INOX Air Products Case: Supreme Court Quashes Criminal Proceedings on Drug License Violation

The Supreme Court of India recently ruled in INOX Air Products Limited vs. The State of Andhra Pradesh, quashing criminal proceedings against the company and its Managing Director. The case revolved around alleged violations of the Drugs and Cosmetics Act, 1940, in relation to the sale of Nitrous Oxide I.P. The Supreme Court ruled that no offense was made out and that the prosecution was untenable in law.

Background of the Case

The case began when the Drugs Inspector of Kadapa filed a complaint against INOX Air Products Limited and others, alleging that they had sold Nitrous Oxide I.P. (a medical gas) without proper licensing. The complaint claimed that the company had sold the gas to a firm that did not possess a valid license for its further sale, thereby violating Section 18(a)(vi) of the Drugs and Cosmetics Act.

The appellants, INOX Air Products Limited and its Managing Director, were accused of violating licensing conditions under the Act and were summoned by the First Additional Judicial Magistrate of First Class, Kadapa. They challenged the proceedings before the Andhra Pradesh High Court, which refused to quash the case, leading to the appeal before the Supreme Court.

Key Legal Issues

Whether INOX Air Products violated the Drugs and Cosmetics Act, 1940, by selling Nitrous Oxide I.P. to an unlicensed firm.
Whether the sale of a drug by a licensed manufacturer to another licensed manufacturer constitutes an offense.
Whether the trial court erred in summoning the appellants without proper legal grounds.

Petitioners’ Arguments

The company had all necessary licenses to manufacture and sell Nitrous Oxide I.P.
The purchasing firm was also licensed to manufacture drugs, making the transaction lawful.
The Drugs and Cosmetics Act does not prohibit sales between licensed manufacturers.
The trial court’s summoning order was non-speaking, lacking any reasoning.
The Managing Director was not involved in day-to-day affairs and should not have been held liable.

Respondents’ Arguments

The purchasing firm lacked a Form 20B license, which is required for wholesale drug sales.
Since the purchasing firm did not hold the necessary license, INOX Air Products violated Section 18(a)(vi) of the Act.
The sale of a drug without proper licensing is a punishable offense under Section 27(d) of the Act.

Supreme Court’s Observations

1. No Violation of Licensing Rules

The Court found that both INOX Air Products and the purchasing firm had valid manufacturing licenses. Since the purchasing firm was also permitted to manufacture drugs, it could lawfully acquire Nitrous Oxide I.P. from another manufacturer. The Court ruled:

“Since both accused No.3 and appellant No.1 are holding the license for manufacture, they will be entitled to carry out any process or part of the process which includes altering or breaking up with a view to its further sale or distribution.”

2. No Prima Facie Case Under Section 18(a)(vi)

The Court held that the prosecution failed to establish any violation of Section 18(a)(vi). The Act prohibits selling drugs without a valid license, but in this case, both parties had valid licenses.

“On a plain and literal interpretation of the term ‘manufacture’ as defined in the said Act, we find that the contention of the State is totally untenable.”

3. Summoning Order Was Non-Speaking

The Court criticized the trial court for issuing summons without recording any reasons:

“Summoning of an accused in a criminal case is a serious matter. The Magistrate’s order must reflect that he has applied his mind to the facts of the case and the law applicable thereto.”

The lack of reasoning made the order legally unsustainable.

4. Managing Director’s Liability

The Court held that the Managing Director of INOX Air Products could not be held liable merely because of his position, especially when another official had been nominated as responsible for compliance under the Act.

“There are no specific averments in the complaint regarding the role played by appellant No.2. Hence, the complaint is liable to be quashed.”

Final Verdict

The Supreme Court quashed the criminal proceedings, ruling that the prosecution was without legal basis. It issued the following directives:

The High Court’s order refusing to quash the case was set aside.
The summoning order of the trial court was quashed.
All proceedings against INOX Air Products and its Managing Director were terminated.

Conclusion

This judgment reinforces the principle that criminal liability under the Drugs and Cosmetics Act must be based on clear legal violations. The ruling prevents arbitrary prosecutions and ensures that licensed manufacturers can conduct lawful transactions without fear of unwarranted legal action.

Petitioner Name: INOX Air Products Limited & Another.
Respondent Name: The State of Andhra Pradesh.
Judgment By: Justice B.R. Gavai, Justice Augustine George Masih.
Place Of Incident: Andhra Pradesh.
Judgment Date: 30-01-2025.

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