Chapter XIII - Appointment and Remuneration of Managerial Personnel
Section 199
Section 199: recovery of remuneration in certain cases
Section 199 is a clawback provision. Where a company has to restate its financial statements because of fraud or non-compliance with the Act or its rules, it must recover excess remuneration, including stock options, from past or present managing directors, whole-time directors, managers and Chief Executive Officers.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Without prejudice to any liability incurred under the provisions of this Act or any other law for the time being in force, where a company is required to re-state its financial statements due to fraud or non-compliance with any requirement under this Act and the rules made thereunder, the company shall recover from any past or present managing director or whole-time director or manager or Chief Executive Officer (by whatever name called) who, during the period for which the financial statements are required to be re-stated, received the remuneration (including stock option) in excess of what would have been payable to him as per restatement of financial statements.
Introduction
The excess is measured against what would have been payable under the restated financial statements for the period that is restated. The recovery is without prejudice to any other liability under the Act or any other law.
Section 199 commenced on 1 April 2014 under S.O. 902(E). The India Code consolidated text shows no amendment, and its text matches the 2013 Gazette.
Key takeaways
Trigger
A requirement to restate financial statements due to fraud or non-compliance with the Act or rules.
Persons covered
Past or present MD, whole-time director, manager or CEO (by whatever name called).
What is recovered
Remuneration, including stock options, in excess of what the restated statements would justify.
Mandatory
The company "shall recover"; it is not discretionary.
When recovery is required
The section applies where a company is required to re-state its financial statements due to fraud or non-compliance with any requirement under the Act and the rules made under it. Restatement may arise, for example, on re-opening of accounts under section 130 or revision under section 131; the trigger is the requirement to restate for those reasons.
From whom and how much
The company must recover from any past or present managing director, whole-time director, manager or Chief Executive Officer (by whatever name called) who, during the period for which the financial statements are restated, received remuneration (including stock option) in excess of what would have been payable as per the restated financial statements.
Other liability preserved
Recovery is without prejudice to any liability incurred under the Act or any other law for the time being in force, so penal or civil consequences under other provisions remain.
Practical preparation
Build a clawback clause into service contracts and stock option plans; when restatement is required, recompute profit-linked pay and option entitlements for the restated period; quantify the excess for each covered person, including those who have left; document recovery steps.
Practical checklist
Do
- Include express clawback terms in appointment letters and ESOP schemes.
- Track the recovery from former managerial personnel as well as current ones.
Avoid
- Do not treat recovery as optional once restatement for fraud or non-compliance is required.
Illustrative example
Hypothetical: profit-linked commission after restatement
A company must restate two years of accounts after a revenue-recognition fraud. Its former CEO received profit-linked commission for both years.
Recompute
The commission is recomputed on the restated profits.
Quantify
The excess over the recomputed amount is determined for the former CEO.
Recover
The company takes steps to recover the excess, without prejudice to other liability.
Outcome
- The CEO’s departure does not prevent recovery; the section covers past as well as present officers.
Glossary
- Restatement
- Re-issuing earlier financial statements with corrected figures.
- Clawback
- Recovery of pay already made when the basis for it later proves wrong.
- Stock option
- A right to acquire shares at a set price, included in remuneration for this section.
Frequently asked questions
Does section 199 apply to non-executive directors?
The section names managing directors, whole-time directors, managers and Chief Executive Officers. Other directors are not listed.
Must the person have been involved in the fraud?
The section does not make personal involvement a condition. It looks at whether excess remuneration was received during the restated period.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026