Himachal HC Quashes CDSCO Prosecution Against Pharma Firms Over NSQ Drugs

New Delhi: In a significant ruling with implications for prosecutions under the Drugs and Cosmetics Act, the Himachal Pradesh High Court has quashed three criminal complaints initiated by the Central Drugs Standard Control Organization (CDSCO) against SBS Biotech, VIP Pharmaceuticals and their partners/directors over drugs declared "not of standard quality."

The Court held that the complaints failed to specifically establish the role of the accused persons in the day-to-day affairs of the companies, questioned the competence of the Central Government to launch prosecutions under Chapter IV of the Drugs and Cosmetics Act, and also found violation of the mandatory timeline prescribed for testing drug samples under Rule 45 of the Drugs and Cosmetics Rules.

The common judgment dealt with three petitions challenging criminal complaints filed by the Drugs Inspector, CDSCO, Baddi.

The first case arose after CDSCO officials inspected the premises of M/s SBS Biotech on February 4, 2020, and collected samples of Levetiracetam Injection (Nuatam). The Regional Drugs Testing Laboratory, Chandigarh later declared the sample as "not of standard quality." Following investigation, prosecution sanction from the Drugs Controller General of India (DCGI), and filing of a complaint before the Judicial Magistrate First Class, Nahan, the accused approached the High Court seeking quashing of the proceedings.

The petitioners contended that the entire prosecution was without jurisdiction because the complaints had been instituted by Drugs Inspectors appointed by the Central Government for offences falling under Chapter IV of the Drugs and Cosmetics Act. According to them, while the Central Government exercises powers relating to Chapter III dealing with import of drugs, executive powers under Chapter IV concerning manufacture, sale and distribution are vested in the State Governments. They argued that the Central Government lacked statutory authority to initiate such prosecutions and that the Drugs Inspectors concerned had not been validly appointed under Section 21 of the Act for exercising powers under Chapter IV.

The petitioners further argued that mere designation as partners or directors could not automatically attract criminal liability under Section 34 of the Drugs and Cosmetics Act. They submitted that there were no specific allegations in the complaints showing that they were in charge of and responsible for the conduct of the companies' business at the relevant time. They maintained that the day-to-day manufacturing and quality control activities were handled by designated technical personnel such as General Managers, Manufacturing Chemists and Analytical Chemists, while one of the partners was merely a sleeping partner with no role in daily operations. They also contended that the complaints were drafted mechanically without identifying individual roles or responsibilities.

Additionally, the petitioners alleged violation of Rule 45 of the Drugs and Cosmetics Rules, arguing that the Government Analyst issued the reports well beyond the mandatory 60-day period prescribed after receipt of the samples. They submitted that no explanation or extension had been obtained for the delay and that there was nothing on record to establish that the samples had been properly preserved during the prolonged period. According to them, the delayed analysis prejudiced their statutory right to seek re-analysis of the samples. They also argued that the Magistrates issued summons mechanically without properly examining the legal deficiencies in the complaints.

The Union of India opposed the petitions and defended the prosecution. It maintained that all accused persons were responsible for the conduct and affairs of the companies and were therefore liable under the Drugs and Cosmetics Act.

The Centre argued that Section 21 of the Drugs and Cosmetics Act permits the Central Government to appoint Drugs Inspectors through notification in the Official Gazette for areas assigned to them. It submitted that nothing in the provision prevents appointment of more than one inspector for an area or restricts the territorial jurisdiction of such inspectors. The Union pointed out that the concerned Drugs Inspector had been appointed by the Government of India through a Gazette Notification dated November 7, 2013, with jurisdiction extending across the entire country. It further argued that the complaints contained sufficient averments regarding the petitioners' involvement in the affairs of the companies and that these issues should be examined during trial rather than at the stage of quashing.

After examining the statutory provisions and a series of Supreme Court judgments on vicarious criminal liability, the High Court observed that criminal liability under Section 34 of the Drugs and Cosmetics Act cannot be fastened merely because a person is a partner or director. The Court reiterated that the complainant must specifically plead how and in what manner each accused was in charge of and responsible for the conduct of the company's business when the alleged offence occurred.

The Court found that the complaints were completely silent regarding the specific role played by several petitioners and merely made general assertions that they were responsible persons. It held that such vague averments did not satisfy the legal requirements laid down by the Supreme Court for imposing vicarious liability on company officials. The Court also noted that in the case of SBS Biotech, the partnership deed itself indicated that certain partners were not responsible for day-to-day management of the firm.

The High Court also accepted the petitioners' contention regarding jurisdiction. It observed that the scheme of the Drugs and Cosmetics Act, read with Articles 73 and 162 of the Constitution, indicates that executive powers under Chapter IV ordinarily vest in the State Government unless Parliament has expressly conferred such authority upon the Central Government. According to the Court, Chapter IV contains no such general provision authorising the Central Government to launch prosecutions except in specifically enumerated provisions such as Sections 26A, 26B and 33P. Therefore, the Court found merit in the argument that prosecutions under Chapter IV could not ordinarily be initiated by the Central Government.

The Court further held that the analyst's reports in all three cases had been issued beyond the mandatory 60-day period prescribed under Rule 45 of the Drugs and Cosmetics Rules. It observed that this statutory violation by itself rendered the complaints legally unsustainable because the delay adversely affected the accused's valuable right to challenge the Government Analyst's findings through re-analysis of the samples. The Court concluded that allowing the prosecutions to continue would amount to abuse of the process of law.

Allowing all three petitions, the High Court held:

"Having scanned the entire material adduced on record, vis-à-vis prayer made in the instant petition, this Court is persuaded to agree with Mr. Jain, learned counsel representing the petitioners, that this Court, while exercising power under Section 482 of Code of Criminal Procedure may proceed to quash the complaints against the petitioners, because continuance thereof would be sheer abuse of process of law, since, for the reasons stated herein above, case of prosecution is bound to fail against the petitioners in all probabilities."

The Court further ordered:

"In view of detailed discussion made herein above and law taken into consideration, present petitions are allowed. Complaint bearing COMA No.09 of 2021 dated 17.09.2021 (CNR No.HPSI020023042021)... complaint bearing COMA No.04 of 2022... and complaint bearing COMA No.10 of 2022... are quashed and set aside qua the petitioners. The petitioners are discharged henceforth. All pending applications, stand disposed of."

To view the order, click the link below: