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TMI BlogSecurities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. (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 man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock 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) "recognis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (18 of 2013); (tt) "Schedule" means a schedule annexed to these regulations; (uu) "trust" means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018. 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. 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 (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. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 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. 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 (18 of 2013), if the following conditions are fulfill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V POWER TO RELAX STRICT ENFORCEMENT OF THE REGULATIONS 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. 43. Exemption from enforcement of the regulations in other cases. (1) The Board may suo motu or on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme 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 reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the year Number of SARs vested during the year Number of SARs exercised / settled during the year Number of SARs outstanding at the end of the year Number of SARs exercisable at the end of the year (vi) 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 sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / 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 alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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