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 ..... CHAPTER I PRELIMINARY 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 24A 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merated 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 4. Eligibility. An employee shall be eligible to participate in the schemes of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 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. 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment 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. 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 eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 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. 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is required to disclose in relation to employee benefits under the Companies Act, 2013 (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. 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 (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) 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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) 23. Administration and implementation. (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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) 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 28. Applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 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 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 (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 meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board. Without prejudice to provisions of the Act and those of the Companies Act, 2013 (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. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 tenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at the beginning of the year Number of SARs granted during the year Number of SARs forfeited / lapsed 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (vi) In case of secondary acquisition of shares by the Trust Number of shares As a percentage of paid-up equity capital as at the end of the year immediately preceding the year in which shareholders' approval was obtained Held at the beginning of the year Acquired during the year Sold during the year Transferred to the employees during the year Held at the end of the year 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 manag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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