A) ABSTRACT / HEADNOTE

INOX Air Products Limited now known as INOX Air Products Private Limited & Anr. v. The State of Andhra Pradesh, Criminal Appeal No. 486 of 2025 (judgment dated 30 January 2025) examines whether the sale of Nitrous Oxide I.P. by a licensed manufacturer to another firm which did not hold a Form 20B licence for wholesale sale but did hold a Form 25 manufacturing licence constituted an offence under s.18(a)(vi) read with r.65(5)(1)(b) punishable under s.27(d) of the Drugs & Cosmetics Act, 1940. The Drugs Inspector lodged a complaint after purchase bills showed supply chains from the appellant (manufacturer) through intermediary firms to a hospital.

The Trial Court took the complaint on file and issued summons; the appellants sought quashing under s.482 CrPC in the High Court which dismissed their petition. The Supreme Court allowed the appeal. The Court construed “manufacture” in s.3(f) as a wide, inclusive term (covering making, altering, finishing, packing, labelling, breaking up, etc.), and held that a license under Form 25 authorises manufacture and sale by way of wholesale dealing subject to sale-licence conditions so sale by a Form 25 licensee to another Form 25 licensee (who repacks/fills smaller cylinders) did not automatically violate Form 20B conditions.

Additionally, the Magistrate’s non-speaking order issuing process, lacking application of mind, meant the proceedings were vulnerable to quashing. The High Court’s contrary interpretation was held to be legally unsustainable. Appeal allowed; trial proceedings quashed.

Keywords: Nitrous Oxide I.P., Form 25, Form 20B, manufacture (s.3(f)), s.18(a)(vi), r.65(5)(1)(b).

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

INOX Air Products (appellant No.1), a manufacturer of industrial and medical gases, and its Managing Director (appellant No.2), were arraigned after a Drugs Inspector lodged a complaint alleging illegal sale of Nitrous Oxide I.P. to a firm (accused No.3) that lacked a Form 20B licence for wholesale sale; the complaint alleged contravention of s.18(a)(vi) read with r.65(5)(1)(b) and punishability under s.27(d). The complaint arose from inspection of hospital purchase bills and subsequent correspondence: RIMS General Hospital’s purchase documents showed procurement through intermediate suppliers; investigation traced the product to INOX as manufacturer. The Trial Court took the complaint on file (20 Jan 2018) and issued summons to accused including appellants. The appellants challenged the process by filing a s.482 CrPC petition in the Andhra Pradesh High Court seeking quashing; the High Court dismissed the petition (12 Jan 2024).

The Supreme Court intervened on appeal, addressing two core strands:

(1) statutory interpretation whether sale by a Form 25 manufacturer to another Form 25 manufacturer, who repacks/fills smaller cylinders, falls foul of Form 20B sale conditions and hence s.18(a)(vi); and

(2) procedural adequacy whether the Magistrate’s order issuing process adequately recorded application of mind and reasons as required by settled law.

The Supreme Court examined definitions in s.3(f) and licensing forms to assess whether the complaint, on its face, disclosed an offence.

D) FACTS OF THE CASE

On 3 May 2016 the Drugs Inspector, with panch witnesses, visited RIMS General Hospital, Kadapa and requested purchase bills for Oxygen I.P. and Nitrous Oxide I.P.; bills seized (72 purchase bills) indicated supplies from M/s. Varasi Oxygen (accused No.1) which in turn purchased Nitrous Oxide I.P. from M/s. R.S. Gas Products (accused No.3). Accused No.3’s reply to the inspector stated that it purchased Nitrous Oxide I.P. from INOX (appellant No.1). Accused No.3 did not produce a licence for sale; both INOX and accused No.3 held Form 25 manufacturing licences which, on their face, permit repacking and sale by wholesale subject to sale conditions. INOX produced manufacturing and sale licences when requested.

The Drugs Inspector alleged that INOX (A5) sold Nitrous Oxide I.P. to unlicensed accused No.3 thereby contravening s.18(a)(vi) read with the conditions in Form 26 and r.65(5)(1)(b); complaint filed 22 Dec 2017. Trial Court issued summons on 20 Jan 2018. Appellants challenged issuance of process before the High Court under s.482 CrPC; High Court refused relief. Appellants appealed. The factual matrix is limited to documentary trail of purchase bills and licences; there was no seized physical stock at the hospital though bills existed.

E) LEGAL ISSUES RAISED

i. Whether sale of Nitrous Oxide I.P. by a Form 25 licensee to another Form 25 licensee who repacks for resale amounts to an offence under s.18(a)(vi) read with r.65(5)(1)(b) and punishable under s.27(d)?
ii. Whether a Form 25 licence being “subject to” Form 20B conditions renders every inter-manufacturer sale unlawful absent Form 20B?
iii. Whether the Magistrate’s order issuing process without recorded reasons satisfied the duty to apply mind under s.204 CrPC and settled Supreme Court precedents?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for Petitioners/Appellants submitted that:

(i) s.3(f) gives a wide, inclusive meaning to manufacture to cover altering, breaking up and packing activities undertaken by accused No.3;

(ii) accused No.3’s process (buy large cylinders, test and fill smaller ones, sample testing) is manufacture within Form 25, thus authorised to sell;

(iii) Form 20B and r.65(5) pertain to wholesale sale as is and do not proscribe inter-manufacturer transfers where the recipient manufactures/repacks further;

(iv) appellants had nominated responsible officer under s.34 and no specific averments linked appellant No.2 personally to wrongdoing, invoking Pepsi Foods to argue absence of material to proceed; and

(v) the Magistrate’s non-speaking order violated the requirement to record application of mind, citing Lalankumar Singh and related precedent.

G) RESPONDENT’S ARGUMENTS

The counsels for Respondent/State submitted that:

(i) Form 25 licence is subject to Form 20B and general sale conditions;

(ii) accused No.3 had not produced a Form 20B licence and therefore the sale by appellant to accused No.3 violated r.65(5)(1)(b) which mandates entry of purchaser sale licence number on wholesale memo;

(iii) absence of requisite sale licence for accused No.3 rendered the transaction unlawful under s.18(a)(vi) and punishable under s.27(d); and

(iv) the complaint disclosed sufficient material to issue process given the chain of bills tracing to INOX.

H) JUDGEMENT

The Court undertook a textual and purposive construction of the statute and rules. It emphasized that “manufacture” in s.3(f) is an inclusive and wide concept covering “making, altering, ornamenting, finishing, packing, labelling, breaking up” and that the exclusion clauses (compounding/packing in ordinary retail) were immaterial to the present fact pattern. Because both INOX and accused No.3 held Form 25 licences, accused No.3 was authorised to perform repacking/breaking up and to sell the resultant product by wholesale Form 25 expressly authorises sale by way of wholesale dealing and storage for sale of drugs manufactured under the licence subject to licence-for-sale conditions.

The Court rejected the State’s argument that Form 25 is automatically subordinated to Form 20B in such a way as to forbid inter-manufacturer supply. Even accepting the dictionary meaning of “subject to”, the Court held that the prosecution must still identify a specific breach of the conditions contained in Form 20B; the State did not do so. Consequently, on the face of the complaint no offence under s.18(a)(vi) read with s.27(d) was made out. Separately, the Court held that the Magistrate’s order taking the complaint on file lacked any recorded application of mind or reasons and thus contravened settled principles (e.g., Pepsi Foods, Sunil Bharti Mittal, Lalankumar Singh) requiring a non-mechanical but reasoned order when issuing process.

The High Court’s view that a manufacturer authorised to manufacture cannot purchase from another manufacturer was labelled legally unsustainable as it failed to appreciate the inclusive definition in s.3(f). On both substantive and procedural grounds the appeal succeeded: the Supreme Court quashed the High Court order, set aside the Magistrate’s summoning order (20 Jan 2018) and quashed the proceedings.

a. RATIO DECIDENDI

The operative ratio is twofold:

(1) statutory interpretation a Form 25 manufacturing licence authorises repacking/alteration and sale by wholesale of the manufactured product; consequently, sale from one Form 25 licensee to another Form 25 licensee engaged in repacking/manufacture does not ipso facto contravene s.18(a)(vi)/r.65(5) absent proof of a specific conditions breach; and

(2) procedural principle a Magistrate’s order issuing process must reflect application of mind and state the basis for concluding a prima facie case exists; a non-speaking or mechanically recorded order is vitiated. Both holdings guided the quashing of proceedings.

b. OBITER DICTA 

The Court observed, obiter, that even if Form 25 is subject to Form 20B, such subordination requires concrete demonstration of non-compliance with Form 20B conditions for criminal liability; mere absence of a Form 20B certificate on the part of the purchaser is not determinative without evidence of breach. The Court also underscored that prosecution cannot rest on surplusage and that documentary traces (bills) must be assessed contextually at the stage of issuance of process.

c. GUIDELINES

• A Magistrate issuing process must record succinct reasons indicating application of mind to the complaint and the documentary/oral material.

• Possession of a Form 25 licence empowers repacking/alteration and wholesale sale of manufactured drugs; prosecutions must identify particular licence-condition breaches rather than rely on formal absence of another form.

• Where statutory terms are inclusive and wide (e.g., s.3(f)), courts should apply plain-meaning and purposive readings; subordinate regulatory forms must be read in light of statutory definitions.

• Complainant/prosecutor must adduce material to show that the purchaser was not entitled to sale/distribution under the licence held; mere tracing of bills without proof of breach is insufficient to sustain a prima facie criminal case.

I) CONCLUSION & COMMENTS

The decision protects regulated industry participants from mechanical criminalisation where the statutory scheme grants manufacturing licencees authority to repack and wholesale their manufacture. The Court balanced regulatory enforcement with safeguards against frivolous or unreasoned criminal process: interpretation of s.3(f) and Form 25 privileges functional manufacture rights; simultaneously, the requirement of a reasoned order before summoning preserves liberty and prevents prosecutorial overreach. Practically, regulatory authorities must tighten pre-complaint scrutiny and demonstrate specific licence-condition violations before invoking penal sections; Magistrates must conscientiously record reasons on issuance of process.

For industry counsel, the case underscores the importance of maintaining clear licence endorsements and contemporaneous records of manufacturing/repaking processes to rebut regulatory allegations. For investigators, the judgment signals that documentary invoices alone, without proof of licence-condition breach, may not sustain criminal proceedings. The Court’s reliance on established precedents concerning the need for application of mind (e.g., Pepsi Foods, Lalankumar Singh) reiterates procedural standards that protect against harassment by criminal process. Overall, the judgment is a pragmatic reconciliation of regulatory compliance and procedural fairness.

J) REFERENCES

a. Important Cases Referred

1. INOX Air Prod. Ltd. now known as INOX Air Prod. Pvt. Ltd. v. The State of Andhra Pradesh, Criminal Appeal No. 486 of 2025, judgment dated Jan. 30, 2025, [2025] 1 S.C.R. 1235 : 2025 INSC 128.

2. Lalankumar Singh & Ors. v. State of Maharashtra, 2022 INSC 1059; [2022] 14 S.C.R. 573.

3. Pepsi Foods Ltd. & Anr. v. Special Judicial Magistrate & Ors., (1998) 5 S.C.C. 749; [1997] Supp. 5 S.C.R. 12.

4. Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 S.C.C. 609; 2015 INSC 18.

5. Mehmood Ul Rehman v. Khazir Mohammad Tunda & Ors., 2015 INSC 983; (2015) 12 S.C.C. 420.

6. Krishna Lal Chawla & Ors. v. State of Uttar Pradesh & Anr., 2021 INSC 160; (2021) 5 S.C.C. 435.

b. Important Statutes Referred

1. Drugs and Cosmetics Act, 1940, ss.3(f), 18(a)(vi), 27(d).

2. Drugs and Cosmetics Rules, 1945, rr.65(5)(1)(b), 70; Forms 20B, 25, 26.

3. Code of Criminal Procedure, 1973, s.482.