Summary
A non-executive director of a pharmaceutical distributor was summoned under the Drugs and Cosmetics Act, 1940 on an omnibus allegation that he and the company distributed expired drugs to an unlicensed enterprise. The Supreme Court held that vicarious liability under Section 34(2) of the Act requires a prima facie allegation in the complaint of the director's consent, connivance or attributable neglect; the complaint being silent on any inquiry into his role or on who was in charge of the company's business, his prosecution merely for being a director was an abuse of process and was quashed.
Issues
- Whether a director of a company can be prosecuted under Section 34 of the Drugs and Cosmetics Act, 1940 for the company's alleged offences without specific averments in the complaint showing that he was in charge of the day-to-day business or that the offence was committed with his consent, connivance or attributable neglect.
- Whether an omnibus allegation that the director and the company distributed drugs to an unlicensed enterprise suffices to sustain a summoning order against the director.
- Whether the question of a director's responsibility for the company's affairs can be left to trial as a defence rather than examined in a quashing petition under Section 482 CrPC.
Provisions considered
- Section 34(1) and (2) (offences by companies), Drugs and Cosmetics Act, 1940The Court read sub-section (1) as making liable every person in charge of and responsible for the company's day-to-day business, and sub-section (2) as extending liability to other directors, managers, secretaries or officers only where it is proved that the offence was committed with their consent or connivance or is attributable to their neglect. Though the standard at the cognizance stage is lower, the complaint must contain a prima facie allegation of such consent, connivance or neglect; a bald assertion is not enough, and the complaint here was silent on the point and did not implead anyone under sub-section (1). (¶¶ 20, 21, 22, 24, 25, 27, 28)
- Sections 18(a)(vi), 18B, 22(1)(cca), 27(d) and 28A, Drugs and Cosmetics Act, 1940These were the offences of which the Magistrate took cognizance and issued process; the Court did not examine their merits, confining the appeal to whether the appellant as a non-executive director could be held vicariously liable for the company's alleged offences. (¶¶ 4, 9)
- Section 482, Code of Criminal Procedure, 1973The appellant's petition under Section 482 against the summoning order had been rejected by the High Court, which inferred from paragraphs 31(iv) and 36(4) of the complaint that he had distributed drugs to an unlicensed enterprise. The Court held that finding erroneous on the face of the record and quashed the summoning order and proceedings against the appellant as a gross abuse of process. (¶¶ 3, 12, 26, 27, 30)
Held
- Under Section 34 of the Drugs and Cosmetics Act, every person in charge of the company's day-to-day affairs is liable to prosecution for the company's offence; other directors can be prosecuted only where it is proved that the offence was committed with their consent or connivance or is attributable to their neglect. (¶¶ 20, 21)
- Although the standard of proof at the stage of taking cognizance is much lower than at final decision, there must still exist a prima facie allegation in the complaint satisfying the Court regarding the consent, connivance or attributable neglect of the director sought to be prosecuted under Section 34(2); because the sub-section requires proof of the director's active involvement, something more than a bald assertion is necessary. (¶¶ 22, 24)
- Following Dayle De'Souza and National Small Industries Corporation v. Harmeet Singh Paintal, the primary responsibility lies on the complainant to make specific averments making the accused vicariously liable for the company's offence; there is no presumption that every director knows about the company's transactions, and criminal liability can be fastened only on those who at the relevant time were in charge of and responsible for its day-to-day business. (¶ 23)
- An allegation that the director and the company distributed drugs to an unlicensed enterprise, made in omnibus terms against both, cannot by itself sustain a summoning order against the director; the High Court's inference of his personal involvement from such paragraphs of the complaint was erroneous on the face of the record. (¶¶ 26, 27)
- Where no director, manager or officer in charge of the company was impleaded under Section 34(1), the complaint contains no assertion of any inquiry into the persons with whose consent, connivance or neglect the offence was committed, and the correspondence by which the Drug Inspector sought and received the list of directors is not even referred to in the complaint, there is no averment or material against the director and the summoning order is ex facie unjustified; prosecuting him simply for being a director is a gross abuse of the process of law. (¶¶ 28, 29, 30)
Result
Appeal allowed. High Court order dated 12.04.2023 set aside; the summoning order dated 03.12.2016 and all proceedings against the appellant in Complaint No. 1500201/SW/2016 quashed, the complaint to continue against the other accused. Pending applications disposed of.