Identify the refundable sum before discussing waiver
For an applicable public company, section 197(9) requires a director who directly or indirectly draws remuneration above the prescribed limit or without required approval to refund such sums within two years or a shorter period allowed by the company. Until refund, the director holds the sum in trust for the company. A cash shortage, future fee adjustment or internal intention to regularise the payment is not itself a statutory waiver.
Refund and waiver have different requirements
The current section 197 text in ICSI’s legal e-book states in subsection (10) that recovery shall not be waived unless the company approves it by special resolution within two years from the date the sum becomes refundable. Where the company has defaulted in dues to a bank, public financial institution, non-convertible debenture holders or other secured creditor, the specified creditor’s prior approval must precede approval of that waiver. Do not treat the existence of an ordinary loan, without examining default, as identical to the proviso’s condition.
The recovery working needs a supported legal base
Reconcile receipts, applicable entitlement, approvals, and each identified excess or unapproved component. Do not substitute accounting profit for the statutory remuneration-limit calculation or assume every payment over an employment-contract figure has exactly the same statutory defect. This guide assumes that the refundable amount and section applicability have already been established; it does not recalculate Schedule V or all section 198 adjustments. Sitting fees, professional services and insurance treatment have their own provisions.
Track dates without inventing a universal starting event
Subsection (10) expressly anchors its waiver window to when the sum becomes refundable. The date needs documented legal and factual analysis, not automatic substitution of the audit-report date, discovery date or AGM date. Subsection (9) also allows the company to require a shorter refund period; an internal two-year diary must not obscure it. Keep separate due dates for repayment and the waiver process. The calendar cases below assume the refundable date or shorter repayment date has been reliably established and do not decide a disputed trigger.
Close the ledger with evidence, not a label
Maintain director-wise balances and actual repayment receipts. A valid partial recovery reduces the balance; an unapproved waiver proposal does not. Preserve notice, explanatory material, resolution and prior creditor consents where required. Section 197(16) separately requires the auditor’s reporting statement on compliance and excess remuneration. Section 199 recovery following a financial-statement restatement is a different statutory route; do not assume this waiver analysis disposes of that obligation. Listed entities also require their separately applicable securities-law review.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Excess established
Assume applicable entitlement is ₹18,00,000 and remuneration drawn is ₹24,00,000, with the ₹6,00,000 difference established as refundable under section 197(9). The recovery schedule begins at ₹6,00,000, not the whole ₹24,00,000 merely because part was excessive.
Illustrative example 2: Recovery instalment
From a ₹6,00,000 refundable balance, verified repayment is ₹2,50,000. The outstanding amount is ₹3,50,000. A further proposed waiver of ₹1,00,000 leaves that same ₹3,50,000 outstanding until its legal requirements are actually satisfied.
Illustrative example 3: Two-year waiver calendar
Assume the sum became refundable on 15 June 2025. The same-date two-year control date is 15 June 2027. A proposed special resolution on 20 June 2027 is five calendar days later. This illustration does not resolve any disputed commencement or last-day legal issue.
Illustrative example 4: Shorter repayment date
Assume the company validly requires repayment by 30 September 2026 and ₹4,00,000 remains outstanding. A repayment actually received on 10 October is ten calendar days after that specified date. The general two-year wording does not by itself erase the shorter requirement.
Illustrative example 5: Separate director balances
Director A owes ₹3,00,000 and B ₹2,00,000. A repays ₹1,00,000. Their balances are ₹2,00,000 each, totalling ₹4,00,000. Do not apply A’s receipt twice or clear B’s balance solely because a group recovery total changed.
Illustrative example 6: Creditor approval sequence
Assume a default exists to the relevant secured creditor, whose required approval is dated 20 October 2026. A waiver special resolution was passed on 15 October. The consent comes five days later and does not demonstrate the required prior sequence. The ₹2,00,000 proposed waiver needs legal review rather than an automatic ledger write-off.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm company applicability | Identify public-company status and applicable special provisions. |
| 2 | Establish entitlement | Retain statutory calculation and approvals. |
| 3 | Identify drawn amounts | Reconcile cash and indirect remuneration receipts. |
| 4 | Quantify the refundable sum | Distinguish established excess and unapproved payments. |
| 5 | Document relevant dates | Support refund trigger, shorter period and waiver calendar. |
| 6 | Preserve the trust balance | Track what remains unrefunded. |
| 7 | Check creditor defaults | Identify the precise parties and required prior consents. |
| 8 | Complete waiver formalities | Verify special resolution and timing, if waiver is pursued. |
| 9 | Reconcile recoveries | Match receipts and valid decisions to director-wise balances. |
| 10 | Review reporting and other laws | Address section 197(16), separate section 199 issues and applicable listing requirements. |
Sixteen practitioner FAQs
1. Does subsection (9) apply only to cash salary?
It covers remuneration drawn or received directly or indirectly under its stated conditions.
2. What triggers the refund duty?
Sums above the prescribed limit or received without approval required under section 197.
3. Is every rupee received necessarily refundable?
Identify the actual excess or unapproved sum; do not assume the entire remuneration is affected in every case.
4. Is the general refund period two years?
Yes, subject to a lesser period allowed by the company under subsection (9).
5. What happens until refund?
The director holds the sum in trust for the company.
6. Can the Board alone waive recovery?
Subsection (10) requires the company’s special resolution within the stated period.
7. When does the waiver window start?
From the date the sum becomes refundable, which must be supported on the actual facts.
8. Is the audit-report date always that date?
No universal substitution is stated in the cited provision.
9. Does an ordinary loan always trigger creditor permission?
Examine the specified default condition rather than treating all borrowing identically.
10. Which creditor categories are mentioned?
Bank, public financial institution, non-convertible debenture holders and other secured creditor under the stated proviso.
11. Can creditor approval follow the waiver approval?
The proviso calls for prior approval. A reversed sequence needs legal review.
12. Does proposing a waiver clear the balance?
No. A proposal is not proof that the required waiver has become effective.
13. Can actual repayments reduce the ledger?
Yes. Match verified receipts to the correct director and obligation.
14. Does this guide calculate every Schedule V limit?
No. Its worked cases assume the underlying legal entitlement has been established.
15. Is section 199 the same recovery provision?
No. Restatement-linked remuneration recovery requires separate analysis.
16. Does the auditor have a related reporting duty?
Section 197(16) addresses reporting on section compliance and excess remuneration.
Conclusion
A refundable remuneration balance is not cleared merely by a Board decision. Establish section 197(9) recovery, its trust obligation and the distinct special-resolution waiver requirements.