1998 (4) TMI 529 - SC - Companies Law

Whether the High Court correct in quashing the prosecution against the three respondents? Held that - From the complaint in question we, however, find that except a baid statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in-charge of the company and also responsible to the company for the conduct of its business. Since we are in respectful agreement with the view si expressed we dismiss this appeal and uphold the order of the High Court quashing the prosecution against the three respondents on a different ground.

Summary

Issues:
1. Quashing of criminal proceedings against respondents based on expiry of shelf life of drugs.
2. Interpretation of Section 25 of the Drugs and Cosmetics Act, 1940.
3. Vicarious liability of directors of a company under Section 34(1) of the Act.

Analysis:

Issue 1: Quashing of Criminal Proceedings
The District Drugs Inspector purchased drug samples from a firm and found them to be of substandard quality. The Inspector filed a complaint against the manufacturers and distributors of the drugs. The High Court quashed the proceedings against the respondents, directors of the manufacturers, citing the expiry of the drug's shelf life in July 1991. However, the Supreme Court held that the right to get the sample tested by the Central Drugs Laboratory arises only if the person concerned notifies the Inspector within 28 days of receiving the report. The manufacturers failed to exercise this right, extinguishing their opportunity to challenge the Analyst's report. The delay in filing the complaint until after the shelf life expiry did not justify quashing the prosecution.

Issue 2: Interpretation of Section 25
The Court emphasized that under Section 25 of the Act, the report of the Government Analyst is conclusive evidence unless the person notifies the Inspector of their intent to challenge the report within 28 days. The Court found that the manufacturers did not comply with this requirement, leading to the Analyst's report becoming conclusive. The High Court's decision to quash the proceedings based on the expiry of the shelf life was deemed incorrect as the manufacturers had already lost their right to challenge the report much earlier.

Issue 3: Vicarious Liability of Directors
The Supreme Court examined Section 34(1) of the Act, which imposes vicarious liability on individuals in charge of a company's business for offenses committed by the company. The Court noted that mere directorship does not automatically establish liability. In this case, the complaint lacked specific allegations showing that the respondents, as directors, were in charge of and responsible for the company's business conduct. Citing precedent, the Court upheld the High Court's decision to quash the prosecution against the respondents on the grounds of insufficient evidence of vicarious liability.

In conclusion, the Supreme Court dismissed the appeal and upheld the High Court's decision to quash the prosecution against the respondents, directors of the manufacturers, based on the lack of evidence supporting vicarious liability and the manufacturers' failure to comply with the notification requirement under Section 25 of the Act.