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No. LAD-NRO/GN/2014-15/16/1729 - In exercise of the powers conferred by section 11, section 11A , section 30 of the Securities and Exchange Board of India Act, 1992 read with section 62 of Companies Act, 2013 and rule 12 of Companies (Share Capital and Debentures) Rules, 2014, the Securities and Exchange Board of India has, on 28-10-2014 notified Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 to provide for regulation of 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 scheme shall come into force on the date of their publication in the Official Gazette.

The important features of the scheme are as under

Schemes Covered
These regulations cover the following:

(i)       Employee stock option schemes (ESOS)

ESOS means a scheme under which a company grants employee stock option directly or through a trust;  

(ii)      Employee stock purchase schemes (ESPSI)

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

(iii)     Stock appreciation rights schemes (SAR);

SAR scheme‖ means a scheme under which a company grants SAR to employees;

(iv)     General employee benefits schemes (GEBSI); and

GEBSI 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;

(v)      Retirement benefit schemes (RBSI)

RBSI 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;

Companies Covered
The provisions of these regulations shall apply to any company whose shares are listed on a recognised stock exchange in India, and has a scheme:

(i)       for direct or indirect benefit of employees; and

(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.

Schemes Implementation to be directly or through Trust
A company may implement schemes either
(a) directly or
(b) by setting up a single or more irrevocable trust(s)

If the scheme involves secondary acquisition or gift or both, then it is mandatory for the company to implement such scheme(s) through a trust(s). SEBI may specify the minimum provisions to be included in the trust deed under which the trust is formed, and such trust deed and any modifications thereto shall be mandatorily filed with the stock exchange in India where the shares of the company are listed. The trust shall be required to make disclosures and comply with the other requirements applicable to insiders or promoters under the SEBI (Prohibition of Insider Trading) Regulations, 1992 or any modification or re-enactment thereto.

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

Compensation Committee
A company shall constitute a compensation committee for administration and superintendence of the schemes. Where the scheme is being implemented through a trust the compensation committee shall delegate the administration of such scheme(s) to the trust. The compensation committee shall be a committee of such members of the board of directors of the company as provided under section 178 of the Companies Act, 2013. The committee shall frame suitable policies and procedures to ensure that there is no violation of securities laws, including those related to Insider Trading, Fraudulent and Unfair Trade Practices by the trust, the company and its employees, as applicable.

Shareholders Approval
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

Variation of terms of the Schemes
The company may by special resolution in a general meeting vary the terms of the schemes offered pursuant to an earlier resolution of the general body but not yet exercised by the employee provided such variation is not prejudicial to the interests of the employees except to meet any regulatory requirements.

Winding up of the Scheme
In case of winding up of the schemes being implemented by a company through trust, 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 as recommended by the compensation committee.

Non-transferability
Option, SAR or any other benefit granted to an employee under the regulations shall not be transferable to any person. In the event of death of the employee while in employment, all the options, SAR or any other benefit granted to him under a scheme till such date shall vest in the legal heirs or nominees of the deceased employee.

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