No Universal Rule that a Director of a Company is in Charge of its Everyday Affairs: Supreme Court
The Supreme Court reiterated that there is no universal rule that a director of a company is in charge of its everyday affairs.
Background
The Appellants are the Directors of M/s Cachet Pharmaceuticals Private Ltd. (“CPPL”). CPPL was granted permission to manufacture ‘Hemfer Syrup’ which falls under Schedule C & C(1) to the Drugs & Cosmetics Rules, 1945.
N. A.Yadav, the then Drugs Inspector, Food and Drugs Administration, Beed, Maharashtra, visited the premises of M/s. Priya Agencies at Beed and purchased ‘Hemfer Syrup’, from which he had drawn samples of the drug. He sent one such sample to the Government Analyst, Maharashtra State Drug Control Laboratory Mumbai so as to have the drug tested. He received a test report from the Government Analyst stating that the sample was not of standard quality as the content of Cyanocobalamin was less than the permissible limit, i.e., 39% of the label amount.
Arguments
Senior Advocate C.U. Singh and Anupam Lal Das, appearing for the appellants, submitted that Section 34 of the said Act specifically provides that only such person who, at the time of the commission of the offence, was incharge of, and was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Advocate Siddharath Dharmadhikari, appearing for the respondents, submitted that perusal of the complaint, and specifically paragraphs 3 and 25 thereof would reveal that there is sufficient compliance of requirement of Section 34 of the said Act.
He contended that the complaint has to be read as a whole and cannot be read in a piecemeal manner.
Decision
The division bench of Justice B.R. Gavai and Justice C.T. Ravikumar reiterated that simply because a person is a director of the company, it does not necessarily mean that he fulfils the twin requirements of Section 34(1) of the said Act so as to make him liable.
The bench added that a person cannot be made liable unless, at the material time, he was incharge of and was also responsible to the company for the conduct of its business.
While referring to the judgment of S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and another, the bench said that merely because a person is a director of a company, it is not necessary that he is aware about the daytoday functioning of the company. There is no universal rule that a director of a company is in charge of its everyday affairs. It was, therefore, necessary, to aver as to how the director of the company was in charge of daytoday affairs of the company or responsible to the affairs of the company.
The court noted that the present appellants are neither the managing director nor the wholetime directors of the accused company.
It further noted that, in accordance with the provisions of Rule 76 of the said Rules read with Form 28, the Accused have specifically been approved by the licensing authority in Form 28.
The court viewed that the complaint is totally lacking the requirement of Section 34 of the said Act.
The bench said that the CJM has not even cared to pass a formal order of issuance of process.
“The order of issuance of process is not an empty formality. The Magistrate is required to apply his mind as to whether sufficient ground for proceeding exists in the case or not. The formation of such an opinion is required to be stated in the order itself. The order is liable to be set aside if no reasons are given therein while coming to the conclusion that there is a prima facie case against the accused. No doubt, that the order need not contain detailed reasons” the court stated.
The court held that the Single Judge of the High Court, based on the record, had presumed that there was an order of issuance of process and found that such an approach is unsustainable in law.
The court said that the complaint shall proceed against the rest of the accused in accordance with law.
Case title: Lalankumar Singh & Ors. v/s State of Maharashtra
Citation: Criminal appeal no. 1757 of 2022
