Supreme Court Quashes Case Against Ex-Director Of Drug Manufacturing Company For Substandard Drugs Seized After His Resignation

The Supreme Court recently quashed a case under the Drugs and Cosmetics Act, 1940 ("Act") against a former Director of a Drug Manufacturing Company, which had undergone a raid for allegedly manufacturing a substandard drug, after noting that the director resigned from the company before the raid took place.

The Court held that the director could not be held liable for the company's obligations arising after their resignation. Since the director resigned in 2009, while the raid and drug seizure occurred in 2010, the Court absolved the appellant of charges under the Act.

Oon 15.06.2010, the Drugs Inspector, Gonda conducted a raid on M/s. Jai Medical Store situated in Dharampur Bhagwatiganj, Balrampur and collected a sample of 'Fena' tablets manufactured by M/s. Elmac Remedies Private Limited (hereinafter referred to as “Elmac”). Upon testing of the collected sample of drugs, a report dated 21.07.2011 was prepared, according to which the said drugs were found to be below the prescribed standard and falling within the category of 'adulterated' and 'spurious' drugs under Section 17 of the Drugs and Cosmetics Act, 1940.

The petitioner/apellant was the manufacturing chemist of Elmac from 01.07.2006, as per the statutory requirement under Rule 71 the Drugs and Cosmetics Rules, 1945.The petitioner was also one of the directors of Elmac. However, the petitioner resigned from the post of manufacturing chemist at Elmac by resignation letter dated 15.12.2008 and informed the Drug Controlling and Licensing Authority about the same by its letter dated 15.01.2009. The petitioner also resigned from the directorship ofElmac with effect from 01.06.2009 and requisite Form 32 was issued to that effect in terms of the provisions of the Companies Act.

The appellant had approached the Supreme Court after the Allahabad High Court dismissed their plea to quash an FIR under the Act.

“We find that Form 32 was filed by the appellant herein before the Registrar of Companies indicating clearly that owing to his resignation, he ceased to be associated with the company with effect from 01.06.2009. This clearly establishes the fact that he was no longer a member of the Board of Directors of the Company.”, the Court observed.

The bench of Justices BV Nagarathna and Prasanna B. Varale dismissed the argument that the appellant's name on the Elmac manufacturing license (valid 2006-2011) automatically made him liable for substandard drugs, even though he had resigned before the substandard drugs were produced.

“Although, a licence may have been issued to Elmac and consequently, the name of the appellant herein was noted in the said licence which was for the period from 22.07.2006 to 21.07.2011, it is inferred that once the appellant ceased to have any association with Elmac, he would not have continued as a Manufacturing Chemist in Elmac. No contrary material has been produced by either the complainant or the respondent-State to contend that the appellant continued his association with Elmac in spite of Form 32 being filed stating that he had ceased to be a Director of the Company with effect from 01.06.2009.”, the court observed.

“Resultantly, the Court In the circumstances, we think that the allegations and the offences alleged as against the appellant herein under Section 18/27 of the Drugs and Cosmetics Act, 1940 read with the Drugs and Cosmetics Rules, 1945 were wholly illegal and contrary to the established facts. Therefore, we set aside the impugned order and allow the application filed by the appellant herein under Section 482 of CrPC.”, the Court ordered.

Accordingly, the appeal was allowed.

Case Title: YASHPAL CHAIL VERSUS STATE OF UTTAR PRADESH & ANR.

Citation : 2025 LiveLaw (SC) 247

Click here to read/download the order

Appearance:

For Petitioner(s) : Mr. Shivam Batra, AOR Mr. Mohd. Ibrahim, Adv. Mr. Abhishek Bhushan, Adv. Mr. Sandiv Kalia, Adv. Mr. Rahul Tyagi, Adv.

For Respondent(s) : Mr. Namit Saxena, AOR Mr. Sr Singh, Sr. Adv. Mr. Ankur Prakash, AOR