Nicholas moves court on liability transfer

Pharma company Nicholas Piramal, in a petition to the Delhi High Court, has raised the issue whether criminal liability of a company gets transferred along with its assets and obligations to the company in which it merges.

The petition seeks quashing of summons issued to the company and its chairman and director Ajay Piramal by a metropolitan magistrate in Delhi for alleged sale of a substandard drug, manufactured by Rhone-Poulenc (India), before its merger with Nicholas Piramal in April 2001. It has sought the quashing of the pending criminal complaint filed against it by a drug inspector under the Drugs and Cosmetics Act,1940.

According to the company, the criminal liability of Rhone-Poulenc could not have been transferred to it after the merger.

It submitted that the drug erythromycin estolate oral suspension was manufactured in August 2000 and, at that time, the company was not connected with the manufacture and sale of the product belonging to Rhone-Poulenc. Thus, it was not responsible for the conduct of Rhone business.

A company being a juristic entity, amalgamation results in the death of the erstwhile company that stands merged, it said, adding "the effect is that the erstwhile companies cease to exist and the new companies are born."

"The magistrate had failed to appreciate the fact that criminal liability is personal in nature and not liable to be transferred, especially where the entity on which criminal liability is sought to be transferred was not even concerned with the commission of the offense," the company said in its petition.

According to the petition, the order would curtail the company's liberty and would put a lot of pressure in facing action which may "ultimately be dismissed by the court."

According to the company, one S Sundranayagam had collected a sample of erythromycin estolate, manufactured in August 2000 allegedly by Rhone-Poulenc (India), from Delhi-based Sarvanand Hospital for test/ analysis of the drug.

The government analyst in Ghaziabad and the Central Drugs Laboratory, Kolkata, had declared the sample of substandard quality in respect of the content of erythromycin base (70.71 per cent of the labeled claim), it stated.

After a series of enquiries, the drug was ultimately found to be manufactured by Biodeal Laboratories for Rhone-Poulenc under the latter's supervision, the petition said.