Extended Scope of the Manufacturer’s License under the Drugs & Cosmetics Act: Supreme Court’s Clarification

1. Introduction

In INOX Air Products Limited (now known as INOX Air Products Private Limited) & Another v. The State of Andhra Pradesh (2025 INSC 128), the Supreme Court of India addressed two important legal questions under the Drugs & Cosmetics Act, 1940 and the corresponding 1945 Rules:

• Whether selling a drug to a licensee who lacks a separate wholesale sale license (Form 20B) but possesses a manufacture license (Form 25) amounts to a contravention of the Act and Rules.
• What level of judicial scrutiny is required for a Magistrate’s order issuing process against accused persons in criminal cases under the Act.

The Appellants, INOX Air Products Ltd. (a major manufacturer of industrial and medical gases) and its Managing Director, challenged the proceedings initiated against them. They argued that simply supplying Nitrous Oxide I.P. to another licensed manufacturer (holding Form 25) did not violate the statutory scheme. The Supreme Court’s ruling clarifies the scope of “manufacture” under Section 3(f) of the Drugs & Cosmetics Act and reiterates the need for reasoned orders of summoning in criminal complaints.

1.1 Background

The Appellant No.1, INOX Air Products Ltd., is a registered manufacturer of industrial and medical gases including Nitrous Oxide I.P. Its Managing Director, Appellant No.2, was also named in the criminal complaint. A chain of transactions led to a complaint by the Drugs Inspector, Kadapa, alleging that the Appellants had sold Nitrous Oxide I.P. to Accused No.3—a firm that did not hold a Form 20B license (for wholesale sale) but did hold a Form 25 license (for manufacture).

The Drugs Inspector claimed this transaction contravened Section 18(a)(vi) of the Drugs & Cosmetics Act, punishable under Section 27(d), and contravened certain conditions of their Form 26/25 and Rule 65(5)(1)(b) of the 1945 Rules. The complaint was taken on file by the First Additional Judicial Magistrate of First Class, Kadapa (the “Trial Court”), which issued summons against all accused. The Appellants approached the High Court of Andhra Pradesh under Section 482, CrPC, seeking quashing of the criminal case. The High Court dismissed their petition, leading to the present appeal in the Supreme Court.

1.2 Key Issues

1. Whether selling Nitrous Oxide I.P. to a co-licensee holding Form 25 (manufacturer’s license) but lacking a separate Form 20B (wholesale license) amounts to illegal sale under Section 18(a)(vi) of the Drugs & Cosmetics Act.
2. Whether the Magistrate’s order issuing summons and taking cognizance without reasons is legally sustainable under precedential norms requiring application of judicial mind.

1.3 Parties Involved

• Appellants: INOX Air Products Ltd. and its Managing Director.
• Respondent/State: The State of Andhra Pradesh, represented by the Drugs Inspector.
• Other Accused: Multiple parties in the supply chain, including local firms alleged to have purchased and distributed Nitrous Oxide I.P.

2. Summary of the Judgment

The Supreme Court allowed the appeal, quashed the High Court’s order, and set aside the summoning order issued by the Trial Court. The Court reasoned:

• No Contravention of License Requirements: Since both the Appellant No.1 and Accused No.3 held valid Form 25 licenses (i.e., licenses to manufacture drugs), there was no requirement for Accused No.3 to also hold a wholesale license under Form 20B. The broad definition of “manufacture” under Section 3(f) includes breaking up or altering, which Accused No.3 was entitled to do, as well as storing for sale or distribution.
• Improper Summoning: The Magistrate’s summoning order, which lacked any reasoning or application of mind, violated the principle that summoning is a serious matter requiring meaningful adjudication of whether a prima facie case exists.
• Relief Granted: The Supreme Court quashed the complaint proceedings pertaining to Accused Nos. 5 and 6 (i.e., the Appellants) and remitted no further proceedings against them.

3. Analysis

3.1 Precedents Cited

The Supreme Court extensively referred to its earlier rulings on the necessity of reasoned orders in summoning accused persons and on interpretation of the wide definition of “manufacture” under the Drugs & Cosmetics Act. Key guidance came from:

1. Pepsi Foods Ltd. & Another v. Special Judicial Magistrate & Others (1998) 5 SCC 749: Clarifies that summoning of an accused is a serious matter and requires application of judicial mind to ensure that the complaint and evidence establish a prima facie case.
2. Lalankumar Singh & Others v. State of Maharashtra (2022 SCC OnLine SC 1383): Reiterates that process cannot issue mechanically, and an order must reflect the Magistrate’s reasoning. The Supreme Court observed that an “empty formality” in issuing summons is impermissible.
3. Sunil Bharti Mittal v. Central Bureau Of Investigation (2015) 4 SCC 609: Reaffirms that the formation of opinion under Section 204 of the CrPC requires due application of mind and cannot be cursory.

These precedents influenced the Court’s determination that the Magistrate’s order summarily issuing process epitomized a mechanical approach and thus could not stand.

3.2 Legal Reasoning

The Supreme Court dissected the complaint’s essential allegations and concluded they did not establish a cognizable offence against the Appellants, for the following reasons:

1. Definition of "Manufacture": Section 3(f) of the Drugs & Cosmetics Act defines “manufacture” in a broad, inclusive manner. It covers “making, altering, ornamenting, finishing, packing, labeling, breaking up, or otherwise treating or adopting any drug or cosmetic with a view to its sale or distribution.”
2. Form 25 License Capacity: Where a firm holds a valid manufacturing license (Form 25), it is permitted to break, repack, label, or otherwise modify the drug. This includes subsequent wholesale or retail distribution, without necessarily holding a separate Form 20B license.
3. Validity of Sale to Accused No.3: Because Accused No.3 also held a Form 25 license, the sale from Appellant No.1 to Accused No.3 was akin to a sale between licensed manufacturers. Accordingly, selling Nitrous Oxide I.P. to another manufacturing license holder was not in contravention of Section 18(a)(vi) of the Drugs & Cosmetics Act.
4. Summoning Order Defects: The Magistrate’s summoning order merely parroted the complaint and lacked any indication that the court had weighed the evidence. The Court reiterated that “the order of the Magistrate summoning the accused must reflect that he has applied his mind.”

3.3 Impact

This judgment has far-reaching significance for the drugs industry and for criminal procedure:

• Clarification on Licensing Requirements: Pharmaceutical and medical gases companies now have a clearer understanding that a valid Form 25 license allows them not only to “manufacture” but also to engage in necessary processes of breaking, repacking, and distributing that product within the scope of manufacturing. This holds so long as each link in the chain holds the requisite manufacturing license.
• Reduced Litigation Risk: Manufacturers are less likely to face criminal proceedings if they supply to other licensed manufacturers who lack a separate wholesale license but remain authorized to handle the drug further under their Form 25 privileges.
• Stricter Summoning Standards: Trial Courts must demonstrate actual reasoning and careful scrutiny when issuing process. Summons cannot be automatically issued merely by restating the complaint. This enhances procedural safeguards for businesses and individuals who are at risk of prosecution.
• Emphasis on “Manufacture” Definition: Future cases involving interpretative questions under Section 3(f) may look to this precedent. Broad processes such as “breaking up” or “altering” remain firmly under the umbrella of “manufacture,” minimizing confusion about licensing overlap.

4. Complex Concepts Simplified

Below are clarifications of some technical terms and legal doctrines employed in this Judgment:

Section 3(f) – “Manufacture”:

This provision in the Drugs & Cosmetics Act broadly defines what qualifies as manufacturing, covering virtually every stage of processing or handling a drug with a view to its sale or distribution. The exclusion covers only “compounding or dispensing” in ordinary retail and some packaging done in ordinary course of retail business.

Form 20B (Wholesale License):

This is a specific license required for wholesale of certain drugs. The argument in dispute was that every firm dealing with distribution should have a Form 20B license. However, this Judgment clarifies that if a manufacturing license is validly held (Form 25), the licensed manufacturing entity may also conduct the distribution process allowed under the scope of “manufacture.”

Form 25 (Manufacturing License):

Authorizes manufacture (including processes such as re-labeling, breaking, repacking) of drugs other than those specified in Schedules C, C(1), and X. Clause 2 of Form 25 specifically allows “sale by way of wholesale dealing and storage for sale” of drugs manufactured under that license.

Summoning Order and Section 204 of the CrPC:

The Code of Criminal Procedure requires a Magistrate to form an opinion on whether there are sufficient grounds to proceed against accused persons. The summoning (or “process issuing”) order must briefly reflect that the Magistrate applied his/her judicial mind to the facts and law. An unreasoned order can be set aside.

5. Conclusion

The Supreme Court’s decision in this case settles two crucial points of law:

1. A manufacturing license (Form 25) under the Drugs & Cosmetics Act encompasses a broad spectrum of activities — from breaking up and repackaging to sale and distribution — without necessitating a separate wholesale license (Form 20B) for the very same product and process.
2. Criminal courts must exercise thorough and reasoned discretion when issuing summons. Any order that fails to demonstrate the Magistrate’s engagement with the facts and applicable law is vulnerable to quashing.

This ruling will influence pharmaceutical and medical gas industry practices by ensuring more confidence in valid inter-manufacturer sales and relieves undue procedural burdens. It likewise strengthens procedural safeguards in criminal complaints, reminding lower courts of their duty to articulate clear reasons before summoning accused individuals. The Judgment stands as a strong precedent for emphasizing both the wide scope of “manufacture” and the need for meaningful judicial scrutiny during the summoning stage.