Module: | Statutory Audit, NFRA & ICAI Standards
Q54: Consider the following statements regarding the clawback of managerial remuneration under Section 199 of the Companies Act, 2013:
1. A company is required to recover excess remuneration paid to a Managing Director if the company is required to restate its financial statements due to fraud or non-compliance.
2. The recovery of excess remuneration is limited only to the Managing Director currently in office and does not apply to past executives who have already resigned.
3. The clawback provision applies to any remuneration tied to profitability, including stock options and performance bonuses.
Which of the above statements is/are incorrect?
2. The recovery of excess remuneration is limited only to the Managing Director currently in office and does not apply to past executives who have already resigned.
3. The clawback provision applies to any remuneration tied to profitability, including stock options and performance bonuses.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; Section 199 explicitly triggers recovery upon the restatement of financials due to fraud or non-compliance.
Statement 2 is incorrect; the law explicitly mandates the recovery from any past or present Managing Director, Whole-Time Director, or Manager who received the excess pay during the relevant period.
Statement 3 is correct; it covers all forms of performance-linked compensation.
Historical/Related Context: Following accounting scandals where executives cashed out massive bonuses based on fake profits before the company collapsed, the 2013 Act introduced Section 199 to ensure crime does not pay.
Causal Reasoning: Extending the liability to past executives prevents a scenario where a CEO manipulates the books, collects a massive performance bonus, and immediately resigns to escape financial restitution when the fraud is inevitably uncovered.