The Bombay High Court has clarified that partners of a drug distribution firm cannot evade criminal liability merely by claiming they were not directly involved in manufacturing, when the firm fails to challenge a government analyst’s report as required under the Drugs and Cosmetics Act. The judgment reinforces the principle that vicarious liability under Section 34 of the Companies Act extends to partners for offences committed by the firm, particularly when procedural safeguards under Section 25 are ignored.
Background & Facts
The Dispute
The petitioners, four partners of M/s Harsh Laboratories, were charged under Section 18(a)(i) read with Section 16 and punishable under Section 27(d) read with Section 24 of the Drugs and Cosmetics Act, 1940, for the sale of "Dicilin Capsules" found to contain 9.9% less Claxacilin than labelled. The actual manufacturer was M/s Depila Pharmaceutical Pvt. Ltd., while the petitioners’ firm acted as distributor under a loan licence. The complainant, a Drugs Inspector, collected a sample from a retail pharmacy on 26 April 2000, sent it for testing, and received a report on 19 April 2001 indicating substandard quality.
Procedural History
- 26 April 2000: Sample of Dicilin Capsules collected from M/s General Medical Stores
- 28 April 2000: Sample sent to State Drug Control Laboratory, Mumbai
- 19 April 2001: Analytical report received showing Claxacilin content below standard
- 25 April 2001: Report and one part of sample sent to M/s Harsh Laboratories under Section 25(2) and Section 23(4)(iii)
- 13 June 2001: Second notice issued under Section 18-B; petitioners submitted documents but did not contest report
- 21 November 2015: Judicial Magistrate framed charges against petitioners and others
- 18 September 2017: Additional Sessions Judge dismissed criminal revision challenging the framing of charges
- 25 February 2026: Bombay High Court dismissed writ petition under Articles 226 and 227
Relief Sought
The petitioners sought quashing of the charge-framing order, arguing they were not involved in manufacturing, had no control over quality, and were denied opportunity to challenge the lab report under Section 25(4). They contended that only the manufacturer and its approved chemists should be liable.
The Legal Issue
The central question was whether partners of a drug distribution firm can be held liable for framing of charges under the Drugs and Cosmetics Act when the firm fails to contest a government analyst’s report under Section 25(3), and whether Section 34 of the Companies Act, 1956 imposes vicarious liability on partners for offences committed by the firm.
Arguments Presented
For the Petitioner
The petitioners relied on Shailyamanyu Singh v. State of Maharashtra, Pepsico India Holdings v. Food Inspector, and State of Karnataka v. Pratap Chand to argue that mere partnership does not equate to personal involvement in manufacturing. They emphasized that the actual manufacturer was M/s Depila Pharmaceutical, with its own approved chemists, and that the petitioners had no role in formulation, testing, or quality control. They further contended that the complainant violated Section 25(2) by not sending the remaining sample to the Central Drugs Laboratory, thereby depriving them of the right to obtain a contrary report under Section 25(4). They argued that without specific averments of consent or connivance, charging partners was legally unsustainable.
For the Respondent/State
The State countered that the petitioners, as partners of the distributing firm, were responsible for the firm’s compliance with statutory obligations. They pointed out that the petitioners received the analytical report on 25 April 2001 and had 28 days under Section 25(3) to notify intent to controvert it, which they failed to do. The State relied on Nilesh Agarwal v. Income Tax Office and UP Pollution Control Board v. Modi Distillery to assert that when a company commits an offence, those in charge of its business are equally liable. The State further argued that the petitioners’ submission of documents like manufacturing licences and invoices demonstrated their active role in the distribution chain, making them complicit in the violation.
The Court's Analysis
The Court undertook a detailed statutory interpretation of Section 25 of the Drugs and Cosmetics Act and Section 34 of the Companies Act, 1956. It held that Section 25(3) creates a statutory presumption: a government analyst’s report is conclusive evidence unless the recipient notifies within 28 days of intent to adduce contrary evidence. The petitioners received the report and sample on 25 April 2001 but remained silent. The Court observed:
"The petitioners did not notify any intention to controvert the report within the statutory period. Their failure to avail the remedy under Section 25(4) renders the report conclusive against them."
The Court further examined Section 34, which deems every person in charge of a company’s business liable for offences committed by the company, unless they prove lack of knowledge or due diligence. The Court noted that under Section 3(f), "manufacture" includes "labelling, packing, or otherwise treating or adopting any drug with a view to its sale or distribution." Since the petitioners’ firm distributed the drug under its own name and licence, and submitted documents affirming its role in the supply chain, they were not mere passive distributors.
The Court distinguished precedents cited by petitioners, noting that those cases involved directors with no operational control or where the company itself was not impleaded. Here, the firm was a named accused, and the partners were its legal representatives. The Court emphasized:
"The fact that the actual manufacturing was outsourced does not absolve the distributor from statutory responsibility under the Act. The partners, as persons in charge of the firm’s business, are liable for its compliance failures."
The Court also rejected the argument that the complaint was filed after the drug’s expiry, holding that the shelf-life expiry does not invalidate the report if the sample was collected and tested within the statutory period.
The Verdict
The petitioners lost. The Court held that partners of a drug distribution firm are vicariously liable under Section 34 of the Companies Act, 1956 for offences committed by the firm, particularly when they fail to contest a government analyst’s report under Section 25(3) of the Drugs and Cosmetics Act. The framing of charges against them was legally valid and the petition was dismissed.
What This Means For Similar Cases
Vicarious Liability Applies to Partners in Distribution Chains
- Practitioners must now treat partners in pharmaceutical distribution firms as potential co-accused in quality violation cases, even if manufacturing is outsourced
- Merely claiming "no control over production" is insufficient if the firm is involved in labelling, packaging, or distribution under its own name
- Defence strategies must focus on proving due diligence under Section 34(1) proviso, not just separation of roles
Section 25(3) Deadline Is Absolute
- Failure to notify intent to controvert a government analyst’s report within 28 days renders the report conclusive
- Courts will not entertain belated challenges to lab reports unless the statutory window was missed due to unavoidable circumstances
- Practitioners must advise clients to respond to Section 25 notices immediately and file applications under Section 25(4) if contesting results
Distribution ≠ Innocence Under the Drugs Act
- The definition of "manufacture" under Section 3(f) includes acts done "with a view to sale or distribution"
- Firms that repackage, relabel, or distribute under their own brand name are treated as manufacturers for liability purposes
- Legal advice must now include compliance audits for distribution partners, not just manufacturers
