Regulation 3 - Implementation of schemes through trust. - Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

CHAPTER II SCHEMES-IMPLEMENTATION AND PROCESS 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 (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 (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: Sr. No. Particulars Limit A For the schemes enumerated in Part A , Part B or Part C of Chapter III of these regulations 5% B For the schemes enumerated in Part D or Part E of Chapter III of these regulations 2% C For all the schemes in aggregate 5% 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.