Section 42 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 42 answers a practical question: when a company contravenes the Act, who is held to account? The company is, and so is every person who was in charge of, and responsible to, the company for the conduct of its business when the contravention happened. A person can escape by proving no knowledge or due diligence. A director, manager, secretary or other officer is also caught where the contravention is linked to his consent, connivance or neglect.
Under section 42(1) the company and every person in charge of and responsible to it for the conduct of its business at the time are deemed guilty and may be proceeded against and punished. The proviso protects a person who proves the contravention took place without his knowledge or that he exercised due diligence to prevent it. Section 42(2) separately covers a director, manager, secretary or other officer where the contravention is proved to have consent, connivance or neglect behind it. In the section, "company" includes a firm, and a "director" of a firm is a partner.
About this article
This article is based on the consolidated text of the Act consulted (amendments shown up to Act 50 of 2019). Later amendments should be checked. Section 42 is printed without a footnote of amendment. The penalties for contravention are in section 13; our post on contravention and penalties under section 13 covers that section. For how a contravention by a company can be regularised, our FEMA compounding team can help, and the compounding power is explained in our article on section 15.
Section 42(1): the company and the person in charge
Where a person committing a contravention of any of the provisions of the Act or of any rule, direction or order made thereunder is a company, then 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.
Taking the words in turn.
- Two limbs together. The company, and the person in charge. Both are deemed guilty.
- "In charge of, and responsible to". The person must be both in charge of the conduct of the business and responsible to the company for it. A person with only one of the two features is not within these words. The Act does not define the expressions or say how they are tested; it does not name any office as automatically within them.
- "At the time the contravention was committed". The test is the time of the contravention, not the time of the proceeding. A person who has left office by then is outside the words if he was not in charge at the time; a person who was in charge then remains within them.
- What is contravened. The Act, or any "rule, direction or order made thereunder". Section 13(1) speaks of rules, regulations, notifications, directions or orders and of conditions of an authorisation; section 42 uses its own shorter list. It is quoted as printed.
The proviso: knowledge and due diligence
Nothing in sub-section (1) renders 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 the contravention.
Three features of this defence stand out.
- The burden is on the person. The word is "proves". It is for the person in charge to show his lack of knowledge or his due diligence.
- Two alternatives. Either no knowledge, or due diligence to prevent. One is enough.
- It protects the person in charge, not the company. The proviso speaks of "such person", and the text does not extend it to the company.
The Act gives no list of steps that amount to due diligence. A company that keeps its filing and reporting records in order, and a record of who was responsible for each filing, will find it easier to show what was done. That is a practical point, not a statement of the Act.
Section 42(2): directors, managers, secretaries and other officers
Notwithstanding sub-section (1), where a contravention 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, that director, manager, secretary or other officer shall also be deemed to be guilty and shall be liable to be proceeded against and punished accordingly.
| Feature | Section 42(1) | Section 42(2) |
|---|---|---|
| Who | The company and every person in charge of and responsible to it at the time | Any director, manager, secretary or other officer |
| What must be shown | The person was in charge and responsible at the time | That the contravention took place with his consent or connivance, or is attributable to his neglect |
| Defence | The person proves no knowledge or due diligence | The sub-section requires proof of consent, connivance or neglect |
| Wording | "Deemed to be guilty" | "Also be deemed to be guilty" |
The difference is in the starting point. Under sub-section (1), liability follows from the position held at the time, and the person must prove the defence. Under sub-section (2), the facts of consent, connivance or neglect "are proved" and then a person in the listed office is caught, whatever his duties. The sub-section does not say who must prove them. The listed offices are not limited by the words "in charge"; "other officer" is a general phrase that the Act does not define.
The Explanation: company and director
For the section:
- "company" means any body corporate and includes a firm or other association of individuals; and
- "director", in relation to a firm, means a partner in the firm.
So the section is not confined to companies registered under the Companies Act; a partnership firm or another association of individuals is within it, and a partner is treated as a director. Whether a particular entity is a "body corporate" is a matter of the law governing it. For the Companies Act side of officer liability, see our guide on FEMA compliance for companies with foreign directors and our compilation of penalty provisions under the Companies Act, which concern that other Act.
What "punished accordingly" does and does not mean
The section says a person deemed guilty shall be liable to be "proceeded against and punished accordingly". The Act does not state the penalty in section 42. The consequences sit in section 13 and the sections around it, and the Act's own procedure runs through adjudication under section 16 and, in the case of civil imprisonment, section 14. See the section 13 post linked above and, for section 14, the article listed under Read next. Section 42 tells you who may be proceeded against; it does not state the amount.
Example. A hypothetical private company, Greenfield Components Pvt Ltd, fails to follow a requirement of a rule under the Act. The company is deemed guilty. At the time, its finance director was in charge of, and responsible for, the conduct of the business as to foreign payments, so he is deemed guilty too under sub-section (1), unless he proves the contravention took place without his knowledge or that he exercised due diligence to prevent it. Separately, the company secretary is proved to have connived at the omission; under sub-section (2) he is also deemed guilty. A non-executive director who was not in charge of the business and to whom neither consent, connivance nor neglect is attributed is not caught by these words.
What the Act does not say
- It does not define "in charge of and responsible to" or list the offices that qualify.
- It does not list the steps that amount to due diligence.
- It does not state any penalty in section 42 itself.
- It does not say who must prove consent, connivance or neglect under sub-section (2).
Need help with company liability under the Act?
Where a company has a contravention on record, the position of each director and officer needs to be looked at on its own facts, together with how the matter may be regularised. Our FEMA compounding team can help you assess the position and the route open.
Key takeaways
- A company that contravenes the Act, and every person in charge of and responsible to it at the time, is deemed guilty.
- A person escapes if he proves the contravention took place without his knowledge or that he exercised due diligence to prevent it.
- A director, manager, secretary or other officer is also deemed guilty where consent, connivance or neglect is proved.
- "Company" includes a firm or other association of individuals; a "director" of a firm is a partner.
- The penalty itself is not in section 42.
Read next
- Section 43 and 44: death or insolvency and bar of legal proceedings
- Section 15: power to compound contravention
- Section 14: enforcement of penalty orders
- Contravention and Penalties Under FEMA: Section 13
Disclaimer: Based on a consolidated text of the Foreign Exchange Management Act, 1999 showing amendments up to Act 50 of 2019, as consulted on 2 October 2026. Limits, forms, timelines and procedures are set by rules, regulations and Reserve Bank directions made under the Act; they change from time to time and are not covered here. Later amendments should be checked. This article is general information, not legal advice; check the official text before acting.