In a significant ruling, the Supreme Court of India recently quashed a case against a former director of a drug manufacturing company, M/s. Elmac Remedies Private Limited (Elmac), under the Drugs and Cosmetics Act, 1940. The Court held that the director could not be held liable for the company's actions after his resignation, especially since the raid and seizure of substandard drugs occurred after he had left the company.
Background of the Case:
The case dates back to 15th June 2010, when the Drugs Inspector, Gonda, conducted a raid on M/s. Jai Medical Store in Balrampur, Uttar Pradesh. During the raid, samples of 'Fena' tablets, manufactured by Elmac, were collected. Upon testing, the drugs were found to be below the prescribed standard and were categorized as 'adulterated' and 'spurious' under Section 17 of the Drugs and Cosmetics Act, 1940.
The appellant, Yashpal Chail, was the manufacturing chemist and a director of Elmac. He had been associated with the company since 1st July 2006, as per the statutory requirements under Rule 71 of the Drugs and Cosmetics Rules, 1945. However, Chail resigned from his position as the manufacturing chemist on 15th December 2008 and informed the Drug Controlling and Licensing Authority about his resignation on 15th January 2009. He also resigned from the directorship of Elmac with effect from 1st June 2009, and Form 32 was filed with the Registrar of Companies to formalize his resignation.
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Despite his resignation, Chail was summoned by the court in 2013 as part of the proceedings in Special Case No. 9 of 2013, which was filed by the Drugs Inspector under Section 32 of the Drugs and Cosmetics Act. Chail challenged the summoning order before the Allahabad High Court, but his plea was dismissed on 2nd September 2022. Aggrieved by the High Court's decision, he approached the Supreme Court.
Supreme Court's Observations:
The Supreme Court, comprising Justices BV Nagarathna and Prasanna B. Varale, carefully examined the facts of the case. The Court noted that Form 32, filed by Chail with the Registrar of Companies, clearly indicated that he had resigned from Elmac with effect from 1st June 2009. This document established that Chail was no longer associated with the company when the raid took place on 15th June 2010.
"We find that Form 32 was filed by the appellant herein before the Registrar of Companies indicating clearly that owing to his resignation, he ceased to be associated with the company with effect from 01.06.2009. This clearly establishes the fact that he was no longer a member of the Board of Directors of the Company."
The Court also dismissed the argument that Chail's name on the manufacturing license (valid from 22nd July 2006 to 21st July 2011) made him liable for the substandard drugs. The bench stated:
"Although a licence may have been issued to Elmac and consequently, the name of the appellant herein was noted in the said licence which was for the period from 22.07.2006 to 21.07.2011, it is inferred that once the appellant ceased to have any association with Elmac, he would not have continued as a Manufacturing Chemist in Elmac."
Court's Decision:
The Supreme Court ruled that the allegations against Chail under Sections 18 and 27 of the Drugs and Cosmetics Act, 1940, were illegal and contrary to the established facts. The Court quashed the summoning order dated 26th September 2013 and the proceedings in Special Case No. 9 of 2013 against Chail.
The Court stated:
"In the circumstances, we think that the allegations and the offences alleged as against the appellant herein under Section 18/27 of the Drugs and Cosmetics Act, 1940 read with the Drugs and Cosmetics Rules, 1945 were wholly illegal and contrary to the established facts. Therefore, we set aside the impugned order and allow the application filed by the appellant herein under Section 482 of CrPC."
Case Title: YASHPAL CHAIL VERSUS STATE OF UTTAR PRADESH & ANR.
