Sections 199 and 200 of the Companies Act, 2013: Recovery and Managerial Remuneration

Section 199 - Recovery of remuneration in certain cases

Section 199 applies where a company is required to restate its financial statements because of fraud or non-compliance with a requirement of the Companies Act, 2013 or the rules made under it.

Without prejudice to liability under the Companies Act or any other law in force, the company must recover excess remuneration, including stock options, received during the period covered by the restatement from a past or present:

• Managing Director;
• Whole-time Director;
• Manager; or
• Chief Executive Officer, by whatever name called.

The recoverable amount is the remuneration received in excess of what would have been payable on the basis of the restated financial statements.

Meaning and practical effect of Section 199

The provision is a statutory clawback mechanism. Its focus is the difference between remuneration actually received and remuneration that would have been payable after the financial statements are restated. The section operates without prejudice to other liabilities that may arise under the Companies Act or other applicable law.

Section 200 - Company to fix limit with regard to remuneration

Section 200 begins with a non-obstante clause and operates notwithstanding anything contained in Chapter XIII. In the circumstances specified in the section, a company may, while according approval under Section 196 to an appointment or to remuneration under Section 197 in a case of inadequate or no profits, fix remuneration within the limits specified in the Companies Act.

While fixing the amount or percentage of profits, the company must have regard to the following factors:

• the financial position of the company;
• the remuneration or commission drawn by the individual concerned in any other capacity;
• the remuneration or commission drawn by that individual from any other company;
• the professional qualifications and experience of the individual concerned; and
• such other matters as may be prescribed.

Relationship with Sections 196 and 197

Section 196 governs appointment of a managing director, whole-time director or manager. Section 197 deals with overall managerial remuneration and remuneration where profits are absent or inadequate. Section 200 must therefore be read with those provisions and, where applicable, Schedule V of the Companies Act, 2013.