Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021[1]

[13th August, 2021]

In exercise of the powers conferred by Sections 11, 11-A and 30 of the Securities and Exchange Board of India Act, 1992 (Act 15 of 1992) read with Sections 54 and 62 of the Companies Act, 2013 (Act 18 of 2013) and Rules 8 and 12 of the Companies (Share Capital and Debentures) Rules, 2014, to provide for regulation of sweat equity shares and all schemes by companies for the benefit of their employees involving dealing in shares, directly or indirectly, with a view to facilitate smooth operation of such schemes while preventing any possible manipulation and matters connected therewith or incidental thereto, the Securities and Exchange Board of India hereby makes the following regulations, namely:—

Chapter I PRELIMINARY

Regulation - 1. Short title, commencement and application.

(1)     These regulations may be called the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

(2)     They shall come into force on the date of their publication in the Official Gazette.

(3)     The provisions of these regulations shall apply to the following:—

(i)       employee stock option schemes;

(ii)      employee stock purchase schemes;

(iii)     stock appreciation rights schemes;

(iv)    general employee benefits schemes;

(v)      retirement benefit schemes; and

(vi)    sweat equity shares.

(4)     The provisions of these regulations shall apply to any company whose equity shares are listed on a recognised stock exchange in India and who seeks to issue sweat equity shares or has a scheme:—

(i)       for direct or indirect benefit of employees;

(ii)      involving dealing in or subscribing to or purchasing securities of the company, directly or indirectly; and

(iii)     satisfying, directly or indirectly, any one of the following conditions:—

(a)      the scheme is set up by the company or any other company in its group.

(b)      the scheme is funded or guaranteed by the company or any other company in its group.

(c)      the scheme is controlled or managed by the company or any other company in its group.

(5)     The provisions pertaining to preferential issue as specified in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 shall not be applicable in case of a company issuing new shares in pursuance and compliance of these regulations except wherever specifically provided for in these regulations.

Regulation - 2. Definitions.

(1)     In these regulations, unless the context otherwise requires, the following words, expressions and derivations therefrom shall have the meanings assigned to them as under,—

(a)      “Act” means the Securities and Exchange Board of India Act, 1992 (Act 15 of 1992);

(b)      “appreciation” means the difference between the market price of the share of a company on the date of exercise of SAR or the date of vesting of SAR, as the case may be, and the SAR price;

(c)      “associate company” shall have the same meaning as defined under Section 2(6) of the Companies Act, 2013 (Act 18 of 2013);

(d)      “Board” means the Securities and Exchange Board of India;

(e)      “company” shall have the same meaning as defined under Section 2(20) of the Companies Act, 2013 (Act 18 of 2013);

(f)       “control” shall have the same meaning as defined under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

(g)      “director” shall have the same meaning as defined under Section 2(34) of the Companies Act, 2013 (Act 18 of 2013);

(h)     “emergency” means a situation wherein the trust is in need of funds to meet the commitment(s) arising out of the objective(s) of the scheme;

(i)       “employee”, except in relation to issue of sweat equity shares, means,—

(i)       an employee as designated by the company, who is exclusively working in India or outside India; or

(ii)      a director of the company, whether a whole time director or not, including a non-executive director who is not a promoter or member of the promoter group, but excluding an independent director; or

(iii)     an employee as defined in sub-clauses (i) or (ii), of a group company including subsidiary or its associate company, in India or outside India, or of a holding company of the company, but does not include—

(a)      an employee who is a promoter or a person belonging to the promoter group; or

(b)      a director who, either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten per cent of the outstanding equity shares of the company;

(j)       “employee stock option scheme or ESOS” means a scheme under which a company grants employee stock options to employees directly or through a trust;

(k)      “employee stock purchase scheme or ESPS” means a scheme under which a company offers shares to employees, as part of public issue or otherwise, or through a trust where the trust may undertake secondary acquisition for the purposes of the scheme;

(l)       “exercise” means making of an application by an employee to the company or to the trust for issue of shares or appreciation in form of cash, as the case may be, against vested options or vested SARs in pursuance of the schemes covered under Part A or Part C of Chapter III of these regulations, as the case may be;

(m)    “exercise period” means the time period after vesting within which an employee can exercise his/her right to apply for shares against the vested option or appreciation against vested SAR in pursuance of the schemes covered under Part A or Part C of Chapter III of these regulations, as the case may be;

(n)     “exercise price” means the price, if any, payable by an employee for exercising the option or SAR granted to such an employee in pursuance of the schemes covered under Part A or Part C of Chapter III of these regulations, as the case may be;

(o)      “general employee benefits scheme or GEBS” means any scheme of a company framed in accordance with these regulations, dealing in shares of the company or the shares of its listed holding company, for the purpose of employee welfare including healthcare benefits, hospital care or benefits, or benefits in the event of sickness, accident, disability, death or scholarship funds, or such other benefit as specified by such company;

(p)      “grant” means the process by which the company issues options, SARs, shares or any other benefits under any of the schemes;

(q)      “grant date” means the date on which the compensation committee approves the grant.

Explanation,—For accounting purposes, the grant date will be determined in accordance with applicable accounting standards;

(r)      “group” means two or more companies which, directly or indirectly, are in a position to—

(i)       exercise twenty-six per cent. or more of the voting rights in the other company; or

(ii)      appoint more than fifty per cent. of the members of the Board of Directors in the other company; or

(iii)     control the management or affairs of the other company;

(s)      “ICAI” means the Institute of Chartered Accountants of India;

(t)       “insider” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;

(u)     “independent director” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015;

(v)      “initial public offer or IPO” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(w)     “key managerial personnel” shall have the same meaning as defined under Section 2(51) of the Companies Act, 2013 (Act 18 of 2013);

(x)      “market price” means the latest available closing price on a recognised stock exchange on which the shares of the company are listed on the date immediately prior to the relevant date.

Explanation,—If such shares are listed on more than one recognised stock exchange, then the closing price on the recognised stock exchange having higher trading volume shall be considered as the market price;

(y)      “merchant banker” means a merchant banker as defined under Regulation 2(1)(cb) of the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992, which is registered under Section 12 of the Act;

(z)      “option” means the option given to an employee which gives such an employee a right to purchase or subscribe at a future date, the shares offered by the company, directly or indirectly, at a pre-determined price;

(aa) “option grantee” means an employee having a right but not an obligation to exercise an option in pursuance of an ESOS;

(bb) “pre-IPO scheme” means any scheme formulated prior to the initial public offer of the company and prior to the listing of its equity shares on a recognised stock exchange;

(cc) “promoter” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(dd) “promoter group” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

(ee) “recognised stock exchange” means a stock exchange which has been granted recognition under Section 4 of the Securities Contracts (Regulation) Act, 1956 (Act 42 of 1956);

(ff)   “registrar” means a registrar to an issue as defined under Regulation 2(f) of the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 and includes a share transfer agent as defined under Regulation 2(g) thereof, which is registered under Section 12 of the Act;

(gg) “relative” shall have the same meaning as defined under Section 2(77) of the Companies Act, 2013 (Act 18 of 2013);

(hh) “relevant date” means,—

(a)      in the case of grant, the date of the meeting of the compensation committee on which the grant is made; or

(b)      in the case of exercise, the date on which the notice of exercise is given to the company or to the trust by the employee;

(ii)   “retirement benefit scheme or RBS” means a scheme of a company framed in accordance with these regulations, dealing in shares of the company or the shares of its listed holding company, for providing retirement benefits to the employees subject to compliance with existing rules and regulations as applicable under laws relevant to retirement benefits in India;

(jj)   “SAR grantee” means an employee to whom a SAR is granted;

(kk) “SAR price” means the base price defined on the grant date of SAR for the purpose of computing appreciation;

(ll)   “scheme” means a scheme of a company proposing to provide share based benefits to its employees under Chapters III of these regulations, which may be implemented and administered directly by such company or through a trust, in accordance with these regulations;

(mm) “securities” means securities as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (Act 42 of 1956);

(nn) “secondary acquisition” means acquisition of existing shares of the company by the trust on the platform of a recognised stock exchange for cash consideration;

(oo) “secretarial auditor” means a company secretary in practice appointed by a company under Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 to conduct secretarial audit pursuant to Regulation 24-A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015;

(pp) “share” means equity shares and securities convertible into equity shares and includes American Depository Receipts, Global Depository Receipts or other depository receipts representing underlying equity shares or securities convertible into equity shares;

(qq) “stock appreciation right or SAR” means a right given to a SAR grantee entitling him to receive appreciation for a specified number of shares of the company where the settlement of such appreciation may be made by way of cash payment or shares of the company.

Explanation 1,—A SAR settled by way of shares of the company shall be referred to as equity settled SAR.

Explanation 2,—For the purpose of these regulations, any reference to stock appreciation right or SAR shall mean equity settled SARs and does not include any scheme which does not, directly or indirectly, involve dealing in or subscribing to or purchasing, securities of the company.

(rr)   “stock appreciation right scheme or SAR scheme” means a scheme under which a company grants SAR to employees;

(ss) “sweat equity shares” means sweat equity shares as defined in sub-section (88) of Section 2 of the Companies Act, 2013 (Act 18 of 2013);

(tt)   “Schedule” means a schedule annexed to these regulations;

(uu) “trust” means a trust established under the provisions of the Indian Trusts Act, 1882 (Act 2 of 1882) including any statutory modification or re-enactment thereof, for implementing any of the schemes covered by these regulations;

(vv) “trustee” means the trustee of the trust;

(ww) “valuer” means an independent chartered accountant or a merchant banker appointed to determine the valuation of know-how or intellectual property rights or value addition;

(xx) “vesting” means the process by which the employee becomes entitled to receive the benefit of a grant made to him/her under any of the schemes;

(yy) “vesting period” means the period during which the vesting of option, SAR or a benefit granted under any of the schemes takes place;

(2)     Words and expressions used and not defined in these regulations but defined in the Act, the Securities Contracts (Regulation) Act, 1956 (Act 42 of 1956) or the Companies Act, 2013 (Act 18 of 2013) and any statutory modification or re-enactment thereto, shall have the meanings respectively assigned to them in those legislations.

Chapter II SCHEMES—IMPLEMENTATION AND PROCESS

Regulation - 3. Implementation of schemes through trust.

(1)     A company may implement a scheme(s) either directly or by setting up an irrevocable trust(s):

Provided that if the scheme is to be implemented through a trust, the same has to be decided upfront at the time of taking approval of the shareholders for setting up the scheme(s):

Provided further that if prevailing circumstances so warrant, the company may change the mode of implementation of the scheme subject to the condition that a fresh approval of the shareholders by a special resolution is obtained prior to implementing such a change and that such a change is not prejudicial to the interests of the employees:

Provided further that if the scheme(s) involves secondary acquisition or gift or both, then it shall be mandatory for the company to implement such scheme(s) through a trust(s).

(2)     A company may implement several schemes as permitted under these regulations through a single trust:

Provided that such single trust shall keep and maintain proper books of account, records and documents for each scheme so as to explain its transactions and to disclose at any point of time, the financial position of each scheme and in particular give a true and fair view of the state of affairs of each scheme.

(3)     The trust deed, under which the trust is formed, shall contain provisions as specified in Part A of Schedule-I of these regulations and such trust deed and any modifications thereto shall be mandatorily filed with the recognised stock exchange(s) in India where the shares of the company are listed.

(4)     Any person can be appointed as a trustee of the trust, except in cases where such person—

(i)       is a director, key managerial personnel or promoter of the company or its group company including its holding, subsidiary or associate company or any relative of such director, key managerial personnel or promoter; or

(ii)      beneficially holds ten percent or more of the paid-up share capital or the voting rights of the company:

Provided that where individual(s) or “one person company” as defined under the Companies Act, 2013 (Act 18 of 2013) is appointed as trustee(s), there shall be a minimum of two such trustees, and in case a corporate entity is appointed as a trustee, then it may be the sole trustee.

(5)     The trustees of a trust, which is governed under these regulations, shall not vote in respect of the shares held by such trust, so as to avoid any misuse arising out of exercising such voting rights.

(6)     The trustee should ensure that the requisite approval from the shareholders has been obtained by the company in order to enable the trust to implement the scheme(s) and undertake secondary acquisition for the purposes of the scheme(s).

(7)     The trust shall not deal in derivatives and shall undertake only delivery-based transactions for the purposes of secondary acquisition as permitted by these regulations.

(8)     Subject to the requirements of the Companies Act, 2013 (Act 18 of 2013) read with Companies (Share Capital and Debenture) Rules, 2014, as amended from time to time, as may be applicable, the company may lend monies to the trust on appropriate terms and conditions to acquire the shares either through new issue or secondary acquisition, for the purpose of implementation of the scheme(s).

(9)     For the purpose of disclosures to the recognised stock exchange, the shareholding of the trust shall be shown as “non-promoter and non-public” shareholding.

Explanation,—The shares held by the trust shall not form part of the public shareholding which needs to be maintained at a minimum of twenty five per cent as prescribed under the Securities Contracts (Regulation) Rules, 1957.

(10)   Secondary acquisition in a financial year by the trust shall not exceed two per cent of the paid up equity capital of the company as at the end of the previous financial year.

(11)   The total number of shares under secondary acquisition held by the trust shall at no point of time exceed the below mentioned limits as a percentage of the paid up equity capital of the company as at the end of the financial year immediately prior to the year in which the shareholders' approval is obtained for such secondary acquisition:

Explanation 1,—The above limits shall automatically include within their ambit the expanded or reduced capital of the company where such expansion or reduction has taken place on account of corporate action(s) including issue of bonus shares, split, rights issue, buy-back or scheme of arrangement.

Explanation 2,—If a company has multiple trusts and schemes, the aforesaid ceiling limit shall be applicable for all such trusts and schemes taken together at the company level and not at the level of individual trust or scheme.

Explanation 3,—The above ceiling limit will not be applicable where shares are allotted to the trust by way of new issue or gift from promoter or promoter group or other shareholders.

Explanation 4,—In the event that the options, shares or SAR granted under any of the schemes exceeds the number of shares that the trust may acquire through secondary acquisition, then such shortfall of shares shall be made up by the company through new issue of shares to the trust in accordance with the provisions of new issue of shares under the applicable laws.

(12)   The unappropriated inventory of shares which are not backed by grants, acquired through secondary acquisition by the trust under Part A, Part B or Part C of Chapter III of these regulations, shall be appropriated within a reasonable period which shall not extend beyond the end of the subsequent financial year, or the second subsequent financial year subject to approval of the compensation committee/nomination and remuneration committee for such extension to the second subsequent financial year.

(13)   The trust shall be required to hold the shares acquired through secondary acquisition for a minimum period of six months except where they are required to be transferred in the circumstances enumerated in clause (b) of sub-regulation (14), whether off-market or on the platform of recognised stock exchange.

(14)   The trust shall be permitted to undertake off-market transfer of shares only under the following circumstances:—

(a)      transfer to the employees pursuant to scheme(s);

(b)      while participating in an open offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or while participating in a buy-back, delisting or any other exit offered by the company generally to its shareholders.

(15)   The trust shall not become a mechanism for trading in shares and hence shall not sell the shares in secondary market except under the following circumstances:

(a)      to enable the employee to fund the payment of the exercise price, the amount necessary to meet his/her tax obligations and other related expenses pursuant to exercise of options granted under the ESOS;

(b)      on vesting or exercise, as the case may be, of SAR under the scheme covered by Part C of Chapter III of these regulations;

(c)      in case of emergency for implementing the schemes covered under Part D and Part E of Chapter III of these regulations, and for this purpose—

(a)      the trustee(s) shall record the reasons for such sale; and

(b)      money so realised on sale of shares shall be utilised within a definite time period as stipulated under the scheme or trust deed.

(d)      participation in buy-back or open offers or delisting offers or any other exit offered by the company generally to its shareholders, if required;

(e)      for repaying the loan, if the unappropriated inventory of shares held by the trust is not appropriated within the timeline as provided under sub-regulation (12);

(f)       winding up of the scheme(s); and

(g)      based on approval granted by the Board to an applicant, for the reasons recorded in writing in respect of the schemes covered by Part A or Part B or Part C of Chapter III of these regulations, upon payment of a non-refundable fee of rupees one lakh to the Board along with the application by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode allowed by the Reserve Bank of India.

(16)   The trust shall be required to make disclosures and comply with the other requirements applicable to insiders or promoters under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 or any modification or re-enactment thereto.

Regulation - 4. Eligibility.

An employee shall be eligible to participate in the schemes of the company as determined by the compensation committee.

Explanation,—Where such employee is a director nominated by an institution as its representative on the Board of Directors of the company—

(i)       the contract or agreement entered into between the institution nominating its employee as the director of a company and the director so appointed shall, inter alia, specify the following:—

(a)      whether the grants by the company under its scheme(s) can be accepted by the said employee in his capacity as director of the company;

(b)      that grant if made to the director, shall not be renounced in favour of the nominating institution; and

(c)      the conditions subject to which fees, commissions, other incentives, etc. can be accepted by the director from the company.

(ii)      the institution nominating its employee as a director of the company shall file a copy of the contract or agreement with the said company, which shall, in turn file the copy with all the recognised stock exchanges on which its shares are listed.

(iii)     the director so appointed shall furnish a copy of the contract or agreement at the first board meeting of the company attended by him after his nomination.

Regulation - 5. Compensation committee.

(1)     A company shall constitute a compensation committee for administration and superintendence of the schemes:

Provided that where the scheme is being implemented through a trust the compensation committee shall delegate the administration of such scheme(s) to the trust.

(2)     The compensation committee shall be a committee of such members of the Board of Directors of the company as provided under Regulation 19 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time:

Provided that a company may also opt to designate its nomination and remuneration committee as the compensation committee for the purposes of these regulations.

(3)     The compensation committee shall, inter alia, formulate the detailed terms and conditions of the schemes which shall include the provisions as specified in Part B of Schedule-I of these regulations.

(4)     The compensation committee shall frame suitable policies and procedures to ensure that there is no violation of securities laws including the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, as amended from time to time, by the trust, the company and its employees, as may be applicable.

Regulation - 6. Shareholders' approval.

(1)     No scheme shall be offered to employees of a company unless the shareholders of the company approve it by passing a special resolution in the general meeting.

(2)     The explanatory statement to the notice and the resolution proposed to be passed by shareholders for the schemes shall contain the information as specified in Part C of Schedule-I of these regulations or as otherwise specified by the Board.

(3)     Approval of shareholders by way of separate resolution in the general meeting shall be obtained by the company in case of:

(a)      Secondary acquisition for implementation of the schemes. Explanation,—For the purpose of this clause, the approval shall mention the percentage of secondary acquisition (subject to limits specified under these regulations) that can be undertaken;

(b)      Secondary acquisition by the trust in case the share capital expands due to capital expansion undertaken by the company including preferential allotment of shares or qualified institutions placement, to maintain the five per cent. cap specified under sub-regulation (11) of Regulation 3 of these regulations, of such increased capital of the company;

(c)      Grant of option, SAR, shares or other benefits, as the case may be, to employees of subsidiary or holding company;

(d)      Grant of option, SAR, shares or benefits, as the case may be, to identified employees, during any one year, equal to or exceeding one per cent. of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option, SAR, shares or incentive, as the case may be.

Regulation - 7. Variation of terms of the schemes.

(1)     A company may by special resolution of its shareholders vary the terms of the schemes offered pursuant to an earlier resolution of the general body but not yet exercised by the employees, if such variation is not prejudicial to the interests of the employees

(2)     Notwithstanding the provisions of sub-regulation (1), a company shall be entitled to vary the terms of the schemes to meet any regulatory requirement without seeking shareholders' approval by special resolution.

(3)     The provisions of Regulation 6 of these regulations shall apply to such variation of terms as they apply to the original grant of option, SAR, shares or other benefits, as the case may be.

(4)     The notice for passing a special resolution for variation of terms of the schemes shall disclose full details of the variation, the rationale therefor, and the details of the employees who are beneficiaries of such variation.

(5)     A company may reprice the options, SAR or shares, as the case may be, which are not exercised, whether or not they have been vested, if the schemes were rendered unattractive due to fall in the price of the shares in the stock market:

Provided that the company ensures that such repricing is not detrimental to the interests of the employees and approval of the shareholders by a special resolution has been obtained for such repricing.

Regulation - 8. Winding up of the schemes.

In case of winding up of the schemes being implemented by a company, the excess monies or shares remaining with the trust after meeting all the obligations, if any, shall be utilised for repayment of loan or by way of distribution to employees or subject to approval of the shareholders, be transferred to another scheme under these regulations, as recommended by the compensation committee.

Regulation - 9. Non-transferability.

(1)     Option, SAR or any other benefit granted to an employee under the regulations shall not be transferable to any person.

(2)     No person, other than the employee to whom the option, SAR or other benefit is granted, shall be entitled to the benefit arising out of such option, SAR or other benefit:

Provided that in case of ESOS or SAR, subject to applicable laws, the company or the trustee may fund or permit the empanelled stock brokers to make suitable arrangements to fund the employee for payment of exercise price, the amount necessary to meet his/her tax obligations and other related expenses pursuant to exercise of options granted under the ESOS or SAR and such amount shall be adjusted against the sale proceeds of some or all the shares of such employee.

(3)     The option, SAR, or any other benefit granted to the employee shall not be pledged, hypothecated, mortgaged or otherwise alienated in any other manner.

(4)     In the event of death of the employee while in employment, all the options, SAR or any other benefit granted under a scheme to him/her till his/her death shall vest, with effect from the date of his/her death, in the legal heirs or nominees of the deceased employee, as the case may be.

(5)     In case the employee suffers a permanent incapacity while in employment, all the options, SAR or any other benefit granted to him/her under a scheme as on the date of permanent incapacitation, shall vest in him/her on that day.

(6)     In the event of resignation or termination of an employee, all the options, SAR or any other benefit which are granted and yet not vested as on that day, shall expire:

Provided that an employee shall, subject to the terms and conditions formulated by the compensation committee under sub-regulation (3) of Regulation 5 of these regulations, be entitled to retain all the vested options, SAR or any other benefit covered by these regulations.

Explanation,—The cessation of employment due to retirement or superannuation shall not be covered by this sub-regulation, and such options, SAR or any other benefit granted to an employee would continue to vest in accordance with the respective vesting schedules even after retirement or superannuation in accordance with the company's policies and the applicable law.

(7)     In the event that an employee, who has been granted benefits under a scheme, is transferred or deputed to an associate company prior to vesting or exercise, the vesting and exercise as per the terms of grant shall continue in case of such transferred or deputed employee even after the transfer or deputation.

(8)     In the event that an employee who has been granted benefits under a scheme, is transferred pursuant to scheme of arrangement, amalgamation, merger or demerger or continued in the existing company, prior to the vesting or exercise, the treatment of options in such case shall be specified in such scheme of arrangement, amalgamation, merger or demerger provided that such treatment shall not be prejudicial to the interest of the employee.

Regulation - 10. Listing.

In case a new issue of shares is made under any scheme, shares so issued shall be listed immediately on all recognised stock exchange(s) where the existing shares are listed, subject to the following conditions:

(a)      The scheme is in compliance with these regulations;

(b)      A statement, as specified in Part D of Schedule-I of these regulations, is filed and the company obtains an in-principle approval from the recognised stock exchange(s);

(c)      As and when an exercise is made, the company notifies the concerned recognised stock exchange(s) as per the statement as specified in Part E of Schedule-I of these regulations.

Regulation - 11. Schemes implemented by unlisted companies.

The shares arising after the IPO of an unlisted company, out of options or SAR granted under any scheme prior to its IPO to the employees, shall be listed immediately upon exercise on all the recognised stock exchanges where the shares of the company are listed subject to compliance with the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and wherever applicable, sub-regulation (1) of Regulation 12 of these regulations.

Regulation - 12. Compliances and conditions.

(1)     No company shall make any fresh grant which involves allotment or transfer of shares to its employees under any scheme formulated prior to its IPO and prior to the listing of its equity shares (‘pre-IPO scheme’) unless:

(i)       Such pre-IPO scheme is in conformity with these regulations; and

(ii)      Such pre-IPO scheme is ratified by its shareholders subsequent to the IPO:

Provided that the ratification under clause (ii) may be done any time prior to grant of new options or shares or SAR under such pre-IPO scheme.

(2)     No change shall be made in the terms of options or shares or SAR issued under such pre-IPO schemes, whether by repricing, change in vesting period or maturity or otherwise unless prior approval of the shareholders, by way of special resolutions, is taken for such a change, except for any adjustments for corporate actions made in accordance with these regulations.

(3)     For listing of shares issued pursuant to ESOS, ESPS or SAR, the company shall obtain the in-principle approval of the recognized stock exchanges where it proposes to list the said shares prior to the grant of options or SARs.

(4)     When the holding company issues option, share, SAR or benefits to the employees of its subsidiary, the cost incurred by the holding company for issuing such option, share, SAR or benefits shall be disclosed in the ‘notes to accounts’ of the financial statements of the subsidiary company.

(5)     In a case falling under sub-regulation (4), if the subsidiary reimburses the cost incurred by the holding company in granting option, share, SAR or benefits to the employees of the subsidiary, both the subsidiary as well as the holding company shall disclose the payment or receipt, as the case may be, in the ‘notes to accounts’ to their financial statements.

(6)     The company shall appoint a merchant banker for the implementation of schemes covered by these regulations till the stage of obtaining in-principle approval from the recognized stock exchanges in accordance with clause (b) of Regulation 10 of these regulations.

Regulation - 13. Certificate from auditors.

In the case of every company which has passed a resolution for the scheme(s) under these regulations, the Board of Directors shall at each annual general meeting place before the shareholders a certificate from the secretarial auditors of the company that the scheme(s) has been implemented in accordance with these regulations and in accordance with the resolution of the company in the general meeting.

Regulation - 14. Disclosures.

In addition to the information that a company is required to disclose in relation to employee benefits under the Companies Act, 2013 (Act 18 of 2013), the Board of Directors of such a company shall also disclose the details of the scheme(s) being implemented, as specified in Part F of Schedule-I of these regulations.

Regulation - 15. Accounting policies.

Any company implementing any of the share based schemes shall follow the requirements including the disclosure requirements of the Accounting Standards prescribed by the Central Government in terms of Section 133 of the Companies Act, 2013 (Act 18 of 2013) including any ‘Guidance Note on Accounting for employee share-based Payments’ issued in that regard from time to time,

Chapter III ADMINISTRATION OF SPECIFIC SCHEMES

PART A: EMPLOYEE STOCK OPTION SCHEME (ESOS)

Regulation - 16. Administration and implementation.

(1)     Subject to the provisions of these regulations, an ESOS shall contain the details of the manner in which the scheme will be implemented and operated.

(2)     No ESOS shall be offered unless the disclosures, as specified in Part G of Schedule-I of these regulations, are made by the company to the prospective option grantees.

Regulation - 17. Pricing.

The company granting options to its employees pursuant to an ESOS shall be free to determine the exercise price subject to conforming to the accounting policies specified in Regulation 15 of these regulations.

Regulation - 18. Vesting period.

(1)     There shall be a minimum vesting period of one year in case of ESOS:

Provided that in case where options are granted by a company under an ESOS in lieu of options held by an employee under an ESOS in another company which has merged, demerged, arranged or amalgamated with the first mentioned company, the period during which the options granted by the transferor company were held by such employee shall be adjusted against the minimum vesting period required under this sub-regulation:

Provided further that in the event of death or permanent incapacity of an employee, the minimum vesting period of one year shall not be applicable and in such instances, the options shall vest in terms of sub-regulation (4) of Regulation 9 of these regulations, on the date of the death or permanent incapacity.

Explanation,—The company implementing an ESOS shall frame an appropriate policy with respect to the death or permanent incapacity of an employee, subject to compliance with applicable laws.

(2)     The company may specify the lock-in period for the shares issued pursuant to exercise of an option.

Regulation - 19. Rights of the option holder.

An employee shall not have the right to receive any dividend or to vote or in any manner enjoy the benefits available to a shareholder in respect of an option granted to him/her, till shares are issued to him/her upon exercise of the option.

Regulation - 20. Consequence of failure to exercise an option.

The amount paid by the employee, if any, at the time of grant, vesting or exercise of option—

(a)      may be forfeited by the company if the option is not exercised by the employee within the exercise period; or

(b)      may be refunded to the employee if the options are not vested due to non-fulfilment of conditions relating to vesting of option as per the ESOS.

PART B: EMPLOYEE STOCK PURCHASE SCHEME (ESPS)

Regulation - 21. Administration and implementation.

Subject to the provisions of these regulations, an ESPS shall contain the details of the manner in which the scheme will be implemented and operated.

Regulation - 22. Pricing and lock-in.

(1)     A company may determine the price of shares to be issued under an ESPS, subject to conforming to the accounting policies specified under Regulation 15 of these regulations.

(2)     Shares issued under an ESPS shall be locked-in for a minimum period of one year from the date of allotment:

Provided that in case where shares are allotted by a company under an ESPS in lieu of shares acquired by the employee under an ESPS in another company which has merged or amalgamated with the first mentioned company, the lock-in period already undergone in respect of shares of the transferor company shall be adjusted against the lock-in period required under this sub-regulation.

Provided further that in the event of death or permanent incapacity of an employee, the requirement of lock-in shall not be applicable from the date of death or permanent incapacity.

(3)     If ESPS is part of a public issue and the shares are issued to employees at the same price as in the public issue, the shares issued to employees pursuant to ESPS shall not be subject to any lock-in.

PART C : STOCK APPRECIATION RIGHTS SCHEME (SAR SCHEME)

Regulation - 23. Administration and implementation.

(1)     Subject to the provisions of these regulations, a SAR scheme shall contain the details of the manner in which the scheme will be implemented and operated.

(2)     Subject to the provisions of these regulations, a company shall be free to implement cash settled or equity settled SAR scheme:

Provided that in case of equity settled SAR scheme, if the settlement results in fractional shares, then the consideration for fractional shares should be settled in cash.

(3)     No SAR shall be offered under any SAR scheme unless the disclosures, as specified in Part G of Schedule-I of these regulations, are made by the company to the prospective SAR grantees.

Regulation - 24. Vesting.

There shall be a minimum vesting period of one year in case of SAR scheme:

Provided that in a case where SAR is granted by a company under a SAR scheme in lieu of SAR held by the employee under a SAR scheme in another company which has merged or amalgamated with the first mentioned company, the period during which the SAR granted by the transferor company were held by the employee shall be adjusted against the minimum vesting period required under this sub-regulation:

Provided further that in the event of death or permanent incapacity, the minimum vesting period of one year shall not be applicable and in such instances, the options shall vest on the date of death or permanent incapacity.

Explanation,—The company implementing a SAR scheme shall frame an appropriate policy with respect to the death or permanent incapacity of an employee, subject to compliance with applicable laws.

Regulation - 25. Rights of the SAR holder.

The employee holding a SAR shall not have the right to receive dividend or to vote or in any manner enjoy the benefits available to a shareholder in respect of a SAR granted to him/her.

PART D: GENERAL EMPLOYEE BENEFITS SCHEME (GEBS)

Regulation - 26. Administration and implementation.

(1)     Subject to the provisions of these regulations, GEBS shall contain the details of the scheme and the manner in which the scheme shall be implemented and operated.

(2)     The shares of the company or shares of its listed holding company shall not exceed ten per cent of the book value or market value or fair value of the total assets of the scheme, whichever is lower, as appearing in its latest balance sheet (whether audited or limited reviewed) for the purposes of GEBS.

(3)     The secretarial auditor of the company shall certify compliance with sub-regulation (2) at the time of adoption of such balance sheet by the company.

PART E: RETIREMENT BENEFIT SCHEME (RBS)

Regulation - 27. Administration and implementation.

(1)     Retirement benefit scheme may be implemented by a company subject to compliance with these regulations and provisions of any other law in force in relation to retirement benefits.

(2)     The retirement benefit scheme shall contain the details of the benefits under the scheme and the manner in which the scheme shall be implemented and operated.

(3)     The shares of the company or shares of its listed holding company shall not exceed ten per cent of the book value or market value or fair value of the total assets of the scheme, whichever is lower, as appearing in its latest balance sheet (whether audited or limited reviewed) for the purposes of RBS.

(4)     The secretarial auditor of the company shall certify compliance with sub-regulation (3) at the time of adoption of such balance sheet by the company.

Chapter IV ISSUE OF SWEAT EQUITY BY A LISTED COMPANY

PART — A

Regulation - 28. Applicability.

Nothing contained in this chapter shall apply to an unlisted company:

Provided that an unlisted company coming out with initial public offer and seeking listing of its securities on the recognized stock exchange, pursuant to issue of sweat equity shares, shall comply with the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018.

Regulation - 29. Definition of employee in relation to issue of sweat equity shares.

For the purpose of this chapter, the term ‘employee’ means,

(i)       an employee of the company working in India or abroad; or

(ii)      a director of the company whether a whole time director or not.

Regulation - 30. Issue of sweat equity shares to employees.

A company whose equity shares are listed on a recognised stock exchange may issue sweat equity shares in accordance with Section 54 of the Companies Act, 2013 (Act 18 of 2013) and these regulations to its employees for their providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Regulation - 31. Maximum quantum of sweat equity shares.

A company shall not issue sweat equity shares for more than fifteen percent of the existing paid up equity share capital in a year:

Provided that the issuance of sweat equity shares in the company shall not exceed twenty five percent of the paid up equity share capital of the company at any time:

Provided further that a company listed on Innovators Growth Platform shall be permitted to issue not more than fifteen percent of the paid up equity share capital in a financial year subject to overall limit not exceeding fifty percent of the paid up equity share capital of the company, up to ten years from the date of its incorporation or registration.

Regulation - 32. Special resolution.

(1)     For the purposes of passing a special resolution under clause (a) of sub-section (1) of Section 54 of the Companies Act, 2013 (Act 18 of 2013), the explanatory statement to be annexed to the notice for the general meeting pursuant to Section 102 of the Companies Act, 2013 (Act 18 of 2013) shall contain disclosures as specified in the Schedule-II of these regulations.

(2)     The issue of sweat equity shares to employees who belong to promoter or promoter group shall be approved by way of a resolution passed by a simple majority of the shareholders in general meeting:

Provided that for passing such a resolution, voting through postal ballot and/or e-voting as specified under Companies (Management and Administration) Rules, 2014 shall also be adopted;

Provided further that the promoters/promoter group shall not participate in such resolution.

(3)     Each issue of sweat equity shares shall be voted by a separate resolution.

(4)     The resolution for issue of sweat equity shares shall be valid for a period of not more than twelve months from the date of passing of the resolution.

Regulation - 33. Pricing of sweat equity shares.

The price of sweat equity shares shall be determined in accordance with the pricing requirements stipulated for a preferential issue to a person other than a qualified institutional buyer under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Regulation - 34. Valuation.

(1)     The valuation of the know-how or intellectual property rights or value addition shall be carried out by a merchant banker.

(2)     The merchant banker may consult such experts and valuers, as it may deem fit, having regard to the nature of the industry and the nature of the valuation of know-how or intellectual property rights or value addition.

(3)     The merchant banker shall obtain a certificate from an independent chartered accountant certifying that the valuation of the know-how or intellectual property rights or value addition is in accordance with the relevant accounting standards.

Regulation - 35. Accounting treatment.

Where the sweat equity shares are issued for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company:—

(a)      where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the relevant accounting standards; or

(b)      where clause (a) is not applicable, it shall be expensed as provided in the relevant accounting standards.

Regulation - 36. Placing of auditor's certificate before annual general meeting.

In the general meeting subsequent to the issue of sweat equity shares, the Board of Directors shall place before the shareholders, a certificate from the secretarial auditor of the company that the issue of sweat equity shares has been made in accordance with these regulations and in accordance with the resolution passed by the company authorizing the issue of such sweat equity shares.

Regulation - 37. Ceiling on managerial remuneration.

The amount of sweat equity shares issued shall be treated as part of managerial remuneration for the purpose of Sections 196, 197 and other applicable provisions of the Companies Act, 2013 (Act 18 of 2013), if the following conditions are fulfilled:

(i)       the sweat equity shares are issued to any director or manager; and

(ii)      the sweat equity shares are issued for non-cash consideration, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the relevant accounting standards.

Regulation - 38. Lock-in of sweat equity shares.

(1)     The sweat equity shares shall be locked in for such period of time as specified in relation to a preferential issue under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended from time to time.

(2)     The provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosures Requirements) Regulations, 2018 in respect of public issue in terms of lock-in and computation of promoters' contribution shall apply if a company makes a public issue after it has issued sweat equity shares.

Regulation - 39. Listing.

The sweat equity shares issued by a listed company shall be eligible for listing subject to their issuance being in accordance with these regulations.

Regulation - 40. Applicability of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Any acquisition of sweat equity shares shall be subject to the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

PART — B : GENERAL OBLIGATIONS

Regulation - 41. Obligations of the company.

The company shall ensure that—

(a)      the explanatory statement to the notice for general meeting contains the disclosures specified under clause (b) of sub-section (1) of Section 54 of the Companies Act, 2013 (Act 18 of 2013) and sub-regulation (1) of Regulation 32 of these regulations.

(b)      the secretarial auditor's certificate required under Regulation 36 is placed in the general meeting of the shareholders.

(c)      the company, within seven days of the issue of sweat equity shares, sends a statement to the recognised stock exchange, disclosing:

(i)       number of sweat equity shares issued;

(ii)      price at which the sweat equity shares are issued;

(iii)     total amount received towards sweat equity shares;

(iv)    details of the persons to whom sweat equity shares have been issued; and

(v)      the consequent changes in the capital structure and the shareholding pattern before and after the issue of sweat equity shares.

Chapter V POWER TO RELAX STRICT ENFORCEMENT OF THE REGULATIONS

Regulation - 42. Exemption from enforcement of the regulations in special cases.

(1)     The Board may exempt any person or class of persons from the operation of all or any of the provisions of these regulations for a period as may be specified but not exceeding twelve months, for furthering innovation relating to testing new products, processes, services, business models, etc., in live environment of regulatory sandbox in the securities markets.

(2)     Any exemption granted by the Board under sub-regulation (1) shall be subject to the applicant satisfying such conditions as may be specified by the Board including conditions to be complied with on a continuous basis.

Explanation.—For the purposes of these regulations, “regulatory sandbox” means a live testing environment where new products, processes, services, business models, etc. may be deployed on a limited set of eligible customers for a specified period of time, for furthering innovation in the securities market, subject to such conditions as may be specified by the Board.

Regulation - 43. Exemption from enforcement of the regulations in other cases.

(1)     The Board may suo motu or on an application made by a company, for reasons recorded in writing, grant relaxation from strict compliance with any of these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market.

(2)     A company making an application under sub-regulation (1), shall pay a non-refundable fee of rupees one lakh by way of direct credit in the specified bank account of the Board through NEFT/RTGS/IMPS or any other mode allowed by the Reserve bank of India.

Chapter VI MISCELLANEOUS

Regulation - 44. Directions by the Board.

Without prejudice to provisions of the Act and those of the Companies Act, 2013 (Act 18 of 2013), the Board may in case of any violation of these regulations and in the interests of the investors and the securities market issue such directions as it deems fit.

Regulation - 45. Power to remove difficulties.

In order to remove any difficulties in the interpretation and application of the provisions of these regulations, the Board may issue necessary clarifications The Board may specify such disclosure and process requirements, as may be necessary for protection of interests of investors and securities market and, inter alia, for regulation of all schemes, by listed companies for the benefit of their employees, involving dealing, directly or indirectly, in shares and matters connected therewith or incidental thereto.

Regulation - 46. Repeals and savings.

(1)     The Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002 are hereby repealed.

(2)     Notwithstanding such repeal,—

(a)      the previous operation of the repealed regulations or anything duly done or suffered thereunder, any right, privilege, obligation or liability acquired, accrued or incurred under the repealed regulations, any penalty, forfeiture or punishment incurred in respect of any contravention committed against the repealed regulations, or any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, shall remain unaffected as if the repealed regulations had never been repealed;

(b)      anything done or any action taken or purported to have been done or taken including any adjudication, enquiry or investigation commenced or show cause notice issued under the repealed regulations prior to such repeal, shall be deemed to have been done or taken under the corresponding provisions of these regulations; and

(c)      after the repeal of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002, any reference thereto in any other regulations, guidelines or circulars issued by the Board shall be deemed to be a reference to the corresponding provisions of these regulations.

 

Schedule-I

Part A-Minimum Provisions in Trust Deed

[See Regulation 3(3)]

The trust deed shall, inter alia, cover the following:

(1)     Details of the trust, including:

(i)       Name of the trust;

(ii)      Object of the trust;

(iii)     Details of settlor;

(iv)    Details of scheme (s) administered;

(v)      Source(s) of funds;

(vi)    Description of the manner in which the trust funds shall be used for meeting the objects of the trust;

(vii)   Description of the classes of beneficiaries along with their rights and obligations;

(viii)  Details of trustee(s).

(2)     Powers and duties of trustee(s), including:

(i)       To frame rules for administration of the scheme(s) in compliance with the scheme documents, object(s) of the trust and these regulations;

(ii)      To maintain books of account of the trust as required under law including these regulations;

(3)     Provisions for dissolution of the trust;

(4)     Trust deed shall provide that it would be the duty of the trustees to act in the interest of employees who are beneficiaries of the trust and subject to provisions of these regulations, it shall not act in any manner or include any provision in the trust deed that would be detrimental to the interests of the beneficiaries.

(5)     Such other clauses which are necessary for safeguarding the interests of the beneficiaries.

Part B-Terms and Conditions of schemes to be formulated by the Compensation Committee

[See Regulation 5(3)]

The Compensation Committee is required to formulate the detailed terms and conditions of the schemes which shall, inter alia, include the following provisions:

(a)      the quantum of options, SARs, shares or benefits as the case may be, per employee and in aggregate under a scheme;

(b)      the kind of benefits to be granted under a scheme covered by Part D and Part E of Chapter III of these regulations;

(c)      the conditions under which options, SARs, shares or other benefits as the case may be, may vest in employees and may lapse in case of termination of employment for misconduct;

(d)      the exercise period within which the employee can exercise the options or SARs and that options or SARs would lapse on failure to exercise the same within the exercise period;

(e)      the specified time period within which the employee shall exercise the vested options or SARs in the event of termination or resignation;

(f)       the right of an employee to exercise all the options or SARs, as the case may be, vested in him at one time or at various points of time within the exercise period;

(g)      the procedure for making a fair and reasonable adjustment to the entitlement including adjustment to the number of options/SARs and to the exercise price in case of corporate actions such as rights issues, bonus issues, merger, sale of division and others. In this regard, the following shall, inter alia, be taken into consideration by the compensation committee:

(i)       the number and price of options/SARs shall be adjusted in a manner such that total value to the employee of the options/SARs remains the same after the corporate action;

(ii)      the vesting period and the life of the options/SARs shall be left unaltered as far as possible to protect the rights of the employee(s) who is granted such options/SARs;

(h)     the grant, vesting and exercise of shares, options or SARs in case of employees who are on long leave;

(i)       eligibility to avail benefits under schemes covered by Part D and/or Part E of Chapter III of the regulations in case of employees who are on long leave;

(j)       the procedure for funding the exercise of options/SARs; and

(k)      the procedure for buy-back of specified securities issued under these regulations, if to be undertaken at any time by the company, and the applicable terms and conditions, including:

(i)       permissible sources of financing for buy-back;

(ii)      any minimum financial thresholds to be maintained by the company as per its last financial statements; and

(iii)     limits upon quantum of specified securities that the company may buy-back in a financial year.

Explanation,—Specified securities means as defined under the Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018

 

Part C-Contents of the explanatory statement to the notice and resolution for shareholders meeting

[See Regulation 6(2)]

The explanatory statement to the notice and the resolution proposed to be passed for the schemes in general meeting shall, inter alia, contain the following information:

(a)      brief description of the scheme(s);

(b)      the total number of options, SARs, shares or benefits, as the case may be, to be offered and granted;

(c)      identification of classes of employees entitled to participate and be beneficiaries in the scheme(s);

(d)      requirements of vesting and period of vesting;

(e)      maximum period (subject to Regulation 18(1) and 24(1) of these regulations, as the case may be) within which the options/SARs/benefits shall be vested;

(f)       exercise price, SAR price, purchase price or pricing formula;

(g)      exercise period/offer period and process of exercise/acceptance of offer;

(h)     the appraisal process for determining the eligibility of employees for the scheme(s);

(i)       maximum number of options, SARs, shares, as the case may be, to be offered and issued per employee and in aggregate, if any;

(j)       maximum quantum of benefits to be provided per employee under a scheme(s);

(k)      whether the scheme(s) is to be implemented and administered directly by the company or through a trust;

(l)       whether the scheme(s) involves new issue of shares by the company or secondary acquisition by the trust or both;

(m)    the amount of loan to be provided for implementation of the scheme(s) by the company to the trust, its tenure, utilization, repayment terms, etc.;

(n)     maximum percentage of secondary acquisition (subject to limits specified under the regulations) that can be made by the trust for the purposes of the scheme(s);

(o)      a statement to the effect that the company shall conform to the accounting policies specified in Regulation 15;

(p)      the method which the company shall use to value its options or SARs;

(q)      the following statement, if applicable:

‘In case the company opts for expensing of share based employee benefits using the intrinsic value, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value, shall be disclosed in the Directors’ report and the impact of this difference on profits and on earnings per share (“EPS”) of the company shall also be disclosed in the Directors' report';

(r)      period of lock-in.

(s)      Terms & conditions for buyback, if any, of specified securities covered under these regulations.

 

Part D-Information required in the statement to be filed with recognised Stock Exchange(s)

[See Regulation 10(b)]

Description of Schemes

(1)     Authorized Share Capital of the Company.

(2)     Issued Share Capital of the Company as on date of Institution of the scheme/amendment of the scheme.

(3)     Date of institution of the scheme/amendment of the scheme.

(4)     Validity period of the scheme.

(5)     Date of notice of AGM/EGM for approving the scheme/for amending the scheme/for approving grants under Regulation 6(3) of these regulations.

(6)     Date of AGM/EGM approving the scheme/amending the scheme/approving grants under Regulation 6(3) of these regulations.

(7)     Kinds of benefit granted under the scheme.

(8)     Identity of classes of persons eligible under the scheme:

(a)      Employees

(b)      employees outside India

(c)      employees of subsidiary

(d)      employees of holding company

(e)      directors, whether whole time directors or not, other than those excluded from the definition of “employee” under these regulations

(9)     Total number of shares reserved under the scheme, as applicable.

(10)   Number of shares entitled under the grant.

(11)   Total number of grants to be made.

(12)   Maximum number of shares, options, SARs or benefits to be granted per employee per grant and in aggregate.

(13)   Exercise price or pricing formula.

(14)   Whether any amount is payable at the time of grant? If so, quantum of such amount.

(15)   Lock-in period under the scheme.

(16)   Vesting period under the scheme.

(17)   Maximum period within which the grant shall be vested.

(18)   Exercise period under the scheme.

(19)   Whether employee can exercise all the options or SARs vested at one time? Yes/No

(20)   Whether employee can exercise vested options or SARs at various points of time within the exercise period? Yes/No

(21)   Whether scheme provides for the procedure for making a fair and reasonable adjustment to the number of options or SARs and to the exercise price in case of rights issues, bonus issues and other corporate actions? Clause in scheme describing such adjustment.

(22)   Description of the appraisal process for determining the eligibility of employees under the scheme.

(23)   The specified time period within which vested options or SARs are to be exercised in the event of termination or resignation of an employee.

(24)   The specified time period within which options or SARs to be exercised in the event of death of the employee.

(25)   Whether the scheme provides for conditions under which options, SARs, or benefits vested in employees may lapse in case of termination of employment for misconduct? Clause in Scheme describing such adjustment.

(26)   Whether scheme provides for conditions for the grant, vesting and exercise of options, SARs or benefits in case of employees who are on long leave? Clause in scheme describing such adjustment.

(27)   Whether amount paid/payable by the employee at the time of the grant, vesting or exercise of the options, SARs or benefits will be forfeited if the employee does not exercise the same within the exercise period? Clause in scheme describing such adjustment.

(28)   Details of approval of shareholders pursuant to Regulation 6(3) of these regulations with respect to:

(a)      Grant to employees of subsidiary or holding or associate company.

(b)      Grant to identified employees, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant.

(29)   Details of the variation made to the scheme along with the rationale therefor and the details of the employees who are beneficiary of such variation:

Sd/-

Company Secretary

Place:

Date:

Documents to be filed with registration statement

(1)     Copy of scheme, certified by the Company Secretary.

(2)     Copy of notice of AGM/EGM approving the scheme/for amending the scheme/for approving grants under Regulation 6(3) of these regulations certified by the Company Secretary.

(3)     Copy of resolution of shareholders for approving the scheme/for amending the scheme/for approving grants under Regulation 6(3) of these regulations certified by the Company Secretary.

(4)     List of Promoters as defined under these regulations.

(5)     Copy of latest Annual Report.

(6)     Certificate of Secretarial Auditor on compliance with these regulations.

(7)     Specimen copy of share certificate, if applicable.

(8)     Any other relevant documents.

Undertakings

The undersigned company hereby undertakes:

(1)     To file, a post-effective amendment to this statement to include any material information with respect to the scheme of distribution not previously disclosed in the statement or any material change to such information in the statement.

(2)     To notify, the concerned recognised stock exchanges on which the shares of the company are listed, of each issue of shares pursuant to the exercise of options or SARs under the scheme mentioned in this statement, in the specified form, as amended from time to time.

(3)     That the company shall conform to the accounting policies specified in Regulation 15 of the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, [2021]

(4)     That the scheme confirms to the Securities and Exchange Board of India (Share Based Employee

Benefits and Sweat Equity) Regulations, [2021]

(5)     That the company has in place systems/codes/procedures to comply with the Securities and Exchange Board of India (Insider Trading) Regulations, 2015 or any modification or re-enactment thereto.

Signatures

Pursuant to the requirements of the Act/Regulations, the company certifies that it has reasonable grounds to believe that it meets all the requirements for the filing of this form and has duly caused this statement to be signed on its behalf by the undersigned, thereunto, duly authorized

Name of the company

Name of the Compliance Officer

Designation

Date: Place:

Certification by Registered Merchant Banker, pursuant to Regulation 12(6) of these regulations:

“Certified that the scheme conforms to the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021”

Date:

Place:

Authorised Signatory

Name of the Merchant Banker

 

Part E-Format of notification for issue of shares

[See Regulation 10(c)]

(1)     Company name and address of Registered Office:

(2)     Name of the recognised Stock Exchanges on which the company's shares are listed:

(3)     Filing date of the statement referred in Regulation 10(b) of the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 with the recognised Stock Exchange:

(4)     Filing Number, if any:

(5)     Title of the Scheme pursuant to which shares are issued, if any:

(6)     Kind of security to be listed:

(7)     Par value of the shares:

(8)     Date of issue of shares:

(9)     Number of shares issued:

(10)   Share Certificate No., if applicable:

(11)   Distinctive number of the share, if applicable:

(12)   ISIN Number of the shares if issued in Demat:

(13)   Exercise price per share:

(14)   Premium per share:

(15)   Total issued shares after this issue:

(16)   Total issued share capital after this issue:

(17)   Details of any lock-in on the shares:

(18)   Date of expiry of lock-in:

(19)   Whether shares are identical in all respects to existing shares? If not, when will they become identical?:

(20)   Details of listing fees, if payable:

Signature of Company Secretary/Compliance Officer

Date:

Place:

 

Part F-Disclosures by the Board of Directors

[See Regulation 14]

The Board of Directors in their report shall disclose any material change in the scheme(s) and whether the scheme(s) is/are in compliance with the regulations.

Further, the following details, inter alia, shall be disclosed on the company's website and a web-link thereto shall be provided in the report of Board of Directors.

(A)     Relevant disclosures in terms of the accounting standards prescribed by the Central Government in terms of Section 133 of the Companies Act, 2013 (Act 18 of 2013) including the ‘Guidance note on accounting for employee share-based payments’ issued in that regard from time to time.

(B)     Diluted EPS on issue of shares pursuant to all the schemes covered under the regulations shall be disclosed in accordance with ‘Accounting Standard 20-Earnings Per Share’ issued by Central Government or any other relevant accounting standards as issued from time to time.

(C)     Details related to ESOS

(i)       A description of each ESOS that existed at any time during the year, including the general terms and conditions of each ESOS, including—

(a)      Date of shareholders' approval

(b)      Total number of options approved under ESOS

(c)      Vesting requirements

(d)      Exercise price or pricing formula

(e)      Maximum term of options granted

(f)       Source of shares (primary, secondary or combination)

(g)      Variation in terms of options

(ii)      Method used to account for ESOS-Intrinsic or fair value.

(iii)     Where the company opts for expensing of the options using the intrinsic value of the options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options shall be disclosed. The impact of this difference on profits and on EPS of the company shall also be disclosed.

(iv)    Option movement during the year (For each ESOS):

(v)      Weighted-average exercise prices and weighted-average fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock.

(vi)    Employee wise details (name of employee, designation, number of options granted during the year, exercise price) of options granted to—

(a)      senior managerial personnel as defined under Regulation 16(d) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015;

(b)      any other employee who receives a grant in any one year of option amounting to 5% or more of option granted during that year; and

(c)      identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant.

(vii)   A description of the method and significant assumptions used during the year to estimate the fair value of options including the following information:

(a)      the weighted-average values of share price, exercise price, expected volatility, expected option life, expected dividends, the risk-free interest rate and any other inputs to the model;

(b)      the method used and the assumptions made to incorporate the effects of expected early exercise;

(c)      how expected volatility was determined, including an explanation of the extent to which expected volatility was based on historical volatility; and

(d)      whether and how any other features of the options granted were incorporated into the measurement of fair value, such as a market condition.

Disclosures in respect of grants made in three years prior to IPO under each ESOS

Until all options granted in the three years prior to the IPO have been exercised or have lapsed, disclosures of the information specified above in respect of such options shall also be made.

(D)     Details related to ESPS

(i)       The following details on each ESPS under which allotments were made during the year:

(a)      Date of shareholders' approval

(b)      Number of shares issued

(c)      The price at which such shares are issued

(d)      Lock-in period

(ii)      The following details regarding allotment made under each ESPS, as at the end of the year:

(E)     Details related to SAR

(i)       A description of each SAR scheme that existed at any time during the year, including the general terms and conditions of each SAR scheme, including—

(a)      Date of shareholders' approval

(b)      Total number of shares approved under the SAR scheme

(c)      Vesting requirements

(d)      SAR price or pricing formula

(e)      Maximum term of SAR granted

(f)       Method of settlement (whether in cash or equity)

(g)      Choice of settlement (with the company or the employee or combination)

(h)     Source of shares (primary, secondary or combination)

(i)       Variation in terms of scheme

(ii)      Method used to account for SAR-Intrinsic or fair value.

(iii)     Where the company opts for expensing of SAR using the intrinsic value of SAR, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of SAR, shall be disclosed. The impact of this difference on profits and on EPS of the company shall also be disclosed.

(iv)    SAR movement during the year (For each SAR scheme):

(v)      Employee-wise details (name of employee, designation, number of SAR granted during the year, exercise price) of SAR granted to—

(a)      “senior management” as defined under Regulation 16(1)(d) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015;

(b)      any other employee who receives a grant in any one year of amounting to 5% or more of SAR granted during that year; and

(c)      identified employees who were granted SAR, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant.

Disclosures in respect of grants made in three years prior to IPO under each SAR scheme

Until all SARs granted in the three years prior to the IPO have been exercised or have lapsed, disclosures of the information specified above in respect of such SARs shall also be made.

(F)      Details related to GEBS/RBS

A description of each GEBS/RBS scheme that existed at any time during the year, including the general terms and conditions of each such scheme, including—

(a)      Date of shareholders' approval

(b)      Kind of benefits to be granted under the scheme

(c)      Beneficiaries of the scheme

(d)      Total assets of the scheme

(e)      Quantum of holding in own shares/listed holding company shares (both absolute and in percentage)

(f)       Whether scheme is in compliance of Regulation 26(2)/27(3) of these regulations, as applicable

(g)      Variation in terms of scheme

(G)     Details related to Trust

The following details, inter alia, in connection with transactions made by the Trust meant for the purpose of administering the schemes under the regulations are to be disclosed:

(i)       General information on all schemes

(ii)      Brief details of transactions in shares by the Trust

(a)      Number of shares held at the beginning of the year;

(b)      Number of shares acquired during the year through (i) primary issuance (ii) secondary acquisition, also as a percentage of paid up equity capital as at the end of the previous financial year, along with information on weighted average cost of acquisition per share;

(c)      Number of shares transferred to the employees/sold along with the purpose thereof;

(d)      Number of shares held at the end of the year.

(iii)     In case of secondary acquisition of shares by the Trust

 

Part G-Disclosure Document

[See Regulations 16(2) and 23(3)]

A: Statement of Risks

All investments in shares, options or SARs are subject to risk as the value of shares may go down or go up. In addition, the options/SARs are subject to the following additional risks:

(1)     Concentration: The risk arising out of any fall in value of shares is aggravated if the employee's holding is concentrated in the shares of a single company.

(2)     Leverage: Any change in the value of the share can lead to a significantly larger change in the value of the options/SARs.

(3)     Illiquidity: The options/SARs cannot be transferred to anybody, and therefore the employees cannot mitigate their risks by selling the whole or part of their benefits before they are exercised.

(4)     Vesting: The options/SARs will lapse if the employment is terminated prior to vesting. Even after the options/SARs are vested, the unexercised options/SARs may be forfeited if the employee is terminated for gross misconduct.

 

B: Information about the company

(1)     Business of the company: A description of the main objects and present business of the company.

(2)     Abridged financial information: Abridged financial information, for the last five years for which audited financial information is available, as specified by the Board from time to time. The last audited accounts of the company shall also be provided unless this has already been provided to the employee in connection with a previous option or SAR grant or otherwise.

(3)     Risk Factors: Management perception of the risk factors for the company (i.e., sensitivity to foreign exchange rate fluctuations, difficulty in availability of raw materials or in marketing of products, cost/time overrun etc.).

(4)     Continuing disclosure requirement: The option or SAR grantee shall be provided copies of all documents that are sent to the members of the company. This shall include the annual accounts of the company as well as notices of meetings and the accompanying explanatory statements.

 

C: Salient Features of the Scheme

This Part shall contain the salient features of the scheme of the company including the conditions regarding vesting, exercise, adjustment for corporate actions, and forfeiture of vested options/SARs as the case may be. It shall not be necessary to include this Part if it has already been provided to the employee in connection with a previous grant, and no changes have taken place in the scheme since then. If the scheme administrator (whether the company itself or an outside securities firm appointed for this purpose) provides advisory services to the grantees in connection with the exercise of options or SAR, as the case may be, or sale of resulting shares, such advice must be accompanied by an appropriate disclosure of concentration and other risks. The scheme administrator shall conform to the code of conduct appropriate for such fiduciary relationships.

 

SCHEDULE-II

[See Regulation 32(1)]

The explanatory statement to the notice and the resolution proposed to be passed in the general meeting for approving the issuance of sweat equity shall, inter alia, contain the following information:

(a)      The total number of shares to be issued as sweat equity.

(b)      The current market price of the shares of the company.

(c)      The valuation of know-how or intellectual property rights or value addition to be received from the employee or director along with the valuation report/basis of valuation.

(d)      The names of the employees or directors or promoters to whom the sweat equity shares shall be issued and their relationship with the company.

(e)      The consideration to be paid for the sweat equity.

(f)       The price at which the sweat equity shares shall be issued.

(g)      Ceiling on managerial remuneration, if any, which will be affected by issuance of such sweat equity.

(h)     A statement to the effect that the company shall conform to the accounting policies as specified by the Board.

(i)       Diluted Earnings Per Share pursuant to the issue of securities to be calculated in accordance with Accounting Standards specified by the Central Government.