HC Declines to Quash Criminal Proceedings Against Pharma Directors in Substandard Locipil Case

The Court held that whether the directors were “in charge of, and responsible to the company for the conduct of the business” under Section 34 of the Drugs and Cosmetics Act, 1940, is essentially a question of fact that requires examination of evidence at trial. It also clarified that directorship alone does not conclusively establish guilt, but a claim of non-involvement in the manufacturing process cannot ordinarily be conclusively determined at the stage of quashing proceedings.

A bench of Justice Wasim Sadiq Nargal dismissed the petition filed by the three directors of Corona Remedies, who had challenged the criminal complaint and the July 26, 2018 order of the Chief Judicial Magistrate, Jammu, taking cognizance of offences under Section 18(a)(i) read with Section 27(d) of the Drugs and Cosmetics Act, 1940 and issuing process against them.

Case over ‘Not of Standard Quality’ Locipil Tablets

The case arose from Locipil Tablets, Batch No. CHI15020, manufactured by Corona Remedies in September 2015, with an expiry date of May 2018.

A sample was lifted by the Drugs Inspector from ESIC Model Hospital, Bari Brahmana, Jammu, and sent for statutory testing. The Government Analyst at the Regional Drugs Testing Laboratory, Chandigarh, issued a report dated August 31, 2016, declaring the drug “Not of Standard Quality.”

The prosecution was initiated under Section 18(a)(i) read with Section 27(d) of the Drugs and Cosmetics Act. Section 18(a)(i) deals with the manufacture, sale or distribution of drugs that are not of standard quality, while Section 27(d) prescribes the punishment for contravention of the relevant provisions.

Following the Government Analyst's report, a statutory notice was issued to the company. Corona Remedies responded that it had stopped the sale of the concerned batch and had no stock remaining, while also requesting the authorities to take a lenient view.

Joint inspection found manufacturing under GMP norms

A joint inspection of the company's manufacturing facility was subsequently conducted.

According to the Court record, the inspection found that the batch had been manufactured under Good Manufacturing Practices (GMP) and that the required quantity of bulk drug had been used. However, in view of the Government Analyst's findings, the inspection team recommended that appropriate action be initiated under the applicable guidelines.

The Drugs Inspector thereafter filed the criminal complaint before the Chief Judicial Magistrate, Jammu. The Magistrate took cognizance on July 26, 2018 and issued process against the accused.

The directors subsequently approached the High Court under Section 561-A of the Code of Criminal Procedure seeking quashing of the complaint and the criminal proceedings.

Directors claimed no role in drug manufacture

The petitioners argued that they could not be held criminally liable merely because they were directors of the company.

They contended that the manufacturing activities were conducted at the company's Solan facility under the supervision of qualified technical personnel and that they had no personal involvement in the actual manufacturing process.

The directors also argued that the complaint did not contain sufficient allegations to establish their vicarious liability under Section 34 of the Drugs and Cosmetics Act.

The provision deals with offences committed by companies and provides for liability of persons who, at the time of the offence, were “in charge of, and responsible to the company for the conduct of the business.” It also provides a defence where such a person establishes that the offence was committed without their knowledge or that they exercised due diligence to prevent its commission.

HC: Responsibility of directors is a question of fact

Rejecting the plea for quashing, the High Court held that the directors could not avoid the operation of Section 34 at the threshold merely by asserting that they had no role in the actual manufacturing process.

The Court observed:

“The petitioners cannot, at this stage, avoid the operation of Section 34 of the Act merely by disputing their responsibility for the conduct of the Company's business or by asserting that they had no role in the actual manufacturing process.”

The Court noted that physical participation in the manufacture of the drug is not the only consideration under Section 34. Whether the directors were actually in charge of and responsible for the company's business, the extent of their responsibility and the nature of their control are matters that require appreciation of evidence.

At the same time, the Court did not hold that the directors were guilty merely by virtue of their directorship.

The Court made clear that directorship alone does not conclusively establish guilt, while the directors' claim that they were not involved in manufacturing also could not ordinarily be conclusively determined at the quashing stage. These issues would have to be examined during the trial.

Company had earlier sought lenient view

The High Court also considered Corona Remedies' response to the statutory notice issued after the Government Analyst's report.

The company had stated:

“Sir, we acknowledge the receipt of your letter and find our compliance as follows:

We had stopped the sale of the batch in question.

As on date, we don't have stock of above said product. Find enclosed copy of Batch Distribution Record & Stock Transfer Note along with confirmation of stock from C & F. We admire your findings and honor your judgment. Your esteemed Directorate is requested to take a lenient view in this concern.”

The Court considered this conduct relevant while examining the company's subsequent challenge and referred to the principle of approbation and reprobation.

HC links drug quality regulation with Article 21

The High Court also examined the broader public-health purpose of the Drugs and Cosmetics Act.

It observed that the legislation is not merely regulatory in nature but seeks to ensure that medicines made available to the public meet prescribed standards of quality, safety and efficacy.

The Court held that this legislative purpose has a direct connection with Article 21 of the Constitution, as the right to life encompasses the right to health and well-being.

The Court observed:

“…The manufacture and distribution of drugs which fail to meet the prescribed standards, therefore, carries a direct bearing upon public health and, consequently, implicates the constitutional concern underlying Article 21. The statutory safeguards contained in the Drugs and Cosmetics Act must accordingly be understood as serving not merely a regulatory purpose, but also as an important legislative mechanism for protecting the health and life”

The Court further emphasized that consumers of medicines are entitled to expect that drugs made available for human consumption comply with prescribed quality standards.

Court refuses to interfere at quashing stage

The High Court ultimately found no ground to interfere with the criminal complaint or the Magistrate's order taking cognizance.

It held that the objections concerning the directors' alleged non-involvement in manufacturing, the statutory procedure, the Joint Investigation Report and the material relied upon by the prosecution either involved disputed questions of fact or matters that could appropriately be examined by the trial court.

The Court observed:

“The objections raised by the petitioners, including those relating to their alleged non-involvement in the manufacturing process, the statutory procedure, the Joint Investigation Report and the sufficiency or effect of the material relied upon by the prosecution, either involve disputed questions of fact or matters which can appropriately be examined by the learned Trial Court while conducting trial in accordance with law. No patent illegality, jurisdictional error, perversity or abuse of the process of law is, therefore, discernible so as to warrant exercise of the inherent jurisdiction of this Court under Section 561-A Code of Criminal Procedure (corresponding to Section 482 CrPC, 1973), and akin to the newly enacted Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023.”

The High Court accordingly dismissed the petition and vacated the interim order dated May 3, 2019, which had stayed further proceedings before the Chief Judicial Magistrate, Jammu.

The ruling does not determine the directors' guilt or innocence. It only holds that the issues raised by them cannot be conclusively decided at the quashing stage and must be examined by the trial court on the basis of evidence.