Extension of Date for Implementation of Modified ESOP Rules

Earlier
this year, SEBI had announced
the implementation of amended rules for the issue of employee stock options
(ESOPs), which restricted the types of schemes to only those that comply with SEBI
(Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,
1999. Particularly, curbs were imposed on the acquisition of shares in the
secondary markets by ESOP trusts. The rationale for these measures was previously
discussed
on this Blog. These measures were to take effect on June 30, 2013
by which time companies were required to ensure compliance of their ESOP
programmes with these requirements.
SEBI has
now extended
the implementation of these new requirements until December 31, 2013, primarily
due to representations received from industry participants. By then, the ESOP
schemes of companies must be brought in line with these rules. Failing this,
the securities acquired by the ESOP trusts must be divested by that date. It
has also been clarified that this revised set of guidelines is applicable to
all employee benefit schemes involving the securities of the company provided
that the schemes are set up, managed or financed by the company directly or
indirectly if any of the following conditions are satisfied:
a)  if the company has
set up the scheme or the trust/agency managing the 
scheme; or
b)  if the company has
direct or indirect control over the affairs of the scheme 
or the trust/agency
managing the scheme; or
c)  if the company has
extended any direct or indirect financial assistance to 
the employee benefit
schemes or the trust/agency managing such schemes.

In other words, the
stringency of these guidelines operates when there is a close nexus between the
company and the trust, but not if the trust is set up and managed truly
independently. The recent circular also sets out disclosure requirements
regarding the operation of the ESOP schemes.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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