Imagine being a director of a company and suddenly receiving a court summons for a crime you had no direct involvement in. Scary, right? This is exactly what happened in the case of Lalankumar Singh & Ors. v. State of Maharashtra, where directors of a pharmaceutical company were dragged into criminal proceedings just because of their title.
The Supreme Court of India stepped in and delivered an important judgment clarifying that directors cannot be held vicariously liable unless they were actively involved in the company’s operations. Let’s break down this landmark ruling and understand its implications for corporate liability in India.
What's the matter?
The case involved M/s Cachet Pharmaceuticals Pvt. Ltd., a pharmaceutical company whose product, Hemfer Syrup, was found to be not of standard quality by government laboratories. The Maharashtra Food and Drug Administration (FDA) filed a criminal complaint under Sections 16, 18, and 34 of the Drugs and Cosmetics Act, 1940, against the company, including its directors, alleging that they were responsible for the defective drug.
3.1 The Appellants are the Directors of M/s Cachet Pharmaceuticals Private Ltd. (hereinafter referred to as “CPPL”). CPPL was granted permission to manufacture ‘Hemfer Syrup’ which falls under Schedule C & C(1) to the Drugs & Cosmetics Rules, 1945 (hereinafter referred to as “the said Rules”).
The Chief Judicial Magistrate (CJM), Beed, issued summonses to all accused, including the directors, who challenged the order, arguing that they were not involved in the day-to-day business of the company. However, their revision petition before the Sessions Court and writ petition before the Bombay High Court were dismissed.
The directors then appealed to the Supreme Court, seeking to quash the criminal proceedings against them.
3.8 The learned CJM, Beed issued Summons to all the accused, including the Appellants herein vide Order dated 30th March 2009. The Appellants filed a Criminal Revision Petition against the summoning order before the learned Sessions Judge, Beed on the ground that there are no specific averments in terms of Section 34 of the said Act as to the role played by the Directors and thus sought for the Summoning Order to be quashed. However, the learned Sessions Judge, Beed rejected the said Criminal Revision Petition noting that there is a specific averment in the complaint that the appellants are concerned with the manufacture, distribution and sale of ‘Hemfer Drug’.
Supreme Court’s Decision
The Supreme Court quashed the summonses and dismissed the criminal case against the directors, ruling that mere directorship does not establish criminal liability. The key takeaways from the judgment are:
1. Vicarious Liability Needs Active Involvement
Under Section 34 of the Drugs and Cosmetics Act, 1940, liability is imposed only on persons who were “in charge of” and “responsible for” the company’s business at the time of the offense. The court reiterated that a person cannot be prosecuted just because they hold a directorial position—there must be specific allegations of active participation in the offense.
21. Recently, in the case of Ashoke Mal Bafna vs. Upper India Steel Manufacturing and Engineering Company Limited8 , this Court observed thus: “9. To fasten vicarious liability under Section 141 of the Act on a person, the law is well settled by this Court in a catena of cases that the complainant should specifically show as to how and in what manner the accused was responsible. Simply because a person is a Director of a defaulter Company, does not make him liable under the Act. Time and again, it has been asserted by this Court that only the person who was at the helm of affairs of the Company and in charge of and responsible for the conduct of the business at the time of commission of an offence will be liable for criminal action. (See Pooja Ravinder Devidasani v. State of Maharashtra [Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1 : (2015) 3 SCC (Civ) 384 : (2015) 3 SCC (Cri) 378 : AIR 2015 SC 675] .)
10. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.”
2. Mere Allegations Are Not Enough
The prosecution failed to show any evidence that the directors were involved in the manufacturing, testing, or distribution of the defective drug. The complaint did not specify how these directors were responsible for the day-to-day operations.
3.Role of Managing Directors vs. Regular Directors
The court differentiated between Managing Directors/Whole-time Directors and ordinary directors. While MDs and WTDs are presumed to be responsible for a company’s affairs, other directors must be specifically shown to have played an active role in the offense.
4. Summoning Order Must Have Reasoning
The Supreme Court criticized the Magistrate’s mechanical approach in issuing summonses without recording reasons. The judgment emphasized that issuing process is not a mere formality, and courts must apply their minds before dragging someone into a criminal case.
This ruling is a major relief for directors, particularly independent and non-executive directors, who often find themselves unfairly prosecuted in cases where they have no direct involvement.
✅ Protects directors from unnecessary harassment in criminal cases
.✅ Strengthens corporate governance by ensuring that only responsible individuals are held accountable.
✅ Reduces fear among professionals taking up directorial roles in companies.
The Supreme Court’s decision in Lalankumar Singh sends a clear message: Being a director does not automatically mean you’re guilty. There must be concrete allegations and evidence of active participation in the alleged offense. This judgment is a game-changer for corporate liability in India, ensuring that criminal law is not misused to target innocent individuals.
[2022] 14 S.C.R. 573 573 573 LALANKUMAR SINGH & ORS. v. STATE OF MAHARASHTRA (Criminal Appeal No. 1757 of 2022) OCTOBER 11, 2022
Case Law Reference
[2000] 2 SCR 566 referred to Para 12
[2010] 10 SCR 319 referred to Para 12
[1998] 3 SCR 104 referred to Para 13
[2005] 3 Suppl. SCR 371 relied on Para 15
[2014]14 SCR 1468 relied on Para17
[2009] 9 SCR 1144 relied on Para19
[2010] 9 SCR 387 relied on Para 20
(2018) 14 SCC 202 relied on Para 21
[2015] 1 SCR 377 relied on Para 28
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