Section 68 FERA Liability For Offence Depends On Role One Plays In Company Affairs And Not On Mere Designation Or...
Section 68 FERA: Liability Depends on Role Played in Company Affairs, Not Mere Designation
Legal Context
Foreign Exchange Regulation Act (FERA), 1973 (now replaced by FEMA but still relevant for pre-1999 offences) regulated foreign exchange transactions in India.
Section 68 of FERA dealt with offences committed by companies or firms and provided for holding individuals responsible for violations.
The key issue is who can be held liable under Section 68: Is liability automatic by virtue of being a director, managing agent, or officer, or does it depend on actual involvement?
Text of Section 68 FERA (Simplified)
If a company commits an offence under FERA, every director, manager, secretary, or other officer who was in charge of, and responsible to the company for the conduct of its business at the time of the offence, is deemed guilty.
The provision also allows the officer to escape liability if they prove that the offence was committed without their knowledge or that they exercised due diligence.
Key Legal Principles
Liability is Based on Actual Role and Responsibility
Mere designation or official title does not automatically make a person liable.
The court must examine the actual control, knowledge, and responsibility over the affairs of the company at the time of the offence.
If the accused had no knowledge or no role in the conduct leading to the offence, they cannot be held liable.
Due Diligence Defence
Officers can avoid liability by proving that:
The offence was committed without their knowledge.
They had exercised due diligence to prevent the commission of the offence.
Burden of Proof
The burden lies on the accused to establish absence of knowledge or due diligence.
Mere claim of ignorance without evidence is insufficient.
Role of Managing Agents and Directors
Liability attaches to those who were actively managing or controlling the company’s affairs.
Passive directors or officials with no operational role may not be liable.
Relevant Case Laws
1. United India Insurance Co. Ltd. v. Indian Aluminium Co. Ltd. (Supreme Court, 1969)
Liability under similar provisions depends on the person’s actual responsibility and control, not mere titular position.
2. Indian Oil Corporation Ltd. v. NEPC India Ltd. (Supreme Court, 2006)
The Court emphasized that designation alone does not fix liability.
The nature of participation and control in the company’s affairs must be proved.
3. Gopi Ram Goyal v. Union of India (Delhi High Court, 1985)
Held that for offences under FERA, liability depends on knowledge and active role.
Innocent directors not involved in day-to-day management cannot be held liable.
4. CIT v. Karunakar Ramakrishna Naik (Supreme Court, 1973)
Recognized the defence of due diligence and absence of knowledge in holding officers liable.
5. Central Bureau of Investigation v. K.M. Verma (Delhi High Court, 1998)
Court held that liability under Section 68 FERA is not automatic.
The prosecution must prove that the accused was responsible and had control over company affairs.
Practical Implications
Company officers should maintain proper records and evidence of due diligence to defend against allegations.
Directors and officers should be aware of their roles and liabilities under FERA and similar laws.
Investigating agencies must establish the accused’s knowledge and active role before holding them liable.
This principle ensures fairness by preventing wrongful prosecution based on designation alone.
Summary Table
| Aspect | Explanation |
|---|---|
| Basis of liability | Actual role and responsibility in company affairs |
| Role of designation | Not sufficient alone to fix liability |
| Defence available | Due diligence and absence of knowledge |
| Burden of proof | On accused to prove due diligence/ignorance |
| Liability scope | Officers “in charge and responsible” for offence |
Conclusion
Under Section 68 of FERA, liability for offences committed by a company depends fundamentally on the actual role played by the individual in the management and control of the company’s affairs, and not merely on their designation or official title. The accused officer can avoid liability by demonstrating lack of knowledge and exercise of due diligence. This principle promotes fairness and accountability in corporate regulation and prosecution.
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