Introduction
The Drugs and Cosmetics Act, 1940 ("Act") is the primary legislation governing the manufacture, sale, distribution and import of drugs and cosmetics in India. Over the years, the Act has undergone several amendments to keep pace with evolving standards in public health and pharmaceutical industry. Prior to 2008, the Act did not contemplate the concept of compounding of offences. It was the Drugs and Cosmetics (Amendment) Act, 2008 that introduced Section 32B, empowering the government to compound certain offences under the Act. However, this section remained dormant for more than a decade due to the absence of corresponding rules. In this regard, the Ministry of Health and Family Welfare has finally notified the Drugs and Cosmetics (Compounding of Offences) Rules, 2025 ("Rules") which came into force on April 25, 2025.
The enforcement of the Rules signals a shift in India's pharmaceutical enforcement paradigm moving away from criminal prosecution for minor infractions towards a more administratively efficient approach and to reduce the burden on the judiciary. Prior to the enforcement, various minor offences were also met with criminal prosecution in many instances. This led to avoidable litigation and put both administrative and judicial resources under stress. The introduction of the Rules has addressed this challenge comprehensively by codifying a process through which specific offences under the Act can be compounded, thus avoiding prosecution and offering companies a chance to rectify their errors within a formal legal structure. The advent of these Rules will particularly be beneficial for smaller businesses which often lack the resources to navigate lengthy legal proceedings and may have previously suffered disproportionately due to inadvertent lapses.
The rationale behind introducing the Rules appears multifold. First, it responds to the industry's long-standing demand for a more balanced and facilitative compliance environment. Technical or procedural violations, often unintentional, previously resulted in criminal trials, leading to reputational damage and operational challenges for pharmaceutical companies. Second, the Rules are consistent with the government's agenda of improving the country's regulatory environment through decriminalization, particularly for economic offences. Lastly, it primarily serves a practical objective by helping reduce the backlog of cases in courts, many of which involve petty violations with no real public health impact.
Key Features of the Rules
Under Rule 3, the Central Government has been granted powers to appoint any officer, not below the rank of reporting authority, as compounding authority to compound eligible offences and exercise powers and functions of the Central Government as mentioned under the Rules. Similarly, the State Government has also been granted similar powers to appoint any officer, not below the rank of reporting authority, as compounding authority to compound eligible offences and exercise powers and functions of the State Government under the Rules.
Rule 4 deals with the form and manner for making a compounding application and highlights that an applicant can make an application, either before or after the institution of the prosecution, to the compounding authority under section 32B of the Act. The application for compounding needs to be made in the prescribed Form appended to the Rules along with relevant information and documents and can be filed individually by the company or by the person involved in manufacturing, sale, distribution or any other activity covered under the provisions of the Act and the rules made thereunder.
Rule 5 specifically prescribes the procedure for compounding and states that the compounding authority shall examine the application submitted under Rule 4 along with a report from the reporting authority under whose jurisdiction the offence has been committed. The reporting authority has to submit the report to the compounding authority within a period of one month (or an allowed extended period) from the date of receipt of communication from the compounding authority. Thereafter, on the basis of submissions by the reporting authority and the contents of the compounding application, the compounding authority may, by order, either allow the application indicating the compounding amount and grant the applicant immunity from prosecution or reject the application. However, the compounding authority cannot reject the application without giving an opportunity to the applicant of being heard and the grounds for rejection must be clearly stated in the order. A copy of the order shall be sent to the applicant. Further, the applicant shall be liable to pay the compounding amount within a period of 30 days from the date of the receipt of the order allowing the compounding of offences.
In terms of Rule 6, the compounding authority, if satisfied that the applicant has cooperated in the proceedings and has made a full and truthful disclosure of the facts related to the case, may grant immunity from prosecution for the specific offence covered by the compounding application, subject to any conditions deemed appropriate by the authority.
Lastly, Rule 7 provides for conditions under which the immunity from prosecution may be withdrawn. Such conditions include failure to pay the sum specified in the compounding order within the given time frame, failure to comply with any conditions subject to which immunity was granted or concealment of particulars or material information or furnishing false evidence in the course of the compounding proceedings.
Conclusive Remarks
In comparing the Rules to the earlier framework, the distinction is stark. Before the Rules were implemented, every violation regardless of its severity had to undergo legal proceedings. This one-size-fits-all approach was ill-suited to a domain where technical compliance often overlaps with scientific complexity. Now, with the new compounding mechanism in place, a tiered enforcement approach is emerging, akin to regulatory regimes found in other progressive jurisdictions. This not only streamlines enforcement but also ensures that serious violations continue to be treated with the gravity they deserve, while allowing minor and correctable lapses to be resolved expeditiously.
In conclusion, the Rules represent a forward-looking approach to pharmaceutical regulation. They strike a careful balance between enforcement and facilitation, reflecting a maturing regulatory environment that prioritizes compliance without compromising on public health and safety. By institutionalizing compounding as a legal remedy, the Rules bring India's drug regulatory framework in line with modern governance standards and provide the industry with a constructive tool to resolve issues efficiently. Their effective implementation could go a long way in promoting regulatory certainty, fostering trust, and ultimately enhancing the overall efficacy of the pharmaceutical legal ecosystem in India.
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