Directors Cannot Escape Section 34 Liability at Threshold, JK&L High Court Dismisses Quashing Petition in Not-of-Standard-Quality Drug Case
The Jammu & Kashmir and Ladakh High Court refused to quash criminal proceedings against three directors of Corona Remedies Pvt. Ltd., holding that their vicarious liability under Section 34 of the Drugs and Cosmetics Act must be decided at trial, and that the company's own admission before the drug regulator barred them from taking an inconsistent stand in court.
Justice Wasim Sadiq Nargal, sitting singly at the Jammu bench, on 11 August 2026 dismissed a criminal miscellaneous petition filed by three directors of M/s Corona Remedies Pvt. Ltd. who sought to quash a complaint filed by the Central Drugs Standard Control Organisation (CDSCO) and the cognizance order dated 26 July 2018 passed by the Chief Judicial Magistrate, Jammu. The directors—arrayed as accused Nos. 2, 4, and 7 in the complaint—had argued that they played no role in manufacturing the drug declared “Not of Standard Quality” and that the statutory procedure under the Drugs and Cosmetics Act, 1940 was not followed. The court rejected each ground, vacated a seven-year-old stay of the trial court proceedings, and directed the Chief Judicial Magistrate to proceed with the matter on its own merits.
The Drug Sample, the Analyst’s Report, and the Complaint
The case centres on a batch of “Locipil Tablets” (Batch No. CHI15020, manufactured September 2015, expiry May 2018) produced by Corona Remedies Pvt. Ltd. at its manufacturing unit in Tehsil and District Solan, Himachal Pradesh. The company held a drug manufacturing licence from the Licensing Authority, Himachal Pradesh, and its registered office was in Ahmedabad.
A Drugs Inspector of CDSCO lifted a sample of Locipil Tablets on Form No. 17 from the premises of ESIC Model Hospital, Bari Brahmana, Jammu. The sample was sent to the Government Analyst, Regional Drugs Testing Laboratory, Chandigarh. By report dated 31 August 2016 in Form No. 13, the analyst declared the drug “Not of Standard Quality,” finding that the assay and uniformity of dosage units of Desogestrel did not conform to the prescribed 70% of label claim.
On 9 September 2016, the Drugs Inspector sought information from the Medical Superintendent of ESIC Model Hospital about the source of purchase. The Medical Superintendent identified Corona Remedies Pvt. Ltd. A statutory notice dated 22 September 2016 was then issued to the company at its Himachal Pradesh unit. The company, through its authorised representative, replied on 3 November 2016, stating it had stopped sales of the batch and that no stock remained.
A joint inspection of the manufacturing unit was conducted on 4 November 2016 by two Drugs Inspectors. The Joint Investigation Report recorded that the batch had been manufactured under Good Manufacturing Practices and that the required quantity of bulk drug had been used. A private laboratory, M/s Choksi Laboratories, Panchkula, had also tested the batch and found results within limits. Despite these observations, the report recommended that action be initiated under the applicable guidelines for drugs declared “Not of Standard Quality.”
The CDSCO subsequently filed complaint No. 154/Complaint/2018 before the Chief Judicial Magistrate, Jammu, alleging offences under Section 18(a)(i) read with Section 27(d) of the Drugs and Cosmetics Act, 1940. The three petitioners—directors of the company—were included. The Chief Judicial Magistrate took cognizance and issued process on 26 July 2018. When the petition reached the High Court on 3 May 2019, proceedings before the trial court were stayed.
The Directors’ Challenge and the Department’s Response
Counsel for the petitioners, Mr. Varut Kumar Gupta, argued that the three directors were stationed in Ahmedabad and had no involvement in the manufacturing operations at Solan. Manufacturing, he submitted, was conducted under the technical supervision of qualified personnel whose names were endorsed in the drug licence. None of the directors was present at the manufacturing unit during the joint inspection.
The petitioners also raised two procedural objections. First, they contended that the Drugs Inspector had not produced one portion of the drug sample before the Chief Judicial Magistrate as required under Section 23(4)(ii) of the Act. Second, they argued that by proceeding to file the complaint without awaiting the outcome of the joint inspection, the Department had deprived the directors of their statutory right under Section 25(4) to have the sample sent to the Central Drugs Laboratory for re-analysis. They further contended that Section 34 of the Act requires a specific satisfaction that the offence was committed with the consent, connivance, or neglect of each director before process can issue, and that no such satisfaction was recorded in the complaint. The complaint, they said, was also filed more than a year after receipt of permission from the Drug Controller General, New Delhi, without explanation for the delay.
Counsel for the respondent, Mr. Prem N. Sadotra, countered that the complaint specifically alleged that all six director-accused were “responsible to conduct business of accused No. 1 at the time when the drug was manufactured, i.e., Sept. 2015.” He argued that the proviso to Section 34(1)—permitting a director to escape punishment by proving absence of knowledge or exercise of due diligence—operates only after trial commences, not at the stage of cognizance. He also pointed to the company’s reply of 3 November 2016, in which the authorised representative stated “We admire your findings and honor your judgment” and requested the department to “take a lenient view.” Having admitted the findings and sought leniency, the directors could not now challenge the very proceedings, he argued.
How the Court Reasoned Across Four Questions
Justice Nargal structured the legal analysis around four inter-linked questions and answered each against the petitioners.
On Section 34 and the threshold challenge to liability: The court read Section 34 closely. Sub-section (1) deems every person who, at the time of the offence, was in charge of and responsible to the company for the conduct of its business to be guilty of the offence. Sub-section (2) extends liability where the offence was committed with the consent, connivance of, or is attributable to neglect on the part of, any director, manager, secretary, or other officer. Whether either set of ingredients is satisfied, the court held, requires appreciation of evidence and cannot be decided at the threshold under Section 561-A of the Code of Criminal Procedure, 1898.
The court relied on the Supreme Court’s judgment in Dinesh B. Patel and Others v. State of Gujarat and Another, (2010) 11 SCC 125, where identical contentions were raised against director-accused under the Drugs and Cosmetics Act. The Supreme Court there declined to adopt a technical approach to pleadings given the public health implications and left it to directors to demonstrate before the trial court that they had no role in manufacturing. The court also relied on the more recent Supreme Court decision in State of Kerala & Another v. M/s Panacea Biotec Ltd. & Another, 2026 INSC 200, where it was held that whether directors were “in charge of” and “responsible to the company for the conduct of the business” are questions of fact best left to the trial court.
Applying these precedents, Justice Nargal held that the directors could not, at this stage, avoid Section 34 by asserting that manufacturing was supervised by technical personnel or that they were physically distant from Solan. The extent of their control, their responsibility, and whether they can establish absence of knowledge or due diligence are all matters for the trial court.
On estoppel by conduct: The court treated the company’s reply of 3 November 2016 as a significant admission. The reply did not dispute the Government Analyst’s findings, confirmed that sales had stopped, confirmed no remaining stock, expressed admiration for the department’s findings, and sought leniency. The court characterised this as “tantamount to admission on their part” rather than a denial. Having taken that position before the department, the petitioners could not now challenge the very foundation of the proceedings before the High Court.
Justice Nargal applied the doctrine of approbation and reprobation, drawing on Rajasthan State Industrial Development and Investment Corporation v. Diamond & Gem Development Corporation Limited, (2013) 5 SCC 470, and Union of India v. N. Murugesan, (2022) 2 SCC 25. The principle, as the court articulated it, prevents a party from accepting the benefit of one position while resiling from the same position in subsequent proceedings. The directors’ attempt to challenge the complaint after the company had effectively accepted the department’s findings attracted this bar.
On the public health character of the proceedings: The court held that a technical approach to pleading deficiencies is impermissible where the offence has a direct bearing on public health. The drug had been declared not of standard quality. The question of whether the complaint contained sufficiently specific averments about each director’s role had to yield to that consideration, particularly when the complaint itself stated that directors 2 through 7 were “responsible persons for the conduct of the day-to-day business of the Company at the relevant time.”
On the scope of inherent jurisdiction: The court applied the framework from State of Karnataka v. M. Devendrappa and Another, (2002) 3 SCC 89, which holds that inherent jurisdiction under Section 482 (or Section 561-A in the J&K context) should not be exercised to stifle a legitimate prosecution. Quashing is warranted only where the complaint discloses no offence or is frivolous, vexatious, or oppressive. The court found no patent illegality, jurisdictional error, or perversity in the cognizance order of 26 July 2018. The Supreme Court’s guidance in Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra and Others, 2021 SCC OnLine SC 315, that such interference is warranted only in exceptional cases, was also cited.
On the procedural objections—the alleged non-production of the sample before the trial court and the alleged deprivation of the right to seek re-analysis—the court held these could not be examined in isolation at this stage. The record did not show that the company had exercised its statutory right under Section 25(3) of the Act to notify the Inspector or court within twenty-eight days of receiving the analyst’s report that it intended to adduce evidence in controversion. The company’s reply, in fact, moved in the opposite direction. Whether procedural requirements were fully met and whether any prejudice was caused are matters the trial court can examine.
Outcome
The High Court dismissed CRM(M) No. 237/2019 as devoid of merit. The interim stay of trial court proceedings dated 3 May 2019 was vacated. The Chief Judicial Magistrate, Jammu, is directed to proceed with the complaint in accordance with law, adjudicating the matter independently on its own merits.
The court expressly clarified that no observation in the judgment should be read as an expression of opinion on the ultimate guilt or innocence of the petitioners, and that all questions of fact and law remain open for the trial court to determine upon appreciation of evidence.