Compliance Management, Audit and Due Diligence · Compliance Framework

Recovery of Remuneration under Section 199 of the Companies Act

Updated 11 October 2026 · Fact-checked

Section 199 of the Companies Act, 2013 applies when a company must restate its financial statements because of fraud or non-compliance with the Act or its rules. The company must recover from any past or present MD, whole-time director, manager or CEO the remuneration, including stock options, received in excess of what the restated statements would have allowed.

Understand Recovery of Remuneration under Section 199

Managerial pay often depends on reported results. Profit-linked pay, bonuses and stock options rise when profits look good. If those profits were overstated through fraud or rule breaches, the pay was too high. Section 199 deals with that gap.

The trigger is a restatement of financial statements. The restatement must be required because of fraud or non-compliance with any requirement under the Act and the rules made under it. An ordinary revision for some other reason does not fit the section as worded.

The section then places a duty on the company. The company shall recover the excess. It is not left to the company's choice. The recovery is from any past or present managing director, whole-time director, manager or Chief Executive Officer, by whatever name called. Past office-holders are covered, so leaving the company does not end the liability.

The amount is the excess. Look at the period for which the statements are restated. Compare what the person received, including stock options, with what would have been payable on the restated figures. Only the difference is recovered.

The section opens with the words "without prejudice to any liability incurred under this Act or any other law". Recovery does not replace other consequences. Penalties, prosecution or action for the fraud itself can still follow. Section 197 is a related provision. It sets limits on managerial pay and requires refund of sums drawn in excess of those limits.

Key rules to remember

Trigger for recovery: Restatement of financial statements required due to fraud OR non-compliance with the Act and rules; Both limbs are enough on their own. The restatement must be required, not merely voluntary.
Persons liable: Past or present MD, whole-time director, manager or CEO (by whatever name called); Ordinary non-executive directors and other officers are not named in this section.
Amount recoverable: Excess = Remuneration received (including stock option) − Remuneration payable as per restated financial statements; Measured only for the period for which the statements are restated. Recover only if the result is positive.
Who recovers: The company shall recover; The duty is mandatory and sits with the company.
Related rule in Section 197(9): Refund sums drawn above the Section 197 limit or without required approval, within two years or a lesser period allowed by the company; hold in trust meanwhile; This is a separate provision. Do not mix its two-year period with Section 199.
Waiver under Section 197(10): Waiver of a Section 197(9) refund needs a special resolution within two years from the date the sum becomes refundable; If the company has defaulted to a bank, financial institution, NCD holders or other secured creditor, their prior approval is needed first.

How to solve Recovery of Remuneration under Section 199 questions

Use this order for any case question on recovery of remuneration. It follows the format of provision, analysis of facts, and conclusion.

1State the provision: Section 199 requires the company to recover excess remuneration where financial statements must be restated.
2Check the trigger. Ask whether a restatement is required, and whether the cause is fraud or non-compliance with the Act or rules.
3Identify the recipient. Confirm the person is or was an MD, whole-time director, manager or CEO. Past holders count.
4Fix the period. Use only the period for which the statements are restated.
5Compute the excess. Take total remuneration received, including stock options, and subtract what would be payable on the restated figures.
6Apply the result. If there is an excess, the company must recover it. If not, nothing is recoverable under this section.
7Add the related points: other liability is not affected, and mention Section 197(9) if pay also breached the Section 197 limits.
8Conclude clearly with the amount and who must recover it from whom.

Quickest way: Four-check method for Section 199

When to use it: Use when time is short and the question gives restated figures and pay details.

Trigger: restatement due to fraud or breach of the Act or rules? If no, Section 199 does not apply.
Person: MD, WTD, manager or CEO, past or present? If no, it does not apply to that person.
Number: received minus payable as restated, for the restated period.
Write: the company shall recover the excess, and other liability remains.

Common mistakes in Recovery of Remuneration under Section 199

Applying Section 199 to any restatement, including a voluntary change of policy.
Students remember the word restatement and skip its cause.
Fix: Check that the restatement is required because of fraud or non-compliance with the Act or rules.
Saying the whole remuneration must be returned.
The word recovery suggests getting everything back.
Fix: Only the excess over what would be payable on the restated statements is recoverable.
Excluding a director who has resigned.
Students assume liability ends with office.
Fix: The section covers past or present MD, whole-time director, manager or CEO.
Ignoring stock options when computing the excess.
Remuneration is thought of as cash salary only.
Fix: The section expressly includes stock options in the remuneration received.
Mixing Section 199 with Section 197(9) and its two-year refund period.
Both deal with pay recovery and appear together in notes.
Fix: Section 199 turns on restatement. Section 197(9) turns on excess over the Section 197 limit or missing approval. Name each separately.
Thinking recovery ends the matter.
Students overlook the opening words of the section.
Fix: State that recovery is without prejudice to liability under the Act or any other law.

Worked examples

Example 1

Meridian Components Ltd restated its financial statements for FY 2024-25 because of a fraudulent overstatement of revenue. Mr. Rao, the MD, received ₹90,00,000 as remuneration and bonus for that year. On the restated figures only ₹62,00,000 would have been payable. Mr. Rao resigned in 2026. Can the company recover anything, and how much?

Show the solution

Provision: Section 199 applies where a company must restate its financial statements due to fraud or non-compliance with the Act and rules.
Trigger: the restatement is required because of fraudulent overstatement of revenue, so the trigger is met.
Person: Mr. Rao was the MD during the restated period. Resignation does not matter because past managing directors are covered.
Excess: ₹90,00,000 − ₹62,00,000 = ₹28,00,000.
Effect: the company shall recover this amount. This is without prejudice to any other liability for the fraud.

Answer: Yes. The company must recover ₹28,00,000 from Mr. Rao, even though he has resigned.

Example 2

Kaveri Textiles Ltd restated its FY 2023-24 accounts because it had not complied with the Companies Act in its accounting treatment. Ms. Iyer, the CEO, received ₹40,00,000 in cash pay and stock options worth ₹10,00,000. On restated figures, ₹44,00,000 in total would have been payable. Is there anything to recover?

Show the solution

Trigger: the restatement is required for non-compliance with the Act, so Section 199 applies.
Person: a CEO is covered.
Received: cash pay ₹40,00,000 plus stock options ₹10,00,000 = ₹50,00,000. Stock options are included.
Payable on restatement: ₹44,00,000.
Excess: ₹50,00,000 − ₹44,00,000 = ₹6,00,000.
Conclusion: the company must recover the ₹6,00,000.

Answer: Yes. ₹6,00,000 is recoverable. Counting only cash pay would wrongly show no excess.

Exam tips

Write the section in a short form first: trigger, persons, amount. Examiners look for these three elements.
Always compute the excess in steps when figures are given, and include stock options.
Mention that recovery is without prejudice to other liability. It is a quick mark.
If the facts mention pay above the Section 197 limits, add Section 197(9) as a separate point.
Link the answer to practice: a Company Secretary should flag restatement risks to the Board and Nomination and Remuneration Committee.

Practice questions from Compliance Framework

Recovery of Remuneration under Section 199: frequently asked questions

What does Section 199 of the Companies Act, 2013 say?

It says that when a company must restate its financial statements due to fraud or non-compliance with the Act and rules, it shall recover excess remuneration from any past or present MD, whole-time director, manager or CEO. The excess includes stock options.

Who can the company recover remuneration from under Section 199?

From any managing director, whole-time director, manager or Chief Executive Officer, by whatever name called. The section covers both past and present holders of these posts during the restated period.

How much is recovered under Section 199?

Only the excess. It is the remuneration received, including stock options, minus what would have been payable as per the restated financial statements.

How is Section 199 different from Section 197(9)?

Section 199 applies after a restatement caused by fraud or non-compliance. Section 197(9) applies when a director draws pay above the Section 197 limit or without the required approval, and must refund it within two years or a lesser period allowed by the company.