Pannalal Sunderlal Choksi And Others v. State Of Maharashtra And Another

1. Heard learned Senior Counsel Shri Shirish Gupte, with Shri B.R Warma, learned Advocate, for the petitioners and learned A.P.P Shri V.D Sapkal for the respondent State in Criminal Writ Petition No. 361/1998.

2. Heard learned Advocate Shri V.D Hon for the petitioners and learned A.P.P Shri S.K Tambe for the respondent State in Criminal Application No. 2397/1998.

3. The law points involved in Criminal Writ Petition No. 361/1998 and Criminal Application No. 2397/1998 are identical and, therefore, both the petitions are disposed of by common order.

4. The facts giving rise to the Criminal Writ Petition No. 361/1998 are as under:

5. The petitioners Nos. 1 to 3 are the Directors of Gufic Pharma Pvt. Ltd. (hereinafter referred to as ‘the said company’). The said company is registered under the Companies Act, 1956. The office of the said company is situated at Nehru Road, Vile Parle (East), Mumbai 400007. The registered office of the said company is in the State of Gujarat.

6. The said company carries on business of manufacturing pharmaceuticals, using bottles, containers, tubes, wrapping material, insulating material and other blow moulded form from extruded articles. The said company also manufactures crude drugs, herbs and raw materials like basic drugs, chemicals and pharmaceutical preparations. The said company is also engaged in the manufacture of various health care products.

7. Shri S.B Patil, Drug Inspector, attached to the Food and Drugs Administration, Government of Maharashtra, at the relevant time, was posted at Dhule. The complainant i.e Shri S.B Patil, Drug Inspector visited the premises of Unique Agencies, 5th lane, near Sonya Maruti Mandir, Dhule. He collected the sample of Plucinolone Acetonide Cream B.P Luci Skin cream manufactured by Gufic Pharma Pvt. Ltd., Bharoch, Gujarat (hereinafter referred to as ‘the said drug’ for the sake of brevity). The sample was sent to Government Analyst, Drug Control Laboratories, M.S, Bombay for test and analysis. The Government Analyst opined that the said Drug is not of standard quality as defined in the Drugs and Cosmetics Act, 1940, and the rules framed thereunder. (Hereinafter referred to as the said Act, 1940, and the said rules).

8. During enquiry, it is transpired that Gufic Pharma Ltd., Bharoch, had manufactured and distributed the said drug. The complainant on 15-2-1995 then visited the premises of Gufic Pharma Pvt. Ltd. and made enquiries with Shri S.C Jain, Production Manager and Authorised Signatory of Gufic Pharma Pvt. Ltd., Bharoch, regarding manufacture and distribution of the said drug and he was futher asked to furnish information regarding the said firm. Shri S.C Jain, Production Manager and Authorized Signatory of Gufic Pharma Pvt. Ltd., disclosed that the accused No. 5 i.e the company is holding drug manufacturing licence and the company had distributed the said drug manufactured in the factory. Shri S.C Jain supplied certified xerox copies of necessary documents. After having found that the original accused No. 5 i.e Gufic Pharma Pvt. Ltd., manufactured for sale and distributed the said drug, which is not of standard quality, the Drug Inspector filed complaint bearing RCC No. 82/1995 in the Court of Chief Judicial Magistrate, Dhule, against the present petitioners Nos. 1 to 3, Shri S.C Jain, Production Manager, and the company i.e Gufic Pharma Pvt. Ltd., for having contravened the provisions of section 18(a)(1) of the said Act, 1940, punishable under section 27-D read with section 34 of the said Act, 1940 and the said rules. Learned Chief Judicial Magistrate took cognizance of the case and issued summons to each of the petitioners along with others calling upon them to appear before the Court. The petitioners, on being aggrieved by the order of issuance of summons, approached this Court under section 482 of Criminal Procedure Code seeking to invoke inherent jurisdiction as well as under Article 227 of the Constitution of India seeking to invoke supervisory jurisdiction of this Court.

9. Dipak s/o Rajaram Malpure, Drug Inspector, has filed affidavit-in-reply. The Drug Inspector has raised strong objection with regard to maintainability of the criminal writ petition on the ground that the petitioners have alternative efficacious remedy. According to him, the petitioners can appear before the learned Chief Judicial Magistrate, Dhule, and can very well move an application for discharge. It is stated that the petitioners can also file criminal revision application under section 397 of Criminal Procedure Code and challenge the order of issue of process. It is stated that after order of issue of process, petitioners did not appear before the learned Chief Judicial Magistrate and, therefore, non-bailable warrants are issued against the present petitioners. In order to avoid their arrest, they have filed present criminal writ petition. It is also stated that this is not a fit case to invoke inherent powers under section 482 of Criminal Procedure Code for quashment of the criminal proceedings. It is stated in the affidavit in reply that all the petitioners have effective control over the production and distribution and, therefore, criminal writ petition is liable to be rejected.

10. The facts giving rise to the Criminal Application No. 2397/1998 are as under:

11. The petitioners Nos. 1 to 5, 9 and 10 are Directors of Godrej Foods Ltd., which is a public limited company, duly registered under the provisions of Companies Act, 1956. The petitioners are original accused Nos. 3 to 12 in Regular Criminal Case No. 20/1998 which is pending in the Court of Judicial Magistrate, First Class, Bhusaval.

12. The petitioner No. 5 is the Chief Executive and also Director of Godrej Foods Ltd., (hereinafter referred to as ‘the said company’). The said company is doing activity of manufacture of edible oils.

13. The petitioner No. 6 had resigned from the Board of Directors of the said company w.e.f 12th of June, 1996. The petitioner No. 7 had also resigned from the Board of Directors of the said company from 7th of July, 1996, and the petitioner No. 8 ceased to be Director of the said company effective from 16th April, 1996, as his appointment as nominee director of ICICI was withdrawn.

14. The Food Inspector collected the sample of Ultra Refined Sunflower Oil from one sealed and labelled polypack of one litre from Ramlal Hiralal Oil and Kirana Merchant, Bhusaval, district Jalgaon. The said polypack bears the label as, ‘New Godrej Ultra Refined Sunflower Oil manufactured by Godrej Foods Ltd., Wadala, Mumbai 400039’. One sealed part of the sample of Ultra Refined Sunflower Oil was sent to Public Analyst, Public Health Laboratory, Jalgaon, on 16-11-1996. The Food Inspector received a report of the Public Analyst, Jalgaon, through Assistant Commissioner, Food and Drugs Administration, Jalgaon. The sample of Ultra Refined Sunflower Oil is found adulterated. The Ultra Refined Sunflower Oil is article of food within the meaning of section 2(v) of Prevention of Food Adulteration Act, 1954. A charge is levelled against the present petitioners that they have committed an offence by manufacturing for sale the adulterated food article i.e Ultra Refined Sunflower Oil in contravention of section 7(i) read with sections 2(ia)(a), 2(ia)(m) and 2(ia)(h) punishable under section 16 of the Prevention of Food Adulteration Act, 1954. (Hereinafter referred to as the said Act, 1954). The learned Judicial Magistrate, Bhusawal, issued summons to the accused persons, including the present petitioners.

15. Shri Gopal Digambarrao Pathak has filed affidavit in reply. It is stated in the affidavit that on enquiry it is revealed that the sample collected is adulterated. The sample of oil is also found to contain Caster Oil which is injurious to health. During investigation it is further revealed that the concerned shopkeeper purchased the said adulterated oil from Mahendra General Stores at Bhusawal and, on further enquiries, it is transpired that the Proprietor of Mahendra General Stores had purchased the oil from the said company i.e Godrej Foods Ltd. It is stated that there is no valid nomination in favour of Jayesh Vithalani and, therefore, all the directors are responsible for the offence committed by the company and they are liable to be punished as per the provisions of the said Act, 1954, and the rules framed thereunder.

16. Learned Advocate Shri Shirish Gupte for the petitioners in Writ Petition No. 361/1998, at the inception of his submissions, pointed out that Shri Bhalchandra Purushottam Joshi, Manager of the Factory, Gufic Pharma Pvt. Ltd., has been nominated by the company to be in charge of and responsible to the said company for the conduct of the business of the said company.

17. Similarly, learned Advocate Shri V.D Hon for the petitioners in Criminal Application No. 2397/1998 pointed out at the very commencement of his submissions that one Shri Arun Narayan Chavan, Senior Quality Control Officer of the company has been nominated by the company to be in Charge of and responsible to the said company for the conduct of the business of the said company under the provisions of the said Act, 1954. He further submits that the Assistant Health Officer II and Local Health Authority of Greater Bombay, informed the said company that the duplicate copy of form of nomination submitted by the said company is returned duly acknowledged prior to the raid in question.

18. Learned Advocate Shri Shirish Gupte vehemently submitted before me that, in absence of allegations in the complaint filed by the Drug Inspector, that the present petitioners, are in Charge of the Company and responsible for the conduct of its business, they cannot be prosecuted. According to him, the complaint, Annexure-A, nowhere discloses that the present petitioners were in charge of the company and responsible for the conduct of the business of the said company. If there is no connecting link between the petitioners and manufacturing activity of the said drug, the criminal liability cannot be foisted on the petitioners simply because they are the Directors of the said company.

19. During the course of arguments, he invited my attention to section 34 of the said Act, 1940. According to him, the special provisions with regard to offences by the companies are made and, therefore, the provisions of section 34 of the said Act, 1940, are required to be taken into consideration. In the instant case, according to him, the petitioners are the Directors of the said company and the offence is committed by the said company. Unless it is shown that the present petitioners have direct control over the manufacturing activity and they are also responsible for the conduct of the business of the said company, they cannot be proceeded with. In order to buttress his submissions, he relied upon following rulings:

(1) State of Haryana v. Brij Lal Mittal, JT 1998 (3) SC 584.

(2) Pepsi Foods Ltd. v. Special Judicial Magistrate, (1998) 5 SCC 749 : AIR 1998 SC 128 (3) Delhi Municipality v. Ram Kishan, (1983) 1 SCC 1 : AIR 1983 SC 67.

20. Learned Advocate Shri V.D Hon for the petitioners in Criminal Application No. 2397/1998 invited my attention to the provisions of section 17 of the Prevention of Food Adulteration Act, 1954, which is identical to section 34 of the Drugs and Cosmetics Act, 1940, and played the same tune. According to him, simply because the petitioners happen to be the Directors of the said Company, criminal liability cannot be fastened on them in the absence of a live link in between the petitioners and the manufacturing activity of the said Oil. He also brought to my notice the original complaint Exh. A filed in the Court of Judicial Magistrate, First Class, Bhusaval, district Jalgaon, and submitted that the allegations made in the complaint do not at all remotely suggest the control of the present petitioners so far as the manufacturing activity of Ultra Refined Sunflower Oil is concerned. He further pointed out that the Food Inspector impleaded the present petitioners as accused in the original complaint simply on the ground that they are the Directors of the said company. According to him, no prima facie case is made out against the present petitioners and, therefore, the impugned order passed by the learned Judicial magistrate, First Class, Bhusawal, is liable to be quashed under section 482 of Criminal Procedure Code. He relied upon following rulings.

(1) Pepsi Foods Ltd. v. Special Judicial Commissioner, (1998) 5 SCC 749 : AIR 1998 SC 128. (2) A.V Mody v. S.R Salunke, (1999) 3 Mh LJ 850.

21. Learned A.P.P Shri V.D Sapkal and A.P.P Shri S.K Tambe for the State strongly supported the orders passed by both the trial Courts. According to them, the allegations in the complaints are sufficient to proceed with against the petitioners. According to them, section 34 of the Drugs and Cosmetics Act, 1940, and section 17 of Prevention of Food Adulteration Act, 1954, make the directors of the respective companies responsible for manufacture of substandard drug and adulterated food article. They submit that inherent powers under section 482 of Criminal Procedure Code, may not be invoked for the purpose of quashing the impugned orders passed by the trial Courts.

22. I gave anxious consideration to the rival submissions made at the Bar. section 34 of the Drugs and Cosmetics Act, 1940, and section 17 of the Prevention of Food Adulteration Act, 1954, are practically identical. Both these sections speak about the offences committed by the companies. If these two sections are carefully read, there is no manner of doubt that the vicarious liability of a person for being prosecuted for an offence committed under the Drugs and Cosmetics Act, 1940, and Prevention of Food Adulteration Act, 1954, by a company arises if at the relevant time, he was in charge of and was also responsible to the company for the conduct of its business. No doubt, the petitioners in both the petitions are directors of the respective companies. However, the main grievance of the petitioners in both the petitions is that they were not in-charge of and were not responsible to the respective companies for the conduct of their business. The Drug Inspector and the Food Inspector did not at all explain in the respective complaints filed by them in the trial Court as to whether the petitioners who are admittedly directors of the respective companies, at the relevant time were in charge of and were also responsible to the company for the conduct of business of the company. Their status as directors of the respective companies cannot be taken into account for the purpose of prosecution. If it is shown that they were in charge of and were also responsible to the companies for the conduct of business of the companies at the relevant time then the position would be different.

23. The phraseology used in section 34 of the Drugs and Cosmetics Act, 1940, and section 17 of the Prevention of Food Adulteration Act, 1954, has a special significance. A commission of offence by company under Drugs and Cosmetics Act, 1940, and under Prevention of Food Adulteration Act, 1954, requires different treatment by virtue of section 34 of the Act of 1940 and section 17 of the Act of 1954. The phraseology used in section 34 of the Act of 1940, and section 17 of the Act, 1954, conveys actual participation in day-to-day affairs of the company. At this juncture, a reference with profit can be made to G.L Gupta v. D.N Mehta, (1971) 3 SCR 748. In the said matter, interpretation of provisions of section 23-C of Foreign Regulation Act of 1947 was under consideration before the Supreme Court. The provisions of section 23-C of the Foreign Exchange Regulation Act, 1947, are very much analogous to provisions of section 34 of the Act of 1940, and section 17 of the Act of 1954. The Supreme Court has observed as follows:

“What then does the expression a person in-charge of and responsible for the conduct of the affairs of a company mean? It will be noticed that the word ‘company’ includes a firm or other association and the same test must apply to a director in charge and a partner of the firm in charge of a business. It seems to us that in the context a person ‘in charge’ must mean that the person should be in overall control of the day-to-day business of the company or firm. This inference follows from the wording of section 23-C(2). It mentions director, who may be a party to the policy being followed by a company and yet not be in charge of the business of the company. Further it mentions manager, who usually is in charge of the business but not in overall charge. Similarly, the other officers may be in charge of the only some part of the business.”

24. As per the ratio of G.L Gupta's case, cited supra, it is crystal clear that a person in charge of and responsible to the company for the conduct of the business of the company means that the person who effectively exercises all control of the day-to-day business of the company or firm. What is legally required is overall control over the day-to-day business of the company and the firm. If this element is present then only the directors of the company are responsible for the contravention of the provisions of Drugs and Cosmetics Act of 1940, and Prevention of Food Adulteration Act, 1954.

25. In case of State of Haryana v. Brij Lal Mittal, cited supra, High Court quashed the prosecution launched against the directors of the Company. The State preferred an appeal to the Supreme Court. The Supreme Court held that vicarious liability of a person for being prosecuted for an offence committed under the Drugs and Cosmetics Act, 1940, by a company arises if at the relevant time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. In the said case, except a bald statement in the complaint, that the respondents were directors of the company, there was nothing 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 and, therefore, the Supreme Court dismissed the appeal filed by the State of Haryana.

26. In both the cases in hand, except bald statement made in the complaints filed by the Drug Inspector and Food Inspector, there is no whisper in the complaints that the petitioners were in charge of and were also responsible to the companies for the conduct of the business of the companies. The Drug Inspector and the Food Inspector have drawn a presumption with regard to involvement of the Directors of the company without any averments with regard to control of day-to-day business of the companies.

27. The Single Judge of this Court has reiterated the same view in A.V Mody v. S.R Salunke, (1999) 3 Mh LJ 850. In the said case, averments made in the complaint do not make out a prima facie case against the accused who were Directors of the company. This Court has further held that the Directors were not liable for being prosecuted under section 34 of the Drugs and Cosmetics Act, 1940, of the alleged offence committed by the Company. Only those persons who are in charge of and are responsible for the conduct of the business of the company can be prosecuted along with the company.

28. This takes me to consider the objection raised by the learned A.P.P Shri V.D Sapkal with regard to maintainability of the petitions on the ground that the petitioners in both the petitions have alternate efficacious remedy. The objection raised by the learned A.P.P Shri V.D Sapkal is liable to be rejected. In case of Delhi Municipality v. Ram Kishan, cited supra, the Supreme Court, after making a reference to Madhu Limaye v. State Of Maharashtra., (1977) 4 SCC 551 : AIR 1978 SC 47 has said that section 482 of the Criminal Procedure Code has a different parameter and is a provision independent of section 397(2). The Supreme Court further held that while section 397(2) Criminal Procedure Code applies to the exercise of the revisional powers of the High Court. Section 482, regulates inherent powers of the Court to pass orders necessary in order to prevent the abuse of the process of the Court. The Supreme Court in paragraph 10 of the said judgment has observed:

“Proceedings against an accused in the initial stages can be quashed only if on the basis of the complaint or the papers accompanying the same, no offence is constituted. In other words, the test is that taking the allegations and the complaint as they are, without adding or subtracting anything, if no offence is made out then the High Court will be justified in quashing the proceedings in exercise of its powers under section 482 of the present Code.”

29. In case of Pepsi Foods Ltd., referred supra, the Supreme Court has thoroughly dealt with this issue. The Supreme Court has observed.

“Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto.”

30. The Supreme Court has further observed in paragraph 29 of the judgment that,

“No doubt the magistrate can discharge the accused at any stage of the trial, if he considers the charge to be groundless but, that does not mean that accused cannot approach High Court under section 482 of the Code or Article 227 of the Constitution to have proceedings quashed against him when the complaint does not make out any case against him and still he must undergo the agony of criminal trial.”

31. The Supreme Court has finally concluded that,

“It is not comfortable thought for the appellants to be told that they could appear before the Court which is at a far off place in the Ghazipur in the State of Utter Pardesh, seek their release on bail and then either to move an application under section 245(2) of the Code or to face a trial when the complaint and the preliminary evidence recorded makes out no case against them. It is certainly one of those cases where there is abuse of process of the law and the Courts and the High Court should not have shied away in exercising its jurisdiction. The provisions of Articles 226 and 227 of the Constitution and section 482 of the Code are devised to advance justice and not to frustrate it.”

32. So far as Criminal Writ Petition No. 361/1998 is concerned, the petitioners are residing at Mumbai. The said factory is at Bharoch in State of Gujarat. The sample of said drug was collected at Dhule by Drug Inspector and the prosecution is pending at Dhule. So far as Criminal Application No. 2397/1998 is concerned, the petitioners are residing at Mumbai. The said factory is at Wadala. The sample of the food article was collected at Bhusaval and the Criminal Prosecution is pending at Bhusaval. No prima facie case is made out against the petitioners. Under the circumstance, it is not proper to subject the petitioners to the agony of criminal trial.

33. Learned A.P.P Shri V.D Sapkal half-heartedly submitted that the petitioners in both the petitions can appear before the trial Courts and prove that the alleged offences are committed without their knowledge and that they exercised all due diligence to prevent commission of such offences. I do not agree with learned A.P.P Shri V.D Sapkal. The onus of proving that a particular director was in charge of and also responsible to the conduct of the business of the company, at the time of contravention of the provisions of Drugs and Cosmetics Act, 1940, and Prevention of Food Adulteration Act, 1954, is on the prosecution. If it is shown that a particular director has overall control over the day-to-day business of the company and he participates in the day-to-day affairs of the company then, in that event, there will be transformation of onus of proof from prosecution to the accused. In the instant case, the initial burden is not discharged by the prosecution.

34. In the result, Criminal Writ Petition No. 361/1998 is allowed. The order of issue of process dated 16-3-1995 passed by the Chief Judicial Magistrate, Dhule, in Regular Criminal Case No. 82/1995 is hereby quashed and set aside. Criminal proceeding as against petitioners Nos. 1 to 3 is quashed. However, the trial to proceed against the original accused Nos. 4 and 5.

35. Criminal Application No. 2397/1998 is allowed. The order of issue of summons dated 19-2-1998 passed by the Judicial Magistrate, First Class, Bhusawal, in Criminal Case No. 20/1998, is hereby quashed and set aside. Criminal proceeding as against the petitioners Nos. 1 to 10 is hereby quashed. However, the RCC No. 20/1998, to proceed against original accused No. 1 and 13.

36. Rule is made absolute accordingly in both the petitions.

Order accordingly.