Section 42 FEMA Act 1999 - Contravention by Companies

Section 42 of the Foreign Exchange Management Act, 1999 deals with responsibility when a contravention of FEMA, or a rule, direction or order made under it, is committed by a company.

Updated: 27 September 2026

In brief: the provision can make the company and persons who were in charge of and responsible for its business liable for the contravention. It also creates a separate basis of liability where a contravention is proved to have occurred with an officer's consent or connivance, or because of that officer's neglect. The section expressly provides a defence for a person who proves absence of knowledge or due diligence under subsection (1).

Text of Section 42 - Contravention by companies

42. (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention.

(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

Explanation. - For the purposes of this section -

(i) "company" means any body corporate and includes a firm or other association of individuals; and

(ii) "director", in relation to a firm, means a partner in the firm.

Meaning and scope of Section 42

Section 42 is a provision dealing with contraventions by companies. FEMA itself is a law for management of foreign exchange and for facilitating external trade and payments. The Directorate of Enforcement describes FEMA as a civil law and is one of the principal official sources for the Act, rules and enforcement material.

1. Liability under Section 42(1)

Subsection (1) applies where the person committing the FEMA contravention is a company. In addition to the company, it refers to every person who, at the relevant time, was both in charge of and responsible to the company for the conduct of its business. The statutory wording therefore connects the person's liability with his or her responsibility for the conduct of the company's business when the contravention occurred.

2. Defence of lack of knowledge or due diligence

The proviso to subsection (1) protects a person who proves either that the contravention took place without his knowledge or that he exercised due diligence to prevent it. Whether the defence is established depends on the facts and evidence of the particular proceeding.

3. Liability under Section 42(2)

Subsection (2) operates notwithstanding subsection (1). A director, manager, secretary or other officer may also be deemed guilty where it is proved that the company's contravention occurred with that person's consent or connivance, or is attributable to neglect on that person's part.

4. Meaning of "company" and "director"

For Section 42, "company" is wider than an incorporated company: the Explanation includes a body corporate, a firm and another association of individuals. For a firm, "director" means a partner.

Practical points

Section 42 should be read with the FEMA provision, rule, regulation, direction or order alleged to have been contravened.
For subsection (1), the statutory inquiry includes whether the person was in charge of and responsible for the conduct of the company's business at the relevant time.
The subsection (1) proviso expressly recognises lack of knowledge and due diligence as defences.
Subsection (2) focuses on proof of consent, connivance or neglect of a director, manager, secretary or other officer.
The Explanation expressly extends the section to firms and other associations of individuals.

Legal note: Section 42 identifies who may be proceeded against when the underlying FEMA contravention is by a company. The nature and consequence of the underlying contravention must be determined from the applicable FEMA provision and related rules, regulations, directions or orders.

Official resources

For the current statutory framework and official FEMA material, consult India Code, the Directorate of Enforcement FEMA Acts and Rules, and the Reserve Bank of India. Regulatory requirements can change, so the applicable rule, regulation, direction or notification should be checked for the relevant transaction and period.

Frequently asked questions

Does Section 42 apply only to incorporated companies?

No. Its Explanation says that "company" includes a body corporate, a firm and another association of individuals.

Can a person in charge of a company rely on a statutory defence?

Under the proviso to Section 42(1), a person can avoid liability under that subsection if the person proves that the contravention occurred without his knowledge or that he exercised due diligence to prevent it.

Can a director or officer be proceeded against for consent, connivance or neglect?

Yes. Section 42(2) specifically addresses a director, manager, secretary or other officer where the required connection through consent, connivance or neglect is proved.