No Vicarious Liability U/S 34 of Drugs & Cosmetics Act Without Proof of Responsibility for Company's Affairs: Himachal Pradesh High Court

The Himachal Pradesh High Court held that vicarious liability for the supply of sub-standard quality drugs under Section 34 of the Drugs and Cosmetics Act, 1940, can't be established unless it is specifically proved that the person was directly in charge of, and responsible for, the conduct of the company's affairs.

Justice Rakesh Kainthla: “The complainant needs to aver in the complaint that the person sought to be vicariously liable is not only in charge but also responsible to the Company for its affairs”.

Background facts:

The case originated when the Drugs Inspector Sub Zone Baddi, collected a sample of a drug named Lycoyat, manufactured by M/s VADSP Pharmaceuticals, the petitioner company for testing. The drug was collected in the presence of Mr. Premnath, the Analytical Chemist of the firm. The sample was sent for testing and analysis. However, as per the report, the said sample was declared as sub-standard quality.

Thereafter, the Drugs Inspector served a notice upon the petitioner company. In response, the company requested a re-test. A second sample was then sent to the Central Drugs Testing Laboratory, Kolkata, which reaffirmed the earlier finding, declaring that the sample did not meet the prescribed standards.

Subsequently, the Drug inspector filed a complaint against the petitioner company and its partners, alleging that they, being in charge of the company, were responsible for manufacturing and selling the substandard drug. Based on this complaint, the trial court initiated proceedings against them.

Being aggrieved by the filing of the complaint and the trial court proceedings, the petitioners filed a petition seeking quashing of a criminal complaint filed against them for allegedly manufacturing and selling a drug of substandard quality.

Contentions of the Petitioners:

The partners of the company contended that they were neither in charge of nor responsible for the firm's operations. Instead, Mr. Premnath, the Analytical Chemist, had been appointed as the person in-charge and was solely responsible for the firm's operations, including quality control. 

They further submitted that the complaint filed does not specifically allege that the partners of the company were responsible for the company's affairs, which is essential to establish their liability.

Findings:

The Court remarked that Section 34 of the Drugs and Cosmetics Act, 1940, holds both the company and its partners liable for offences committed under the Act. Additionally, directors, managers, secretaries, or officers may also be held liable if the offence was committed with their consent, connivance, or due to their negligence.

According to the Court, it is apparent from the bare perusal of the Section that a Company is primarily liable for the commission of an offence punishable under the Drugs and Cosmetics Act. Vicarious liability can only be fastened on individuals associated with the company if, at the time the offence was committed, they were in charge of and responsible for the conduct of the company's business.

In Pawan Kumar Goel v. State of U.P., 2022, the Supreme Court held that “only a person, who is in charge of and responsible to the Company for its affairs can be summoned and punished for the acts of the Company”

Upon scrutinising the complaint, the Court observed that the drugs inspector failed to make specific allegations against the partners of the company stating that they were in charge of and responsible for the conduct of the company's business in relation to the manufacture of the drug in question.

In Siby Thomas v. Somany Ceramics Ltd., (2024), the Supreme Court held that that the primary responsibility to make the averment, that the accused is in charge and responsible for the Firm for its affairs lies upon the complainant in the absence of which the accused cannot be held liable.

Since, the complaint was silent regarding the partners being in charge of the firm and responsible for its operations, the Court held that the proceedings against them were not maintainable.

Thus, the Court partly allowed the petition. It quashed the proceedings against the partners of the company, while directing that the proceedings against M/s VADSP Pharmaceuticals the company shall continue, as it was primarily liable for the manufacture of the substandard drug.

Case Name: M/s VADSP Pharmaceuticals & Ors. v/s Union of India

Case No.: Cr. MMO No. 92 of 2022

Date of Decision: 15.05.2025

For the Petitioners : Mr. Anand Sharma, Senior Advocate, with Mr. Karan Sharma, Advocate.

For the Respondent : Mr. Shashi Shirshoo, Senior Panel Counsel.

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