Research Question

Whether the Managing Director (hereinafter referred as ‘MD’) can be discharged from his liabilities
under the Drugs and Cosmetics Act, 1940 on the account of non-involvement in day-to-day activities?

Probable Answers

Firstly, if we look at the bare provisions of the said Act, Section 34 is the most relevant provision in
the above-mentioned context. Section 34 read as follows: -

Section 34 - Offences by companies

“1) Where an offence under this Act has been committed by a company, every person who at
the time the offence was committed, was in charge 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:

Provided that nothing contained in this sub-section shall render any such person liable to any
punishment provided in this Act if he proves that the offence was committed without his knowledge
or that he exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has
been committed by a company and it is proved that the offence has been committed with the consent
or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or
other officer of the company, such director, manager, secretary or other officer shall also be deemed
to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation.--For the purposes of this section--

(a) "company" means a body corporate, and includes a firm or other association of individuals;
and

(b) "director" in relation to a firm means a partner in the firm.]”

Although there is no express provision in the Act regarding the discharge of MD, however, the above
provision is talking about the liabilities of the person in-charge of a company if any offence is
committed under the Act. Therefore, the essential component before applying section 34 is that the
offence must be committed under the Act.
The research question was talking about just the non-involvement of the MD in day-to-day activities,
which is neither expressly nor impliedly mentioned as an offence under the Drugs and Cosmetics
Act, 1940. To support my above argument I am discussing a case law decided by Hon’ble Supreme
Court of India where the Court has interpreted the Section 34 of the Act.

In the case of State of Karnataka v. Pratap Chand1, the court opined that Section 34 contains a
similar provision making every person in charge of and responsible to the company for the conduct
of its business liable for offence committed by a company. It was held that a person liable for criminal
action under that provision should be a person in overall control of the day-to-day affairs of the
company or a firm. This was a case of a partner in a firm and it was held that a partner who was not
in such overall control of the firm could not be held liable. The same proposition was discussed and
relied upon by the Supreme Court as well as various high court numerous times. 2

Based upon the above arguments and authorities, it can be concluded that the MD cannot be
discharged from the liabilities for mere non-involvement in day-to-day works under Drugs and
Cosmetics Act, 1940 as there is no such provision governing the same.

The other proposition, which I found was that there are other methods to remove MD under the
Companies Act, 2013. Chapter XI, Section 169 of the said Act provides for removal of directors
by the shareholders. For that, firstly we have to understand the definition of MD under the Companies
Act, 2013. Section 2(54) of the Act defines the same as: -

“‘Managing Director’ means a director who, by virtue of the articles of a company or an

agreement with the company or a resolution passed in its general meeting, or by its Board of Directors,
is entrusted with substantial powers of management of the affairs of the company and includes a
director occupying the position of managing director, by whatever name called.”

Similarly, Section 166 of the act provides of the duties of the director in which it can be
interpreted that looking after the day-to-day activities of the company is one of the key role of
the MD and in contravention of such duty, there is a legal right vested upon the shareholder
that they can discharge the MD.

1(1981) 2 SCC 335.

2S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla and Ors. (AIR 2005 SC 3512); Madhumilan Syntex Ltd. and Ors. Vs. Union
of India, (AIR 2007 SC 1481); Securities and Exchange Board of India and Ors. Vs. Gaurav Varshney and Ors. ( (2016)
14 SCC 430); Rohit Chunubhai Mehta vs. Gujarat State Fertilizer Co. Ltd., (2004 CriLJ 2298).