Brief Background:
ESOS and ESPS (Employee Stock Option Scheme and Employee Stock Purchase Scheme) are the schemes created for the retaining the interest of some of the key managerial employees/personnel of the Company including directors and whole time directors.  

Primarily “employee stock option scheme (ESOS)” means a scheme under which a company grants employee stock option and “employee stock purchase scheme (ESPS)” means a scheme under which the company offers shares to employees as part of a public issue or otherwise.

As per the Guidelines laid down by SEBI namely, SECURITIES AND EXCHANGE BOARD OF INDIA (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999, these schemes are allowed to be administered by creating a trust. The administration of this trust is to be done as if the Company itself is managing these shares.

There are two ways in which can be created in the accounts of the Trust:-
A. Company shall issue new shares to the Trust
B. Trust shall acquire shares from Secondary Market.

New amendments:
SEBI Circular dated Jan 17, 2013

As per SEBI Circular dated January 17, 2013, it is apprehended that some entities may frame such schemes with the purpose of dealing in its own securities with the object of inflating, depressing, maintaining or causing fluctuation in the price of the securities by engaging in fraudulent and unfair trade practices. Such dealing in the company’s shares by the Trusts may also raise regulatory concerns regarding compliance with SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 and SEBI (Prohibition of Insider Trading) Regulations, 1992.  

In order to curb this malpractices adopted by listed companies, it was ordered by SEBI that all Trust managing ESOS and ESPS of listed companies shall not acquire shares of the Company from the Secondary Market.

Accordingly all listed companies were mandated to comply with following:-

1. Comply by new clause 35C of the listed agreement of the stock exchanges: As per this clause, all the listed companies are required to align with the above circular latest by June 30, 2013. All listed companies shall now adopt Companies (Passing of the Resolution by Postal Ballot) Rules 2011 for the purpose of obtaining shareholder’s resolution.

2. Listed companies already having such ESOS and ESPS which are having shares acquired from the secondary market shall intimate the Stock Exchanges in 30 days of Jan 17, 2013 details of the schemes in the format prescribed.

3. all such listed companies under point no. 2 above shall also disseminate the said information under the above prescribed form on their websites

4. all such listed companies shall align any existing employee benefit schemes with SEBI (ESOS and ESPS) Guidelines on or before June 30, 2013
SEBI Circular dated May 13, 2013
In order to further clarify the doubts running in the market as to how to go about the above change SEBI issued another circular dated May 13, 2013. As per this circular following clarifications were given:-
1. Applicability: It applies to all companies holding, managing, or financing directly or indirectly ESOS or ESPS schemes through trusts or agencies.
2. Time of aligning all the existing ESOS and ESPS extended to December 31, 2013
3. Any further grants after Jan 17, 2013 shall strictly in accordance with the amended guidelines.
4. Trust can hold shares acquired from secondary market beyond December 31, 2013 if it aligns the existing ESOS and ESPS with the new guidelines.
5. Any employee benefit schemes which does not have an option of or purchase of shares can continue to hold beyond December 31, 2013, such secondary market shares after aligning the schemes  otherwise dispose of the such shares by December 31, 2013.
6. Additional disclosures in the prescribed format:-
details of benefits or shares already granted or issued under schemes not aligned.
30 June 2013

details of benefits or shares not yet granted or allotted under schemes not aligned
30 June 2013

details of benefits or shares granted or allotted in the period starting Jan 17, 2013 to Dec 31, 2013. Also annex details of quarter ended Mar 2013 and Jun 2013.
Jan 7, 2014.

Date: 19th August, 2013|Place: Mumbai| Author: Riddhi Ghelani ACS 23968.

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