Andhra Pradesh High Court - Amravati
Mr Aditya Bhatia And 2 Others vs The State Of A.P., on 8 December, 2023
Author: K. Suresh Reddy
Bench: K. Suresh Reddy
*HON'BLE SRI JUSTICE K. SURESH REDDY
+CRIMINAL PETITION Nos.2894 and 14687 of 2014
%Dated: 08-12-2023
CRIMINAL PETITION No.2894 of 2014
#Mr. Aditya Bhatia, S/o. Late Sri Sanjeev Bhatia,
R/o. 197 Model Town, Panipat, Director of M/s. Laborate
Pharmaceuticals India Limited, 51, Industrial Area,
Paonta Sahib- 173025 (H.P) and others.
... Petitioners
VERSUS
$ The State of Andhra Pradesh,
Through Drug Inspector, Machilipatnam,
Krishna District, represented by Public Prosecutor of
High Court of A.P.
... Respondent
CRIMINAL PETITION No.14687 of 2014
#Nitin Sobti (Director),
Age 41 years, S/o Manmohan Sobti,
R/o. 8-R, Model Town, Karnal (P.O Tehsil & District),
Haryana, and others.
... Petitioners
VERSUS
$ The State of Andhra Pradesh,
Through The Drug Inspector, Chirala,
Prakasam District, Rep. by PP, High Court, Hyderabad.
... Respondent
!Counsel for the petitioners : Mr. M.S. Srinivasa Iyengar, Senior Counsel,
assisted by Mr. S. Lakshmi Narayana Reddy.
^Counsel for the respondent : Assistant Public Prosecutor
<GIST :
>HEAD NOTE :
?Cases referred :
1. 2022 SCC OnLine SC 1383.
2. (2011) 1 SCC 74
3. (2014) 16 SCC 1
3. (2010) 3 SCC 330
4. (1971) 3 SCC 189
5. (1981) 2 SCC 335
6. (2006) 10 SCC 581
7. (2010) 11 SCC 469
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2 Crl.P.Nos.2894 & 14687 of 2014
HON'BLE SRI JUSTICE K. SURESH REDDY
CRIMINAL PETITION Nos.2894 and 14687 of 2014
COMMON ORDER:
Since similar issue is involved in both these criminal petitions filed
under Section 482 Cr.P.C., they were heard together and are being disposed
of by this common order.
2. Crl.P.No.2894 of 2014 has been filed to quash the proceedings in
P.R.C.No.21 of 2013 on the file of the learned II Additional Judicial First Class
Magistrate, Machilipatnam, Krishna District, insofar as the petitioners/accused
Nos.2 to 4 therein. Crl.P.No.14687 of 2014 has been filed to quash the
proceedings in P.R.C.No.18 of 2014 on the file of the learned Additional
Munsiff Magistrate, Chirala, insofar as the petitioners/accused Nos.2 to 4
therein.
3. Facts of the cases, briefly stated, are as under:
(i) The subject P.R.Cs. have been registered on the complaints
filed by the State under Section 32 of the Drugs & Cosmetics Act, 1940 (for
short, 'the Act of 1940').
(ii) In the complaint, which led to registration of P.R.C.No.21 of
2013 on the file of the learned II Additional Judicial First Class Magistrate,
Machilipatnam, it was alleged that on 20.08.2007, Drugs Inspector,
Machilipatnam, picked up 4x6x10 Serra-D tablets, Batch No: ZSRT 702 Exp
Dt:2/2010, manufactured by M/s. Laborate Pharmaceuticals India Limited
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(accused No.1-Firm), from the main stores of DMHO, Machilipatnam, duly
following the procedure prescribed under the Act of 1940. Out of the said
tablets, 1x6x10 tablets were sent for analysis to the Government Analyst,
Drugs Control Administration, vide Form 18 dated 20.08.2007. Upon analysis,
the subject drug was declared as not of standard quality, vide report
No.0108/DCL/2008 dated 17.01.2008, as it does not meet the labelled claim
in respect of Serratiopeptidase and only 5.5 mg. of Serratiopeptidase was
found as against the label claim of 10 mg. After securing purchase details
and distribution particulars, the Drugs Inspector sent notice dated 22.05.2009
to accused No.1-Firm, to which Authorized Signatory of accused No.1-Firm
sent reply dated 24.06.2009, wherein the Firm had challenged the
Government Analyst Report dated 17.01.2008 and stated that they were
ready to pay the cost of re-analysis. Thereupon, the Drugs Inspector sent
Notice dated 20.08.2009 to accused No.1-Firm, duly providing clarifications as
raised in the reply of the Firm and it was also communicated that the second
portion of the sealed sample would be deposited before the concerned court.
Accordingly, the second portion of the sealed sample was deposited before
the learned II Additional Judicial First Class Magistrate, Machilipatnam, on
20.08.2009. Thereafter, on 01.12.2009, Analytical Report in Form 2 was
received from the Director, Central Drug Laboratory, Kolkata, by the Drug
Inspector as well as the Court, as per which the reason for declaring the
sample as not of standard quality was because the sample does not conform
to claim with respect to the tests for Uniformity of Weight and Assay (i.e.,
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content of Serratiopeptidase) and only 3.42 mg. i.e. 34.2% of the labelled
claim of Serratiopeptidase as against 10 mg. was found, which infers that it
has been substituted in part by another substance. The matter was
investigated into and after completion of investigation, the Drugs Inspector,
Machilipatnam, filed a complaint before the learned II Additional Judicial First
Class Magistrate, Machilipatnam, under Section 32 of the Act of 1940, against
accused No.1-Firm and accused Nos.2 to 4, who are Directors of the Firm, for
violation of Section 18(a)(i) r/w Section 17B(d) punishable under Section
27(c), and also violation of Section 18(a)(i) r/w Section 16 punishable under
Section 27(d) of the Act of 1940, for manufacture and sale of spurious and
not of standard quality drug. The learned Magistrate took cognizance of the
offences and the case was numbered as P.R.C.No.21 of 2013. Seeking to
quash the proceedings against them in the said P.R.C., accused Nos.2 to 4-
Directors of the Firm approached this Court by filing Crl.P.No.2894 of 2014.
(iii) So far as P.R.C.No.18 of 2014 on the file of the learned
Additional Munsiff Magistrate, Chirala, is concerned, in the complaint, it was
alleged that on 30.05.2012, the Drugs Inspector, Chirala, picked up sample of
drug XYLONUMB - 2% (Lignocaine Inj-IP) Batch No.MNL16102, Mfg. dt.
03/2011, Exp. dt.02/2013 manufactured by M/s. Nitin Life Sciences Limited
(accused No.1-Firm) for analysis along with another drug from the premises
of M/s. Amma Pharmacy (Chemist & Druggist), Chirala, by following the
procedure prescribed under the Act of 1940. On 31.05.2012, the Drugs
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Inspector sent one sealed portion of sample drug to the Government Analyst,
Drugs Control Laboratory, Hyderabad. On 07.09.2012, the Drugs Inspector
received analytical report in Form-13 from the Government Analyst, DCL,
Hyderabad, declaring the test sample XYLONUMB - 2% (Lignocaine Inj-IP)
as not of standard quality, as it does not meet the I.P. requirement in respect
of Sodium Chloride content (found 10.48 mg/gm against the label claim of
6mg/gm i.e. 174.66%). After obtaining necessary particulars, on 11.09.2012,
the Drugs Inspector issued a letter to accused No.1-Firm, requesting to
furnish the manufacturing, analytical and constitution particulars of the
company along with attested copy of manufacturing license and approved
products list under Section 18B of the Act of 1940, while furnishing a copy of
the analytical report dated 30.08.2012 to accused No.1-Firm. On 10.10.2012,
the Drugs Inspector received instructions from the Director General, Drugs
and Cosmetics, DCA, to conduct thorough investigation upto manufacturer
level on the alleged not of standard quality drug. Accordingly, the matter was
investigated into in accordance with the procedure and after completion of
investigation, a complaint was filed before the Additional Munsiff Magistrate,
Chirala, under Section 32 of the Act of 1940, against accused No.1-Firm and
accused Nos.2 to 4, who are Directors of Firm, for violation of Section 18(a)(i)
r/w Section 16 punishable under Section 27(d) of the Act of 1940. The trial
Court took cognizance of the offence and the case was numbered as
P.R.C.No.18 of 2014. Seeking to quash the proceedings against them in the
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said P.R.C., accused Nos.2 to 4-Directors of the Firm filed Crl.P.No.14687 of
2014.
4. Mr. M.S. Srinivasa Iyengar, learned Senior Counsel assisted by
Mr. S. Lakshmi Narayana Reddy, learned counsel for the petitioners, contends
that the petitioners, who are Directors of the respective Firms, are in no way
responsible for the conduct of the business of the respective Firms or day-to-
day affairs of the Firm and, therefore, they cannot be vicariously held liable
and prosecuted for the alleged offences. He further contends that it is only
the persons who, at the time of commission of the offence, were
in-charge of the affairs of the company and were responsible for the conduct
of the business of the company, are liable to be prosecuted. It is further
contended that in the complaint, specific averments should be made as to the
role of the Directors in the day-to-day activities of the company but in neither
of the complaints, such averments were made. Learned Senior Counsel, thus,
contends that in the absence of specific averments to show that the
petitioners are responsible for the day-to-day activities of the Firm and are
involved in the offences alleged, continuation of the subject criminal
proceedings against them, merely because they are Directors of the Firm, is
nothing but an abuse of process of law and, therefore, prays to quash the
proceedings against the petitioners. In support of his argument, learned
Senior Counsel relies on the judgment of the Hon'ble Supreme Court in
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Lalankumar Singh v. State of Maharashtra reported in 2022 SCC
OnLine SC 1383.
5. On the other hand, learned Assistant Public Prosecutor appearing for
the respondent-State opposes the criminal petitions and submits that the
petitioners, being Directors of the respective Firms, are responsible for the
day-to-day activities of the respective Firms and are, therefore, vicariously
liable for the offences committed by the respective Firms. In support of his
argument, he places reliance on the judgment of the Hon'ble Supreme Court
in Iridium India Telecom Limited v. Motorola Incorporated and
others reported in (2011) 1 SCC 74.
6. This Court has considered the submissions made on either side and
perused the entire material available on record.
7. As per Section 34 of the Act of 1940, 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, at the time the offence was committed, 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. Thus, the liability
under Section 34 of the Act of 1940 arises from being in charge of and
responsible for the conduct of the business of the company at the relevant
time when the offence was committed and not on the basis of merely holding
a designation or office in the company.
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8. In Pooja Ravinder Devidasani v. State of Maharashtra reported
in (2014) 16 SCC 1, the Hon'ble Supreme Court, while dealing with Section
141 of the Negotiable Instruments Act, which is in pari materia to Section 34
of the Act of 1940, and while referring to its earlier decisions on the subject,
observed as under at paragraphs 17 to 21:
"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 Corporation [National
Small Industries Corporation Limited v. Harmeet Singh Paintal
(2010) 3 SCC 330], this Court observed:
"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 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
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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."
18. In Girdhari Lal Gupta v. D.H. Mehta & Anr. (1971) 3
SCC 189, 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 &
Ors. (1981) 2 SCC 335].
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.
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21. In Sabitha Ramamurthy v. R.B.S. Channabasavaradhya
(2006) 10 SCC 581, it was held by this Court that:
"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."
9. In State of NCT of Delhi through Prosecuting Officer,
Insecticides, Government of NCT, Delhi v. Rajiv Khurana reported in
(2010) 11 SCC 469, the Hon'ble Supreme Court reiterated the position
thus:
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"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 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."
10. Having taken note of the above decisions and in the light of the ratio
laid down to the effect that mere reproduction of 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, the
Hon'ble Supreme Court, in Lalankumar Singh (supra), held that the subject
complaint therein was totally lacking the requirement of Section 34 of the Act
of 1940, since no specific averments were made against the appellants
therein/Directors of the company.
11. Thus, from the above decisions, it is evident that for making a Director
of a company liable for the offences committed by the company, 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
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company. A company may have a number of Directors and to array them as
an accused in a complaint, making them vicariously liable for the offences
merely on the basis of a statement to the effect that they are in charge of
and responsible for the conduct of the business of the company, without
attributing any specific role to them in the conduct of the business of the
company, is not a sufficient or adequate fulfillment of the requirements under
Section 34 of the Act of 1940.
12. Coming to the cases on hand, as seen from the complaint pertaining to
P.R.C.No.21 of 2013, there was only a bald statement made to the effect that
as per the documents provided by the Drugs Controller, Solan, it was evident
that A2 to A4-Directors of A1-Firm are responsible for the day-to-day
activities of the Firm. Except the same, there is no clear or cursory statement
of fact as to how and in what manner A2 to A4 were responsible for such
day-to-day activities of the Firm. In the complaint pertaining to P.R.C.No.18
of 2014, except mentioning that A2 to A4 are Directors of the Company,
there is no other averment indicating their role in the day-to-day activities of
the Firm. Thus, in the absence of specific averments indicating the duties
and responsibilities of each of the petitioners in the conduct of business of
the Firm, being its Directors, and how and in what manner they are
responsible for the day-to-day activities of the Firm, prosecuting them for the
offences alleged, would amount to abuse of process of law. Reliance placed
by the learned Assistant Public Prosecutor on the judgment of the Hon'ble
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Supreme Court in Iridium India Telecom Limited (supra), to contend that
the petitioners, being Directors of the Firm, can be prosecuted for the
offences alleged, does not assist him in any manner, for the reason that the
same is distinguishable as in the said case, elaborate details were furnished in
the complaint pertaining to allegations of cheating under Section 420 r/w
Section 120-B I.P.C., with regard to the acts of the company and its
representatives willfully concealing facts so as to deceive the complainant.
13. For reasons discussed above, proceedings in P.R.C.No.21 of 2013 on
the file of the learned II Additional Judicial First Class Magistrate,
Machilipatnam, insofar as accused Nos.2 to 4 therein (petitioners in
Crl.P.No.2894 of 2014) and the proceedings in P.R.C.No.18 of 2014 on the
file of the learned Additional Munsiff Magistrate, Chirala, insofar as accused
Nos.2 to 4 therein (petitioners in Crl.P.No.14687 of 2014) are hereby
quashed.
14. Both the criminal petitions are, accordingly, allowed. Pending
interlocutory applications, if any, shall stand closed.
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K. SURESH REDDY, J
Dt: 08.12.2023
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KSR,J
HON'BLE SRI JUSTICE K. SURESH REDDY
CRIMINAL PETITION Nos.2894 and 14687 of 2014
Dt: 08.12.2023
IBL
