Drug industry executives convicted of producing medicines that have failed quality tests may evade jail by paying a fine, the Union health ministry said on Friday, explaining the Jan Vishwas Bill that seeks to decriminalise “minor offences” across industry sectors.

The ministry, in a note on the Jan Vishwas Bill passed by the Lok Sabha on Thursday, said Section 27(d) of the Drugs and Cosmetics Act 1940 has “not been decriminalised, but compounding has been offered as a mechanism to resolve litigation”.

Central and state drug regulatory authorities may use Section 27(d) in cases against companies whose drugs have failed quality tests and been labelled “not of standard quality” (NSQ) or substandard. Drugs that lack sufficient amounts of active ingredients, or fail to adequately dissolve in water, or contain any unacceptable ingredients may be labelled NSQ, pharmacology experts have said.

The ministry said any drug that has failed test parameters or been identified as harmful to health, or contains toxic substances, or is manufactured in unsanitary conditions, or contains any substance that reduces its quality or strength, or is produced in violation of any prohibitions “is not covered under the proposed amendment and will continue to attract stringent criminal provisions”.

It said the quantum of punishment under Section 27(d) had not been reduced and anyone found guilty could face imprisonment of up to two years. But Section 27(d) has been made compoundable, the ministry also said. The provisions in the bill provide for a fine up to Rs 5 lakh.

“A compoundable offence is one in which a convicted party can pay a fine to avoid jail,” said Prashant Reddy, a lawyer in Hyderabad who specialises in intellectual property and drug regulatory laws.

“In legal records, there are several examples of regulatory authorities having prosecuted companies under 27(d) for manufacturing drugs that failed quality tests,” Reddy said.

“If compounding is an option, drug manufacturers violating 27(d) won’t have to fear imprisonment.”

The Jan Vishwas (Amendment of Provisions) Bill 2022 amends 42 laws relating to agriculture, cinema, drugs, environment, finance, merchant shipping and publishing among other sectors seeking to alter what the Centre has described as “outdated rules and regulations”.

“The fear of imprisonment for minor offences is a major factor hampering the growth of the business ecosystem and individual confidence,” the Union commerce and industry ministry had said in a note explaining the objects and reasons for the bill.

The bill seeks to decriminalise a large number of minor offences and replace them with monetary penalties. “The endeavour is not only to make lives and businesses easier but also to reduce judicial burden,” the commerce ministry said.

“Settlement of (a) large number of issues, by compounding method, adjudication and administrative mechanism, without involving courts, will enable persons to remedy minor contraventions and defaults, sometimes committed unknowingly by them, and save time, energy and resources,” it said.