Recovery of Remuneration: Section 199 Explained

Recovery of remuneration under section 199 of the Companies Act, 2013 is a clawback with a single trigger: a restatement. Where a company is required to re-state its financial statements because of fraud or non-compliance with a requirement under the Act and its rules, the company shall recover from any past or present managing director, whole-time director, manager or Chief Executive Officer the remuneration, including stock option, that person received in excess of what the restated statements would have supported.

What does section 199 require on a recovery of remuneration?

The section is one sentence and every limb of it does work. It opens without prejudice to any liability incurred under the Act or any other law in force, so recovery is additive: it sits on top of whatever else the fraud or the non-compliance attracts, and settling one does not settle the other.

The condition is that the company is required to re-state, not that it chooses to. The reason for the restatement must be fraud or non-compliance with a requirement under the Act and the rules made under it. The persons named are past or present, which is what stops a resignation from ending the exposure, and the Chief Executive Officer is caught "by whatever name called". The measuring period is the period for which the statements are re-stated, and the amount is the excess over what would have been payable as per the restatement, so the restated numbers are the yardstick rather than the original ones.

Which restatements does section 199 catch?

The Act has two routes by which a company's already-adopted accounts get re-opened or revised, and section 199 reads onto both.

The first is a re-opening ordered by a court or the Tribunal, which reopening of accounts under section 130 covers. The second is a revision the company itself initiates, voluntary revision of financial statements, which needs Tribunal approval. Section 199 does not name either section. It is drafted around the trigger, "required to re-state due to fraud or non-compliance", so the question on any given restatement is what caused it, not which section it travelled under.

How section 199 differs from the section 197(9) refund

Both take money back from a director and they are easy to conflate. They are different duties on five axes, and a company can be inside one and outside the other.

The stock-option limb is the sharpest difference in practice. Section 197(9) speaks of a "sum", while section 199 names stock option inside the recoverable amount, so an option granted or exercised on the strength of numbers that were later restated is inside the section by its own words.

Where recovery of remuneration shows up in a filing

The restatement is the visible event, not the recovery. A re-opening under section 130 or a revision under section 131 produces a filed set of revised statements, and the reason for the revision is on the face of that process. What section 199 adds is a duty that follows from it, which is why the recoverable amount tends to surface in the Board's report, in the auditor's reporting on managerial remuneration under section 197(16), and in the notes to the revised accounts rather than as a filing of its own.

Section 197(12) separately puts the ratio of each director's remuneration to the median employee's remuneration into a listed company's Board report, which is the number a reader can compare across years when a restatement moves the profit figure underneath it.

Where this sits in the disclosure picture

• Managerial remuneration under section 197 covers the ceilings and the separate refund duty in section 197(9).
• Reopening of accounts under section 130 covers the court or Tribunal route into a restatement.
• Voluntary revision of financial statements covers the company-initiated route.
• Managerial remuneration without profits covers Schedule V, which is what a restatement into inadequate profits pushes a company towards.
• Appointment of a managing director under section 196 covers the appointment of the officers section 199 names.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.