In case of offences committed by companies under the Drugs and Cosmetics Act, 1940 (“Act”), to what extent are directors and officers of such companies personally liable for such offences?
Section 34 of the Act provides that in case of offences committed by juristic entities such as companies, firms, or associations, every person who at the time the offence was committed, was in charge of, and was responsible for the conduct of juristic entity’s business, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished along with the concerned juristic entity. Thus, the Act imposes vicarious liability on persons “in charge of and responsible to the company for the conduct of the business” at the time when the offence occurs. Such persons must be in overall control of the day-to-day affairs of the company, and mere designation as a director or partner does not ipso facto establish liability. This marks a shift from a formalistic approach to one grounded in factual responsibility. Complaints must demonstrate that the individual had actual control and responsibility for the conduct of the business at the material time and contain specific, factual averments about the role of such individuals in the company’s business.
When proceedings were initiated against the directors of Cipla Limited under Sections 18(a)(i) and 27(d) of the Act (which deal with misbranded, adulterated or spurious drugs or cosmetics), the Delhi High Court held that senior officers are not automatically liable in the absence of clear evidence showing their responsibility for the company’s operations at the time of the alleged offence. In this case, a power of attorney vested operational control in another individual, making him alone liable under Section 34 of the Act.
However, in the event the company itself is the principal offender, the Courts have clarified that the company can be prosecuted independently of its directors or responsible persons. Since a company cannot be imprisoned, it may be punished with fine only. However, individuals responsible for the company’s business cannot be prosecuted without also prosecuting the company.
Section 34 contains a subtle but significant distinction between its two sub-sections: Sub-section (1) casts liability on persons “in charge of and responsible to the company for the conduct of the business” at the time when the offence occurs. Thus, Section 34(1) creates a presumption of guilt against persons both in charge of and responsible to the company at the time of commission of the offence. Section 34(2) states – “where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly”. Thus, Section 34(2) casts a wider net to impose liability on officers of the company (such as directors, managers, or secretaries) based on proof of consent, connivance, or neglect in relation to an offence of a company. The first category of liability (as contained in Section 34(1)) can be termed as ‘person who was driving the bus’, and the second category of liability (as contained in Section 34(2)) can be termed as ‘person who knew about the offence and did nothing about it’.
The Supreme Court has ruled that a person once deemed guilty under Section 34(1) cannot be punished again for the same offence under Section 34(2) as the latter applies only to those not directly responsible for the company’s conduct but who were complicit through their consent, connivance, or neglect.
The jurisprudence surrounding directors’ liability under the Act recognises that corporate liability must translate into individual accountability, but it does so with nuance and fairness. It embodies a delicate balance between safeguarding public health and upholding principles of individual responsibility. Courts have consistently rejected mechanical applications of vicarious liability, instead requiring concrete evidence of operational control or active involvement. This approach ensures that the Act’s penal provisions serve their intended deterrent function without becoming instruments of indiscriminate prosecution, thereby preserving both regulatory efficacy and fundamental fairness.
References:
(1) State of Haryana v. Brij Lal Mittal, (1998) 5 SCC 343
(2) G.L. Gupta v. D.H. Mehta (1971) 3 SCC 189; State of Karnataka v. Pratap Chand, (1981) 2 SCC 335; Sushil Goel v State, Criminal Petition No. 6875 of 2020 Order dated May 10, 2022 (Karnataka High Court)
(3) State of Haryana v Brij Lal Mittal, (1998) 5 SCC 343; Pepsico India Holdings Private Limited v Food Inspector, 2011 (1) SCC 176; Swapnil v. State of Maharashtra, 2024 SCC OnLine Bom 2074; Ramprakash Gulati v. State of Maharashtra, 2018 All MR (Cri) 1177; Anandkumar Satyanarayan Loya v State of Maharashtra, 2017(5) Mh.L.J. (Cri) 289
(4) K. Hameid v State through K. T. Raghu Kumar, Drug Inspector, 2023 SCC OnLine Del 5520
(5) Cadila Pharmaceuticals Limited v Drug Inspector, Cr MC No. 110 of 2014 Order dated September 22, 2022 (Jammu & Kashmir and Ladakh High Court)
(6) Rajasthan Pharmaceutical Laboratory v. State of Karnataka, (1981) 1 SCC 645