Section 34 Drugs and Cosmetics Act | Vicarious Liability of Directors Requires Proof of Operational Control : Himachal Pradesh HC

The Himachal Pradesh High Court has clarified that directors of a pharmaceutical company cannot be prosecuted under Section 34 of the Drugs and Cosmetics Act, 1940, merely by virtue of their designation. The judgment underscores that vicarious liability requires specific, factual averments demonstrating active involvement in the company’s day-to-day operations, particularly in manufacturing and quality control.

Background & Facts

The Dispute

The dispute arose from the alleged manufacture and distribution of a substandard drug, Lignocaine and Adrenaline Injection I.P. (Batch No. HILR2006F, Mfg. Date: November 2020, Expiry: October 2022), produced by M/s Health Biotech Limited. The drug, sampled from the Central Store of SLBSGMC & H, Mandi, was found by the Government Analyst, RDTL Chandigarh, to be "Not of Standard Quality" due to non-conformity with the Indian Pharmacopoeia 2018 standards for Adrenaline Bitartrate assay.

Key Facts

• The drug sample was collected on 13.09.2021 on Form-17 and Form-17-A.
• The test report dated 24.11.2021 declared the batch non-compliant.
• The chain of supply was traced: M/s Health Biotech Limited → M/s Ajay Medical Agency → M/s Gupta Medical & General Mart → M/s Pradhan Mantri Bhartiya Jan Aushadhi Kendra, Bhangrot → M/s Pradhan Mantri Bhartiya Jan Aushadhi Kendra, Nerchowk → SLBSGMC & H, Mandi.
• M/s Health Biotech Limited was issued multiple notices on 24.11.2021, 09.02.2022, and 15.03.2022, but failed to respond satisfactorily.
• The company had appointed Mr. Rohini Raman Pathak as Technical Director, with his appointment notified to the Registrar of Companies via Form No. 32/DIR-12 and endorsed by the Licensing Authority under Section 34 of the Act.
• The petitioners, Paramjit Arora and another, were directors of M/s Health Biotech Limited since 2001 and 2007 respectively, with no role in manufacturing, quality control, or day-to-day operations.
• The manufacturing license and statutory records identified Mr. Pathak as the person responsible for manufacturing affairs.

Procedural History

• 13.09.2021: Drug sample collected from SLBSGMC & H, Mandi.
• 24.11.2021: Government Analyst’s report received declaring drug "Not of Standard Quality".
• 24.11.2021: Notices issued to Central Drugs Store and M/s Health Biotech Limited for recall and explanation.
• 18.12.2021: Chain of supply disclosed by distributors.
• 17.03.2022: M/s Health Biotech Limited submitted an incomplete reply.
• 07.05.2022: Sanction for prosecution granted by State Drugs Controller.
• 30.07.2022: Criminal complaint filed before Additional Chief Judicial Magistrate, Mandi (CNR No. HPMA020089392022, Reg. No. 01/2022).
• 02.04.2026: Petition under Section 528 of the Bharatiya Nagrik Suraksha Sanhita, 2023, filed before the High Court of Himachal Pradesh seeking quashing of proceedings against the directors.

The Parties' Positions

Petitioners (Paramjit Arora and another): Argued that they were non-executive directors with no involvement in manufacturing, quality assurance, or operational decisions. Their role was limited to financial oversight. The company had appointed Mr. Rohini Raman Pathak as the Technical Director, who was statutorily designated as the person responsible under Section 34 of the Act. The complaint contained no specific averments linking the petitioners to the alleged offence.

Respondent (State of Himachal Pradesh): Contended that as directors of the company, the petitioners were vicariously liable under Section 34(2) of the Act. Relied on Dinesh B. Patel v. State of Gujarat to argue that directors are presumed liable when a company’s product is found defective, and the burden lies on them to prove absence of knowledge or due diligence.

Relief Sought

The petitioners sought quashing of the criminal complaint (CNR No. HPMA020089392022) and all summoning orders and proceedings initiated against them as accused Nos. 2 and 3, on the grounds that the complaint failed to meet the legal threshold for vicarious liability under Section 34 of the Drugs and Cosmetics Act, 1940.

The Legal Issue

The central question was whether Section 34 of the Drugs and Cosmetics Act, 1940 permits the prosecution of directors of a company for offences committed by the company in the absence of specific averments in the complaint demonstrating that they were "in charge of and responsible to the company for the conduct of its business" at the time of the offence.

Arguments Presented

For the Appellant/Petitioner

Counsel for the petitioners relied on a series of Supreme Court judgments, including Susela Padmavathy Amma v. Bharti Airtel Ltd., Pooja Ravinder Devidasani v. State of Maharashtra, and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, to argue that vicarious liability under Section 34 is not automatic. They emphasized that:

• Mere directorship does not equate to operational control.
• The complaint contained no factual averments regarding the petitioners’ involvement in manufacturing, quality control, or supply chain decisions.
• Mr. Rohini Raman Pathak, the Technical Director, was statutorily appointed and recognized by the Licensing Authority as the person responsible for manufacturing affairs.
• The complaint’s failure to specify the petitioners’ role rendered it legally defective.
• The High Court’s inherent power under Section 528 BNSS (successor to Section 482 CrPC) must be invoked to prevent abuse of process when the complaint is manifestly unsustainable.

For the Respondent/State

The State, through Additional Advocates General, relied on Dinesh B. Patel v. State of Gujarat to contend that directors are presumed liable when a company’s product is found defective. They argued that:

• The complaint disclosed a violation of Section 18(a)(i) and 27(d) of the Act.
• The petitioners, as directors, bore collective responsibility for the company’s compliance.
• The burden to prove absence of knowledge or due diligence lay with the petitioners, not the complainant.
• Quashing at this stage would undermine public health protections and discourage enforcement of drug quality standards.

The Court's Analysis

The Court undertook a comprehensive review of the legal framework governing vicarious liability under Section 34 of the Drugs and Cosmetics Act, 1940, and its similarity to Section 141 of the Negotiable Instruments Act. It emphasized that penal statutes creating constructive liability must be strictly construed.

"Simply because a person is a director of the company, it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director, a person can be in charge of and responsible to the company for the conduct of its business."

The Court noted that the complaint contained no specific averments regarding the petitioners’ role in the company’s operations. It did not allege that they were involved in manufacturing, quality control, procurement, or supervision of the batch in question. The petitioners’ only connection was their designation as directors, which the Court held was insufficient.

The Court further observed that the company had appointed Mr. Rohini Raman Pathak as Technical Director, with his appointment duly notified to the Registrar of Companies and endorsed by the Licensing Authority under Section 34. This statutory designation established a clear chain of responsibility, rendering the inclusion of the petitioners as accused unnecessary and legally untenable.

The Court also relied on its own prior decision in Anil Mediratta v. State of Himachal Pradesh and the Madras High Court’s judgment in Paramjit Arora v. State Rep. by The Drugs Inspector, Kottivakkam, both of which quashed similar proceedings where the complaint failed to specify the director’s role.

The Court concluded that the complaint, as framed, did not satisfy the twin requirements of Section 34(1) - that the accused must be "in charge of" and "responsible to" the company for the conduct of its business. The absence of such averments meant the complaint failed to make out a prima facie case against the petitioners.

"The primary responsibility is on the complainant to make specific averments in the complaint so as to make the accused vicariously liable. For fastening criminal liability, there is no presumption that every Director knows about the transaction."

The Court held that permitting the proceedings to continue would amount to an abuse of process, exposing the petitioners to a protracted and futile trial. The ends of justice required quashing.

The Verdict

The petition was allowed. The criminal complaint titled State of Himachal Pradesh through Drugs Inspector H.Q. Mandi v. Health Biotech Limited and others (CNR No. HPMA020089392022, Reg. No. 01/2022) and all summoning orders and proceedings initiated against the petitioners (accused Nos. 2 and 3) are quashed and set aside. The petitioners are discharged. All pending applications are disposed of.

What This Means For Similar Cases

Vicarious Liability Cannot Be Presumed

• Practitioners must now ensure that complaints under Section 34 of the Drugs and Cosmetics Act specifically allege the accused director’s role in day-to-day operations, particularly manufacturing, quality control, or supply chain management.
• Mere mention of "director" without factual details is insufficient and grounds for quashing under Section 528 BNSS.

Statutory Designation Overrides General Directorship

• If a company has appointed a statutorily recognized Technical Director or Responsible Person under the Act, prosecution of other directors without specific involvement is legally unsustainable.
• Licensing authority endorsements and Form 32/DIR-12 filings are critical evidence to establish the chain of responsibility.

Quashing Is Available Even After Sanction and Charge Sheet

• The High Court may quash proceedings under Section 528 BNSS even after sanction for prosecution and filing of a charge sheet, if the complaint lacks essential averments.
• The burden is on the complainant to plead facts establishing vicarious liability; the accused need not prove innocence at the pre-trial stage.

Non-Executive Directors Are Protected

• Non-executive, independent, or financial directors with no operational role cannot be prosecuted under Section 34 unless there is evidence of consent, connivance, or negligence.
• This judgment aligns with the Supreme Court’s consistent position in K.S. Mehta v. Morgan Securities and Hitesh Verma v. Health Care at Home India Pvt. Ltd.

Procedural Compliance Is Non-Negotiable

• Complainants must strictly comply with the pleading requirements under Section 34. Failure to do so invites dismissal at the earliest stage.
• Courts will not permit fishing expeditions against directors under the guise of public health enforcement.

Key Takeaway for Practitioners

• In drafting complaints under Section 34, always specify: (1) the exact role of the director, (2) the time period of involvement, (3) the nature of control over the activity leading to the offence, and (4) any failure to supervise or prevent the violation.
• In defending directors, rely on statutory appointments, licensing records, and Supreme Court precedents to demonstrate absence of operational control.

Arrest Is Not Automatic

• Prosecution of directors under Section 34 requires a prima facie case based on specific averments - not general allegations.
• Courts will not allow criminal proceedings to proceed against directors who are merely nominal or non-executive.

Documentary Evidence Prevails

• Appointment letters, Form 32/DIR-12 filings, licensing records, and internal organizational charts are decisive in establishing who was responsible for operations.
• Oral testimony or general assertions about directorship will not suffice.

The Burden Shifts to the Complainant

• The complainant bears the burden of pleading specific facts to establish vicarious liability.
• The accused need not prove absence of knowledge at the quashing stage - the complaint must stand on its own.

When Delay Defeats Remedy

• The Court emphasized that subjecting directors to years of litigation without a legally sustainable complaint is an abuse of process.
• Quashing at the pre-trial stage saves judicial time and protects individuals from harassment.

Limits of Appellate Review

• The High Court’s power under Section 528 BNSS is not limited to the FIR stage; it extends to quashing proceedings even after sanction and charge sheet if the complaint is legally defective.
• The Court’s role is to prevent miscarriage of justice, not to conduct a mini-trial.

The Law Is Clear: Role Matters, Not Title

• The judgment reinforces that liability under Section 34 is based on function, not title.
• A person without the designation of "director" may still be liable if they control operations.
• Conversely, a director with no operational role is immune.

Practical Checklist for Lawyers

• For Prosecutors: Always include a paragraph in the complaint detailing the accused director’s specific duties, authority, and involvement in the relevant activity.
• For Defence: File a quashing petition under Section 528 BNSS if the complaint lacks specific averments - even if the company is prosecuted.
• For Companies: Maintain clear documentation of statutory appointments under Section 34 and ensure roles are formally recorded with the Licensing Authority.

Final Note

This judgment is a landmark clarification for pharmaceutical companies and their directors. It prevents the misuse of criminal law to target individuals based on their corporate position rather than their actual conduct. It reinforces the principle that criminal liability must be grounded in fact, not assumption.

Key Precedents Cited

• Susela Padmavathy Amma v. Bharti Airtel Ltd. (2024 SCC OnLine SC 311)
• Pooja Ravinder Devidasani v. State of Maharashtra (2014) 16 SCC 1
• S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89
• K.S. Mehta v. Morgan Securities & Credits (P) Ltd. (2025 SCC OnLine SC 492)
• Anil Mediratta v. State of Himachal Pradesh (CrMMO No. 738 of 2021)
• Paramjit Arora v. State Rep. by The Drugs Inspector, Kottivakkam (Madras HC, 01.02.2024)

Statutory Provisions

• Section 34 of the Drugs and Cosmetics Act, 1940
• Section 528 of the Bharatiya Nagrik Suraksha Sanhita, 2023 (successor to Section 482 CrPC)
• Rule 69, 71, and 76 of the Drugs and Cosmetics Rules, 1945

Conclusion

The judgment is a significant victory for corporate governance and due process. It ensures that criminal liability under the Drugs and Cosmetics Act is not used as a blunt instrument against directors who have no operational control. The law now stands firmly: responsibility, not title, determines liability.