Order of issuance of process quashed – Negotiable Instruments
Act,1881 – s.141 – Companies Act, 1956 – s.2(13).
Practice and Procedure: Criminal procedure – Issue of Process
by Magistrate – Held: The order of issuance of process is not an
empty formality – The Magistrate is required to apply his mind as to
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whether sufficient ground for proceeding exists in the case or not –
The formation of such an opinion is required to be stated in the
order itself – The order is liable to be set aside if no reasons are
given therein while coming to the conclusion that there is a prima
facie case against the accused.
Allowing the appeal, the Court
HELD : 1. In the present case, there are no specific
averments insofar as the appellants are concerned. It is further
to be noted that the appellants are neither the managing director
nor the whole-time directors of the accused company. It is further
to be noted that, in accordance with the provisions of Rule 76 of
the said Rules read with Form 28, the Accused Nos. 9 and 10
have specifically been approved by the licensing authority in Form
28. Accused No.9 was approved as a person under whose active
direction and personal supervision the manufacture would be
conducted as required under sub rule (1) of Rule 76 of the said
Rules. Similarly, Accused No.10, who was approved as a head of
the testing unit, was to be incharge for carrying out the test of
the strength, quality and purity of the substances as may be
required under the provisions of Part X of the said Rules. The
Court was therefore of the considered view that the complaint is
totally lacking the requirement of Section 34 of the said Act.
[Paras 23 & 24][587-F-H; 588-A-B]
2. The order of issuance of process is not an empty
formality.
The Magistrate is required to apply his mind as to
whether sufficient ground for proceeding exists in the case or
not. The formation of such an opinion is required to be stated in
the order itself. The order is liable to be set aside if no reasons
are given therein while coming to the conclusion that there is a
prima facie case against the accused. No doubt, that the order
need not contain detailed reasons. In instant case, it is clear from
the order of the Single Judge of the High Court, that there was
no such order passed at all. The Single Judge of the High Court,
based on the record, has presumed that there was an order of
issuance of process. Such an approach is unsustainable in law.
[Paras 28 & 30][588-G-H; 590-A-B]
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S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and
another (2005) 8 SCC 89 : [2005] 3 Suppl. SCR 371;
Pooja Ravinder Devidasani v. State of Maharashtra and
another (2014) 16 SCC 1 : [2014] 14 SCR 1468; K.K.
Ahuja v. V.K. Vora and another (2009) 10 SCC 48 :
[2009] 9 SCR 1144; State of NCT of Delhi through
Prosecuting Officer, Insecticides, Government of NCT,
Delhi v. Rajiv Khurana (2010) 11 SCC 469 : [2010] 9
SCR 387; Ashoke Mal Bafna v. Upper India Steel
Manufacturing and Engineering Company Limited
(2018) 14 SCC 202; Sunil Bharti Mittal v. Central
Bureau of Investigation (2015) 4 SCC 609 : [2015] 1
SCR 377 – relied on.
U.P. Pollution Control Board v. Mohan Meakins Ltd.
and others (2000) 3 SCC 745 : [2000] 2 SCR 566;
Dinesh B. Patel and others v. State of Gujarat and
another (2010) 11 SCC 125 : [2010] 10 SCR 319; State
of Haryana v. Brij Lal Mittal and others (1998) 5 SCC
343 : [1998] 3 SCR 104 – referred to.
Case Law Reference
[2000] 2 SCR 566
referred to
Para 12
[2010] 10 SCR 319
referred to
Para 12
[1998] 3 SCR 104
referred to
Para 13
[2005] 3 Suppl. SCR 371
relied on
Para 15
[2014]14 SCR 1468
relied on
Para17
[2009] 9 SCR 1144
relied on
Para19
[2010] 9 SCR 387
relied on
Para 20
(2018) 14 SCC 202
relied on
Para 21
[2015] 1 SCR 377
relied on
Para 28
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
1757 of 2022.
From the Judgment and Order dated 25.06.2015 of the High Court
of Judicature at Bombay at Aurangabad in CRLWP No.288 of 2015.
LALANKUMAR SINGH
& ORS. v. STATE OF MAHARASHTRA
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C.U. Singh, Anupam Lal Das, Sr. Advs., Arun Siwach, Kunal
Cheema, Ms. Aditi Deshpande Parkhi, Anirudh Singh, Krishanu Barua,
Amjid Maqbool, Advs. for the Appellants.
Siddharath Dharmadhikari, Aaditya Aniruddha Pande, Bharat
Bagla, Advs. for the Respondent.
The Judgment of the Court was delivered by
B. R. GAVAI, J.
1. Leave granted.
2. This appeal arises out of the judgment and order dated 25th
June 2015 passed by the learned Single Judge of the High Court of
Judicature of Bombay, at Aurangabad, in Criminal Writ Petition No.288
of 2015, thereby dismissing the said criminal writ petition filed by the
appellants herein and upholding the order of issuance of process dated
30th March 2009 passed by the learned Chief Judicial Magistrate, Beed
(hereinafter referred to as “the learned CJM”) and the order passed by
the learned Sessions Judge, Beed dated 25th November 2014 dismissing
the Criminal Revision being Criminal Revision Petition No.115 of 2013
filed by the appellants there against.
3. The facts, in brief, giving rise to the present appeal are as
under:
3.1 The Appellants are the Directors of M/s Cachet
Pharmaceuticals Private Ltd. (hereinafter referred to as “CPPL”). CPPL
was granted permission to manufacture ‘Hemfer Syrup’ which falls under
Schedule C & C(1) to the Drugs & Cosmetics Rules, 1945 (hereinafter
referred to as “the said Rules”).
3.2 On 30th August 2006, Sh. N. A. Yadav, the then Drugs Inspector,
Food and
Drugs Administration, Beed, Maharashtra, visited the premises
of M/s. Priya Agencies at Beed and purchased ‘Hemfer Syrup’, from
which he had drawn samples of the drug. On 31st August 2006, he sent
one such sample to the Government Analyst, Maharashtra State Drug
Control Laboratory Mumbai so as to have the drug tested. On 26th
February 2007, he received a test report dated 13th February 2007 from
the Government Analyst stating that the sample was not of standard
quality as the content of Cyanocobalamin was less than the permissible
limit, i.e., 39% of the label amount. On the same day, the manufacturer
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of the drug, i.e., CPPL, was informed by a registered post about the test
report.
3.3 On 29th March 2007, Sh. Vijay Jain, Deputy Manager, QA of
CPPL requested the Drug Inspector to send the samples again for analysis.
Pursuant to an application filed by M/s Alkem Laboratories, the distributor
of CPPL, the learned CJM, Beed sent the samples of ‘Hemfer Syrup’
for re-analysis on 24th April 2007. On 10th July 2007, the Learned CJM,
Beed received the test report from the Central Drug Laboratory, Calcutta
stating therein that the sample was not of standard quality as it did not
conform to the accepted limits of Cyanocobalamin content.
3.4 Vide letter dated 21st August 2008, the Drug Inspector called
upon CPPL to furnish the particulars of Directors, Articles of Association,
Memorandum of Association, copies of License to manufacture and sell
drugs, particulars of technical persons, and all such information as was
needed to be provided under the Drugs & Cosmetics Act, 1940
(hereinafter referred to as “the said Act”). In reply to this letter, CPPL
informed the Drug Inspector that the report dated 10th July 2007 was
signed by “In-Charge Director” and not the Director of Central Drugs
Laboratory and thus requested him to send a proper report signed by the
Director of the Central Drugs Laboratory.
3.5 Vide letter dated 12th January 2009, the Drug Inspector again
called upon CPPL to furnish particulars that were previously sought.
Vide letter dated 12th February
2009, CPPL provided the information
and documents requested by the Drug Inspector and it was categorically
stated therein that the ‘Hemfer Syrup’ was manufactured under the
supervision and technical guidance of Sh. Ashok Kumar, the FDA
approved manufacturing chemist for liquid orals.
3.6 Mr. Ashok Kumar (Accused No. 9) wrote an individual letter
dated 13th February 2009 to the Drug Inspector stating therein that the
said batch of ‘Hemfer Syrup’ was manufactured under his supervision
and that the drug complied with the requisite standards. Similarly, Mr.
Naresh Roy (Accused No. 10) also wrote a letter dated 13th February
2009 to the Drug Inspector stating therein that the said batch of the
‘Hemfer Syrup’ was tested under his supervision and from the test results
it appeared that the drug complied with the requisite standards.
3.7 Pursuant to the orders to take legal action against the
manufacturer of the drug by the Joint Commissioner (H.Q.) and
LALANKUMAR SINGH & ORS. v. STATE OF MAHARASHTRA
[B. R. GAVAI, J.]
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Controlling Authority, Food & Drug Administration, Mumbai, the
Complaint bearing RCC No. 233 of 2009 came to be filed before the Ld.
Chief Judicial Magistrate, Beed under Section 18(a)(i) read with Sections
16 and 34 of the said Act and punishable under Section 27(d) of the said
Act. In the said complaint, the present Appellants being Directors of the
Company were arrayed as Accused Nos. 5 to 8.
3.8 The learned CJM, Beed issued Summons to all the accused,
including the Appellants herein vide Order dated 30th March 2009. The
Appellants filed a Criminal Revision Petition against the summoning order
before the learned Sessions Judge, Beed on the ground that there are no
specific averments in terms of Section 34 of the said Act as to the role
played by the Directors and thus sought for the Summoning Order to be
quashed. However, the learned Sessions Judge, Beed rejected the said
Criminal Revision Petition noting that there is a specific averment in the
complaint that the appellants are concerned with the manufacture,
distribution and sale of ‘Hemfer Drug’.
3.9 The Appellants preferred a Criminal Writ Petition before the
Bombay High Court assailing the order passed by the learned Sessions
Judge. The High Court, vide the impugned judgment, dismissed the said
Criminal Writ Petition on the ground that all the Directors were conducting
the business of CPPL and thus, they were involved in the manufacturing
process.
3.10 Hence,
the present appeal.
4. We have heard Shri C.U. Singh and Shri Anupam Lal Das,
learned Senior Counsels appearing on behalf of the appellants and Shri
Siddharath Dharmadhikari, learned counsel appearing on behalf of the
respondent-State of Maharashtra.
5. Shri C.U. Singh and Shri Anupam Lal Das, learned Senior
Counsels submit that Section 34 of the said Act specifically provides
that only such person who, at the time of the commission of the offence,
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.
6. Shri C.U. Singh, learned Senior Counsel, further submits that
Rule 76 of the said Rules prescribes a Form of licence to manufacture
drugs specified in Schedule C and C(1), excluding those specified in
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Part XB and Schedule X, or drugs specified in Schedule C, C(1) and X
and the conditions for the grant of such licence. He further submits that,
before a license in Form 28 or Form 28B is granted, certain conditions
are required to be complied with by the applicant. He submits that under
sub-rule (1) of Rule 76 of the said Rules, the manufacture is required to
be conducted under the active direction and personal supervision of
competent technical staff consisting at least of one person who is a
whole-time employee and who possesses the requisite qualification as
prescribed under the said Rules. He further submits that under sub-rule
(4) of Rule 76 of the said Rules, an applicant is required to provide and
maintain adequate staff, premises and laboratory equipment for carrying
out such tests of the strength, quality and purity of the substances as
may be required to be carried out by him under the provisions of Part X
of the said Rules. He further states that under sub-rule (4A) of Rule 76
of the said Rules, the head of the testing unit is required to possess a
degree in Medicine or Science or Pharmacy or Pharmaceutical Chemistry
of a University recognised for the said purpose. He is also required to
have experience in the testing of drugs, which in the opinion of the licensing
authority is considered adequate. He submits that Form 28 is a license to
manufacture for sale or distribution of drugs in accordance with Rule 76
of the said Rules. Learned Senior
Counsel submits that in Form 28, the
names of the approved competent technical staff are required to be
given. He further submits that condition No.3 of the Conditions of Licence
requires that if there is any change in the competent technical staff, the
same shall be forthwith reported to the licensing authority.
7. Learned Senior Counsel submits that Schedule M to the said
Rules provides for good manufacturing practice and requirements of
premises, plant and equipment for pharmaceutical products. Learned
Senior Counsel submits that clause 6.1 of Part I of Schedule M specifically
provides that the manufacture shall be conducted under the direct
supervision of competent technical staff with prescribed qualifications
and practical experience in the relevant dosage form and/or active
pharmaceutical products. It is further the submission of the learned Senior
Counsel that as per clause 6.2 thereof, the head of the Quality Control
Laboratory is required to be independent of the manufacturing unit. It
also requires that the testing shall be conducted under the direct
supervision of competent technical staff, who shall be whole time
employees of the licensee.
LALANKUMAR SINGH & ORS. v. STATE OF MAHARASHTRA
[B. R. GAVAI, J.]
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8. Shri Singh further submits that in the licence which is duly
signed by the designated licensing authority, the names of the approved
competent technical staff are already given. It is further submitted that
in the reply dated 13th February 2009 to the Drug Inspector, Food &
Drug Administration, M.S. Beed, Mr. Naresh Roy, Assistant Manager
Q.A. (Accused No.10) had stated that the raw material was analysed in
the Quality Control Department by Mr. Aftab, Chemist under his
supervision. It is further informed that the finished product of the said
batch of the drug was analysed by Mr. M.K. Sharma under his
supervision. Mr. Naresh Roy (Accused No.10) further informed that he
was approved by the Rajasthan FDA as a competent person.
9. Learned Senior Counsel submits that similarly, Mr. Ashok Kumar,
Assistant Manager, Production (Accused No.9) had also informed the
Drug Inspector by communication dated 13th February 2009 that he was
approved by the Rajasthan FDA. The goods were released after the
final approval from Quality Control. He further states that the
manufacturing record of the said batch was prepared by him and it bears
his signature.
10. Shri Singh further submits that merely mentioning that the
present appellants, being the Directors of the accused company, were
responsible to the company for the conduct of the business of the company
would not be sufficient to initiate proceedings against them. It is submitted
that, unless and until there is a specific averment as to what was the role
in the conduct of the business of the company, a person cannot be
proceeded against solely on the ground that he was a director of the
company. He relies on various judgments of this Court in support of this
proposition.
11. Shri C.U. Singh further submits that there is no formal order
of issuance of the process passed by the learned CJM. It is submitted
that, while issuing process, a duty is cast upon the Magistrate to arrive at
a subjective satisfaction that there is sufficient ground to proceed. He
submits that there is no such order which would reflect the application
of mind by the learned CJM and on this ground also, the impugned order
is liable to be set aside.
12. Shri Siddharath Dharmadhikari, learned counsel, on the contrary,
submits that perusal of the complaint, and specifically paragraphs 3 and
25 thereof would reveal that there is sufficient compliance of requirement
of Section 34 of the said Act. He submits that the complaint has to be
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read as a whole and cannot be read in a piecemeal manner. Learned
counsel relies on the judgment of this Court in the case of U.P. Pollution
Control Board vs. Mohan Meakins Ltd. and others1 in support of the
proposition that there is no legal requirement for the trial Court to pass a
detailed order while issuing process. He also relies on the judgment of
this Court in the case of Dinesh B. Patel and others vs. State of Gujarat
and another2 to buttress his submission that the averments made in the
complaint are sufficient to proceed against the present appellants.
13. In the case of State of Haryana vs. Brij Lal Mittal and
others3, this Court observed thus:
“8. 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:
“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.”
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 fulfils both the above requirements so
1 (2000) 3 SCC 745
2 (2010) 11 SCC 125
3 (1998) 5 SCC 343
LALANKUMAR SINGH & ORS. v. STATE OF MAHARASHTRA
[B. R. GAVAI, J.]
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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.”
14. It could thus be seen that this Court had held that simply
because a person is a director of the company, it does not necessarily
mean that he fulfils the twin requirements of Section 34(1) of the said
Act so as to make him liable. It has been held that a person cannot be
made liable unless, at the material time, he was in-charge of and was
also responsible to the company for the conduct of its business.
15. In the case of S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla
and another4, this Court was considering the question as to whether it
was sufficient to make the person liable for being a director of a company
under Section 141 of the Negotiable Instruments Act, 1881. This Court
considered the definition of the word “director” as defined in Section
2(13) of the Companies Act, 1956. This Court observed thus:
“8. ……. There is nothing which suggests that simply by being a
director in a company, one is supposed to discharge particular
functions on behalf of a
company. It happens that a person may
be a director in a company but he may not know anything about
the day-to-day functioning of the company. As a director he may
be attending meetings of the Board of Directors of the company
where usually they decide policy matters and guide the course of
business of a company. It may be that a Board of Directors may
appoint sub-committees consisting of one or two directors out of
the Board of the company who may be made responsible for the
day-to-day functions of the company. These are matters which
form part of resolutions of the Board of Directors of a company.
Nothing is oral. What emerges from this is that the role of a director
in a company is a question of fact depending on the peculiar facts
in each case. There is no universal rule that a director of a
company is in charge of its everyday affairs. We have discussed
about the position of a director in a company in order to illustrate
4 (2005) 8 SCC 89
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the point that there is no magic as such in a particular word, be it
director, manager or secretary. It all depends upon the respective
roles assigned to the officers in a company. …..”
16. It was held that merely because a person is a director of a
company, it is not necessary that he is aware about the day-to-day
functioning of the company. This Court held that there is no universal
rule that a director of a company is in charge of its everyday affairs. It
was, therefore, necessary, to aver as to how the director of the company
was in charge of day-to-day affairs of the company or responsible to the
affairs of the company. This Court, however, clarified that the position
of a managing director or a joint managing director in a company may be
different. This Court further held that these persons, as the designation
of their office suggests, are in charge of a company and are responsible
for the conduct of the business of the company. To escape liability, they
will have to prove that when the offence was committed, they had no
knowledge of the offence or that they exercised all due diligence to
prevent the commission of the offence.
17. In the case of Pooja Ravinder Devidasani vs. State of
Maharashtra and another5 this Court observed thus:
“17. …… Every person connected with the Company will not
fall into the ambit of the provision. Time and again, it has been
asserted by this Court that only those persons who were in charge
of and responsible for the
conduct of the business of the Company
at the time of commission of an offence will be liable for criminal
action. A Director, who was not in charge of and was not
responsible for the conduct of the business of the Company at the
relevant time, will not be liable for an offence under Section 141
of the NI Act. In National Small Industries Corpn. [National
Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010)
3 SCC 330 : (2010) 1 SCC (Civ) 677 : (2010) 2 SCC (Cri) 1113]
this Court observed: (SCC p. 336, paras 13-14)
“13. Section 141 is a penal provision creating vicarious
liability, and which, as per settled law, must be strictly construed.
It is therefore, not sufficient to make a bald cursory statement
in a complaint that the Director (arrayed as an accused) is in
charge of and responsible to the company for the conduct of
5 (2014) 16 SCC 1
LALANKUMAR SINGH & ORS. v. STATE OF MAHARASHTRA
[B. R. GAVAI, J.]
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the business of the company without anything more as to the
role of the Director. But the complaint should spell out as to
how and in what manner Respondent 1 was in charge of or
was responsible to the accused Company for the conduct of
its business. This is in consonance with strict interpretation of
penal statutes, especially, where such statutes create vicarious
liability.
14. A company may have a number of Directors and to
make any or all the Directors as accused in a complaint merely
on the basis of a statement that they are in charge of and
responsible for the conduct of the business of the company
without anything more is not a sufficient or adequate fulfilment
of the requirements under Section 141.”
(emphasis in original)
18. In Girdhari Lal Gupta v. D.H. Mehta [Girdhari Lal
Gupta v. D.H. Mehta, (1971) 3 SCC 189 : 1971 SCC (Cri) 279 :
AIR 1971 SC 2162] , this Court observed that a person “in charge
of a business” means that the person should be in overall control
of the day-to-day business of the Company.
19. A Director of a company is liable to be convicted for an
offence committed by the company if he/she was in charge of
and was responsible to the company for the conduct of its business
or if it is proved that the offence was committed with the consent
or connivance of, or was attributable to any negligence on the
part of the Director concerned (see State of Karnataka v. Pratap
Chand [State of Karnataka v.
Pratap Chand, (1981) 2 SCC
335 : 1981 SCC (Cri) 453] ).
20. In other words, the law laid down by this Court is that for
making a Director of a company liable for the offences committed
by the company under Section 141 of the NI Act, there must be
specific averments against the Director showing as to how
and in what manner the Director was responsible for the
conduct of the business of the company.
21. In Sabitha Ramamurthy v. R.B.S. Channabasavaradhya
[Sabitha Ramamurthy v. R.B.S. Channabasavaradhya, (2006)
10 SCC 581 : (2007) 1 SCC (Cri) 621], it was held by this Court
that: (SCC pp. 584-85, para 7)
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“7. … it is not necessary for the complainant to specifically
reproduce the wordings of the section but what is required is a
clear statement of fact so as to enable the court to arrive at a
prima facie opinion that the accused is vicariously liable. Section
141 raises a legal fiction. By reason of the said provision,
a person although is not personally liable for commission
of such an offence would be vicariously liable therefor.
Such vicarious liability can be inferred so far as a company
registered or incorporated under the Companies Act, 1956
is concerned only if the requisite statements, which are
required to be averred in the complaint petition, are made
so as to make the accused therein vicariously liable for
the offence committed by the company.”
(emphasis supplied)
By verbatim reproducing the words of the section without a clear
statement of fact supported by proper evidence, so as to make
the accused vicariously liable, is a ground for quashing proceedings
initiated against such person under Section 141 of the NI Act.”
18. It could thus clearly be seen that this Court has held that
merely reproducing the words of the section without a clear statement
of fact as to how and in what manner a director of the company was
responsible for the conduct of the business of the company, would not
ipso facto make the director vicariously liable.
19. A similar view has previously been taken by this Court in the
case of K.K. Ahuja vs. V.K. Vora and another6.
20. In the case of State of NCT of Delhi through Prosecuting
Officer, Insecticides, Government of NCT, Delhi vs. Rajiv Khurana7,
this Court reiterated the position thus:
“17. The ratio of all these cases is that the complainant is required
to state in the complaint how a Director who is sought to be made
an accused, was in charge of the business of the company or
responsible for the conduct of the company’s business. Every
Director need not be and is not in charge of the business of the
company. If that is the position with regard to a Director, it is
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needless to emphasise that in the case of non-Director officers, it
is all the more necessary to state what were his duties and
responsibilities in the conduct of business of the company and
how and in what manner he is responsible or liable.”
21. Recently, in the case of Ashoke Mal Bafna vs. Upper India
Steel Manufacturing and Engineering Company Limited8, this Court
observed thus:
“9. To fasten vicarious liability under Section 141 of the Act on a
person, the law is well settled by this Court in a catena of cases
that the complainant should specifically show as to how and in
what manner the accused was responsible. Simply because a
person is a Director of a defaulter Company, does not make him
liable under the Act. Time and again, it has been asserted by this
Court that only the person who was at the helm of affairs of the
Company and in charge of and responsible for the conduct of the
business at the time of commission of an offence will be liable
for criminal action. (See Pooja Ravinder Devidasani v. State
of Maharashtra [Pooja Ravinder Devidasani v. State of
Maharashtra, (2014) 16 SCC 1 : (2015) 3 SCC (Civ) 384 : (2015)
3 SCC (Cri) 378 : AIR 2015 SC 675] .)
10. In other words, the law laid down by this Court is that for
making a Director of a Company liable for the offences committed
by the Company under Section 141 of the Act, there must be
specific averments against the Director showing as to how and in
what
manner the Director was responsible for the conduct of the
business of the Company.”
22. In the light of these observations, let us examine the averments
made in the complaint insofar as the present appellants are concerned:
“3. That, Accused no. 5 to 8 are the Directors of the M/s Cachet
Pharmaceuticals Pvt. Ltd. village Thana Baddi, Tehsil Nalagarh
dist. Solan (H.P.) Pin code 173205 head office 415, Shahanahar,
Worli, Mumbai - 400018, and looking after day to day activities of
the company.
That, Accused no. 4 is the Pvt. Ltd. Company and is doing the
business of manufacturing, buying, selling, importing and exporting
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of and/or dealers in Pharmaceuticals, Cosmetics, Beauty aids,
Oils, Chemicals, Food products and provisions, Veterinary and
Surgical Equipments, Medicinal preparations including Spirit.
That, Accused no. 4 has mfg. unit at no. (1) Village Thana Baddi,
Tehsil Nalagarh Dist. Solan (H.P.) Pin code 173205 and no. (2) at
C-582, Ricco Ind. Area Bhiwadi, Dist. Alwar, Rajasthan.
That, Accused no.4 are holding drug mgf. License No. MNB/05/
267 in form 25 and licence no. MB/05/268 in form 28 granted on
17.3.2006 valid upto 16.3.2011.
***
***
***
25. That, on 12.2.2009, the complainant visited and inspected the
premises of M/s Cachet Pharmaceuticals Pvt. Ltd. village Thana
Baddi, Tehsil Nalagarh Dist. Solan (H.P.) Pin code 173205 that is
accused no.4. At the time of inspection, Shri Ajay Prakash Gupta
Vice President Technical, accused no. 9 and 10 were present.
During enquiry, it was revealed that Accused no. 4 to 10
manufactured “Hemfer syrup Mfg. Lic. No. MB/05/268/B. No.
HMS/6015 CMfg. Date May-2006 which has been declared to
be NOT OF STANDARD QUALITY at the premises of M/s
Cachet Pharmaceuticals Pvt. Ltd. village Thana Baddi, Tehsil
Nalagarh Dist. Solan (H.P.) Pin code 173205 that is accused no.4
under licence No. MB/05/268 and sold the above said drugs to
M/s Priya Agencies Behind Dr. Vaidya Hospital Jalna Road, Beed,
Dist. Beed through M/s Alkem Laboratories Ltd. situated at reality
warehousing Pvt. Ltd., Gut No.2323/1 property no. 115, Pune
Nagar road, At.
Post Wagholi, Tai. Haveli, Dist. Pune - 412207.”
23. It can thus be seen that there are no specific averments insofar
as the present appellants are concerned. It is further to be noted that the
present appellants are neither the managing director nor the whole-time
directors of the accused company.
24. It is further to be noted that, in accordance with the provisions
of Rule 76 of the said Rules read with Form 28, the Accused Nos. 9 and
10 have specifically been approved by the licensing authority in Form
28. Accused No.9 was approved as a person under whose active direction
and personal supervision the manufacture would be conducted as required
under sub-rule (1) of Rule 76 of the said Rules. Similarly, Accused No.10,
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who was approved as a head of the testing unit, was to be in-charge for
carrying out the test of the strength, quality and purity of the substances
as may be required under the provisions of Part X of the said Rules. We
are therefore of the considered view that the complaint is totally lacking
the requirement of Section 34 of the said Act.
25. The impugned orders are liable to be quashed and set aside on
another ground also.
26. Perusal of the order passed by the learned Single Judge of the
High Court would itself reveal that the learned CJM has not even cared
to pass a formal order of issuance of process. It will be relevant to refer
to the following part of the judgment and order of the learned Single
Judge of the High Court:
“….Though, it is true that on the certified copy produced by the
petitioners there is no such formal order but copy of Roznama
(daily notings of the proceeding) shows that such order was made
on 30-3-2009. The Roznama dated 30-3-2009 reads as follows :
(i) Complaint filed by Vilas Vishwanath Dusane.
(ii) Copy of list of documents containing 44 document.
Order was made on Exhibit 1 (of issue process). Take entry in
register of criminal cases and issue summons against accused.
List the matter for appearance of accused on 18-6-2009.
This record is sufficient to infer that the order of issue process
was made and after that summons were issued against accused
to ask them to appear in the Court.”
27. It could thus clearly be seen that the learned Single Judge of
the High Court held that though there was no formal order of issuance
of process, the record was sufficient to infer that the order of issue
process was made.
28. The order of issuance of process is not an empty formality.
The Magistrate is required to apply his mind as to whether sufficient
ground for proceeding exists in the case or not. The formation of such
an opinion is required to be stated in the order itself. The order is liable
to be set aside if no reasons are given therein while coming to the
conclusion that there is a prima facie case against the accused. No
doubt, that the order need not contain detailed reasons. A reference in
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this respect could be made to the judgment of this Court in the case of
Sunil Bharti Mittal vs. Central Bureau of Investigation9, which reads
thus:
“51. On the other hand, Section 204 of the Code deals with the
issue of process, if in the opinion of the Magistrate taking
cognizance of an offence, there is sufficient ground for proceeding.
This section relates to commencement of a criminal proceeding.
If the Magistrate taking cognizance of a case (it may be the
Magistrate receiving the complaint or to whom it has been
transferred under Section 192), upon a consideration of the
materials before him (i.e. the complaint, examination of the
complainant and his witnesses, if present, or report of inquiry, if
any), thinks that there is a prima facie case for proceeding in
respect of an offence, he shall issue process against the accused.
52. A wide discretion has been given as to grant or refusal of
process and it must be judicially exercised. A person ought not to
be dragged into court merely because a complaint has been filed.
If a prima facie case has been made out, the Magistrate ought to
issue process and it cannot be refused merely because he thinks
that it is unlikely to result in a conviction.
53. However, the words “sufficient ground for proceeding”
appearing in Section 204 are of immense importance. It is these
words which amply suggest that an opinion is to be formed only
after due application of mind that there is sufficient basis for
proceeding
against the said accused and formation of such an
opinion is to be stated in the order itself. The order is liable to be
set aside if no reason is given therein while coming to the
conclusion that there is prima facie case against the accused,
though the order need not contain detailed reasons. A fortiori, the
order would be bad in law if the reason given turns out to be ex
facie incorrect.”
29. A similar view has been taken by this Court in the case of
Ashoke Mal Bafna (supra).
30. In the present case, leaving aside there being no reasons in
support of the order of the issuance of process, as a matter of fact, it is
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clear from the order of the learned Single Judge of the High Court, that
there was no such order passed at all. The learned Single Judge of the
High Court, based on the record, has presumed that there was an order
of issuance of process. We find that such an approach is unsustainable
in law. The appeal therefore deserves to be allowed.
31. In the result, the appeal is allowed. The impugned order of
issuance of process dated30th March 2009 passed by the learned Chief
Judicial Magistrate, Beedand the order passed by the learned Sessions
Judge, Beed dated 25th November 2014 dismissing the Criminal Revision
being Criminal Revision Petition No.115 of 2013 are quashed and set
aside. The complaint against the present appellants is dismissed. Needless
to state that the complaint shall proceed against rest of the accused in
accordance with law.
Devika Gujral
Appeal allowed.
(Assisted by : Neha Sharma, LCRA)