Share Based Employee Benefits and Sweat Equity

(a)In terms of the provisions of regulation 17(6)(d) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, independent directors are not entitled to any stock option. In the given case, Prikshit who is an independent director, is not entitled to receive the ESOPs.

(b)As per the definition of employees as provided under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, a non-executive director is eligible for ESOP but he should not be belonging to the promoters group. Further, any director who holds more than ten percent of the outstanding equity shares of the company is also not eligible for ESOP.

Hence, Parikshit is not an eligible employee under the regulations and therefore not eligible for ESOP.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(ii) (Syllabus 2017).

In terms of regulation 2(1)(i) of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 employee, except in relation to issue of sweat equity shares, means, -

(i)an employee as designated by the company, who is exclusively working in India or outside India; or

(ii)a director of the company, whether a whole time director or not, including a non-executive director who is not a promoter or member of the promoter group, but excluding an independent director; or

(iii)an employee as defined in sub-clauses (i) or (ii), of a group company including subsidiary or its associate company, in India or outside India, or of a holding 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.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(iv) (Syllabus 2017).

Regulation 3(9) of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 provides the manner of disclosing shares held by the Trust. It is prescribed that for the purpose of disclosures to the recognised stock exchange, the shareholding of the trust shall be shown as “non-promoter and non-public” shareholding. The shares held by the trust shall not form part of the public shareholding which needs to be maintained at a minimum of twenty five per cent as prescribed under the Securities Contracts (Regulation) Rules, 1957. Accordingly,

(i)Shares held by the Trust of Samrudhi Enterprises Ltd. are required to be shown as "non- promoter and non-public shareholding" while disclosing the shareholding pattern to the stock exchange.

(ii)Shares held by the Trust of Samrudhi Enterprises Ltd. shall not form part of the public shareholding which needs to be maintained at a minimum of 25% as prescribed under the Securities Contracts (Regulation) Rules, 1957.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2(d) (Syllabus 2017).

In accordance with Regulation 3(4) of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021:

(a)any person shall not be appointed as a trustee of the trust if such person, beneficially holds 10% or more of the paid-up share capital or the voting rights of the company. In the given case, Excellent Consultants Ltd. is holding 9%, which is less than 10% of the paid-up capital of the company. So, Excellent Consultants Ltd. can be appointed as a Trustee.

(b)any person shall not be appointed as trustee if he 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. Karnatak Bank Securities Ltd. has been one of the leading promoters of the Joe Pharma Ltd. and hence, cannot be appointed as Trustee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2A(iii) (Syllabus 2017).

As per the Regulation 9 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the option, stock appreciation right or SAR, or any other benefit granted to the employee shall not be pledged, hypothecated, mortgaged or otherwise alienated in any other manner.

In the given case, a listed company has granted 200 options under ESOP scheme to Mohan and he intends to mortgage the options with private moneylender to avail loan. In view of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the mortgage is not permissible for options granted by a listed company, hence the intention of Mohan is not valid in law.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(a) (Syllabus 2017).

Compliances and Conditions

As per SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021-

1.The company shall not make any fresh grant which involves allotment or transfer of shares to its employees under any schemes formulated prior to its IPO and prior to the listing of its equity shares ('pre-IPO scheme') unless:

However, the ratification under clause (ii) may be done at 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 stock exchanges where it proposes to list the said shares prior to the grant of options or SARs.

4.When holding company issues option, share, SAR or benefits to the employee of its subsidiary, the cost incurred by the holding company for issuing such option, share, SAR or benefits shall be disclosed in the 'notes to accounts' of the financial statements of the subsidiary company.

5.In a case when the holding company issues option, if the subsidiary reimburses the cost incurred by the holding company in granting option, share, SAR or benefits to the employees of the subsidiary, both the subsidiary as well as the holding company shall disclose the payment or receipt, as the case may be, in the 'notes to accounts' to their financial statements.

6.The company shall appoint a registered merchant banker for the implementation of schemes covered by these regulations till the stage of obtaining in-principle approval from the recognised stock exchanges in accordance with clause (b) of regulation 10 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(d) (Syllabus 2017).

Provisions relating to the General Employee Benefits Scheme (GEBS) in accordance with regulation 26 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 are as under:

(1)GEBS shall contain the details of the scheme and the manner in which the scheme shall be implemented and operated.

(2)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 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.

Provisions relating to the Retirement Benefit Scheme (RBS) in accordance with regulation 27 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 are as under:

(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.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 3(a) (Syllabus 2022).

As per Regulation 29 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the term ‘employee’ in relation to issue of sweat equity shares 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.

Further, Regulation 30 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 states that 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 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.

In light of the above-mentioned provisions, Sweat Equity Shares can be issued to any director, whether whole-time or not and there is no threshold for holding any equity shares of the company. Hence, Jeevan, who is a whole-time director and who holds 21% of the outstanding equity shares of Sanaya Ltd, is eligible for Sweat Equity Shares of Sanaya Ltd.

According to the Regulation 41 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the company, within seven days of the issue of sweat equity shares, sends a statement to the recognised stock exchange, disclosing:

(i)number of sweat equity shares issued;

(ii)price at which the sweat equity shares are issued;

(iii)total amount received towards sweat equity shares;

(iv)details of the persons to whom sweat equity shares have been issued; and

(v)the consequent changes in the capital structure and the shareholding pattern before and after the issue of sweat equity shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(b) (Syllabus 2022).

Issue of sweat equity shares to employees under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

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 and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 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. 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.

Maximum quantum of sweat equity shares under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

A company shall not issue sweat equity shares for more than fifteen percent of the existing paid-up equity share capital in a year. However, 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.

Further, a company listed on Innovators Growth Platform shall be permitted to issue not more than fifteen percent of the paid-up equity share capital in a financial year subject to overall limit not exceeding fifty percent of the paid-up equity share capital of the company, up to ten years from the date of its incorporation or registration.

Pricing of sweat equity shares under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

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 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(a) (Syllabus 2022).

As per regulation 31 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021, a company listed on Innovators Growth Platform shall be permitted to issue not more than 15% of the paid up equity share capital in a financial year subject to overall limit not exceeding 50% of the paid up equity share capital of the company, up to 10 years from the date of its incorporation or registration.

Therefore, under the given scenario:

a)Permissible limit for current year = 15% of its paid up equity share capital

= 15% of ₹ 500 crore

= ₹ 75 crore

b)Overall limit till date = 50% of its paid up equity share capital

= 50% of ₹ 500 crore

= ₹ 250 crore

The company in the past has already issued sweat equity shares of ₹ 35 crores and now planning to further issue sweat equity shares valued ₹ 50 crores. Total of both the issue, will comes to ₹ 85 crores.

Since, both these limits of current year i.e. ₹ 50 crore and overall i.e. ₹ 85 crore are well within the prescribed parameters. Therefore, the company is eligible to further issue sweat equity shares to the extent of ₹ 50 crores, as proposed by the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(i) (Syllabus 2022).

Section 54 of the Companies Act, 2013 inter alia prescribed that where the equity shares of the company are listed on a recognised stock exchange, the sweat equity shares are issued in accordance with the regulations made by the SEBI in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.

In the given case, PQR Ltd. is a pharmaceutical company, whose shares are listed on BSE. Therefore, the company is required to comply with the provisions of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

(a)Maximum quantum of sweat equity shares

In accordance with the regulations 31 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, a company shall not issue sweat equity shares for more than fifteen percent of the existing paid-up equity share capital in a year. However, 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.

Further, a company listed on Innovators Growth Platform shall be permitted to issue not more than fifteen percent of the paid-up equity share capital in a financial year subject to overall limit not exceeding fifty percent of the paid-up equity share capital of the company, up to ten years from the date of its incorporation or registration.

(b)Pricing of sweat equity shares

In accordance with the regulations 33 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, 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.

(c)Ceiling on managerial remuneration

In accordance with regulations 37 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, 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, if the following conditions are fulfilled:

(i)the sweat equity shares are issued to any director or manager; and

(ii)the sweat equity shares are issued for non-cash consideration, which does not take the form of an asset which can be carried to the balance sheet of the company in accordance with the relevant accounting standards.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(ii) (Syllabus 2022).

(i)As per Regulation 31 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, a company shall not issue sweat equity shares for more than fifteen percent of the existing paid up equity share capital in a year. However, 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.

In the given case, ABC Ltd has already issued 10% of sweat equity shares of Rs. 2 crore (Rs. 20 crore *10%=Rs. 2 crore). Now, the company cannot issue further 10% sweat equity shares as in a year 15% of paid up equity share capital is allowed for sweat equity shares.

(ii)As per Regulation 29 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, 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.

As the employee working outside India is also eligible for allotment of sweat equity shares, hence company can allot the same to the employee's working outside India, who has been deputed outside India for last three years.

(iii)The director of the company whether a whole time director or not, is eligible for sweat equity shares. Himanshu, who is a non-executive director is also eligible for allotment of sweat equity shares.

(iv)As per Regulation 33 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, 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. Therefore, the Company is not free to fix the price of sweat equity shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 4(b) (Syllabus 2017).

(i)According to Section 54 of the Companies Act, 2013 a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled:

a)The issue is authorized by a special resolution passed by the company in the general meeting.

b)The resolution specifies the number of shares, current market price, consideration if any and the class or classes of directors or employees to whom such equity shares are to be issued.

c)The sweat equity shares of a company whose equity shares are listed on a recognised stock exchange are issued in accordance with the regulations made by SEBI in this regard and if they are not listed, the sweat equity shares are to be issued in accordance with the rules as prescribed under Companies Act, 2013.

(ii)Yes, sweat equity shares can be issued to promoter's subject to following conditions:

a)Such issue shall be approved by simple majority of the shareholders in General Meeting.

b)Further, the promoters to whom such Sweat Equity Shares are proposed to be issued shall not participate in such resolution and separate resolution shall be passed for each transaction of issue of Sweat Equity.

c)Such resolution shall be valid for a period of not more than twelve months from the date of passing of the resolution. For the purposes of passing the resolution, the explanatory statement shall contain the disclosures as specified in the Schedule.

(iii)“Relevant date” for this purpose means the date which is thirty days prior to the date on which the meeting of the General Body of the shareholders is convened, in terms of clause (a) of sub section (1) of section 54 of the Companies Act, 2013.

(iv)The price of sweat equity shares shall not be less than the higher of the following:

•The average of the weekly high and low of the closing prices of the related equity shares during last six months preceding the relevant date.

OR

•The average of the weekly high and low of the closing prices of the related equity shares during the two weeks preceding the relevant date.

In the given question, the meeting of the general body of shareholders of Portable Marketing Limited was held on 27th March, 2020 and therefore, the relevant date is 26th February, 2020 (that is the date which is thirty days prior to the date on which the meeting of the General Body of the shareholders is convened). Thus, minimum price at which sweat equity shares are to be issued, will be higher of the following:

1.The average of the weekly high and low of closing price of equity shares of the company during six months preceding 26th February, 2020 = ₹550.

OR

2.The average of the weekly high and low of the closing prices of equity shares of the company during the two weeks preceding the 26th February, 2020 = ₹575. Thus, Minimum price for issue of sweat equity shares should be ₹575.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(a) (Syllabus 2017).

(i)As per Regulation 32 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the issue of sweat equity shares to employees who belong to promoter or promoter group shall be approved by way of a resolution passed by a simple majority of the shareholders in general meeting and the promoters/promoter group shall not participate in such resolution.

Hence in the given case, Ganesh being an employee belonging to the promoter’s group, cannot participate in the resolution.

(ii)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 and the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 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. A company shall not issue sweat equity shares for more than fifteen percent of the existing paid up equity share capital in a year. However, 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.

For the purposes of passing a special resolution under clause (a) of sub-section

(1)of section 54 of the Companies Act, 2013, the explanatory statement to be annexed to the notice for the general meeting pursuant to section 102 of the Companies Act, 2013 shall contain disclosures as specified in the Schedule – II of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. Each issue of sweat equity shares shall be voted by a separate resolution. 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.

(iii)As per Regulation 42 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, SEBI 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.

Any exemption granted by the SEBI as mentioned above shall be subject to the applicant satisfying such conditions as may be specified by the SEBI including conditions to be complied with on a continuous basis.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 1(d) (Syllabus 2017).

The SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 states that 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 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Section 164 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 deals with the pricing requirements stipulated for a preferential issue which is given as under:

In case of frequently traded shares:

Regulation 164(1) states that-

(1)if the equity shares of the issuer have been listed on a recognised stock exchange for a period of twenty six weeks or more as on the relevant date, the price of the equity shares to be allotted pursuant to the preferential issue shall be not less than higher of the following:

a.the average of the weekly high and low of the volume weighted average price of the related equity shares quoted on the recognised stock exchange during the twenty six weeks preceding the relevant date; or

b.the average of the weekly high and low of the volume weighted average prices of the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date.

(2)If the equity shares of the issuer have been listed on a recognised stock exchange for a period of less than twenty six weeks as on the relevant date, the price of the equity shares to be allotted pursuant to the preferential issue shall be not less than the higher of the following:

(a)the price at which equity shares were issued by the issuer in its initial public offer or the value per share arrived at in a scheme of compromise, arrangement and amalgamation under sections 391 to 394 of the Companies Act, 1956 or sections 230 to 234 of the Companies Act, 2013, as applicable, pursuant to which the equity shares of the issuer were listed, as the case may be; or

(b)the average of the weekly high and low of the volume weighted average prices of the related equity shares quoted on the recognised stock exchange during the period the equity shares have been listed preceding the relevant date; or

(c)the average of the weekly high and low of the volume weighted average prices of the related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date.

In case of infrequently traded shares:

The price determined by the issuer shall take into account the valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies. However, the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained from an independent valuer to the stock exchange where the equity shares of the issuer are listed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(c) (Syllabus 2017).

According to SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, “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.

A SAR settled by way of shares of the company shall be referred to as equity settled SAR.

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.

According to SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, Stock appreciation right (SAR) price means the base price defined on the grant date of SAR for the purpose of computing appreciation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 3(b) (Syllabus 2022).

According to the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, 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 managed by the company or any other company in its group.

Further the Regulation 2(1)(i) of the said Regulations defines “Employees” as follows:

“Employee”, except in relation to issue of sweat equity shares, means, —

(i)an employee as designated by the company, who is exclusively working in India or outside India; or

(ii)a director of the company, whether a whole time director or not, including a nonexecutive director who is not a promoter or member of the promoter group, but excluding an independent director; or

(iii)an employee as defined in sub-clauses (i) or (ii), of a group company including subsidiary or its associate company, in India or outside India, or of a holding 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;

The Regulation 2(1)(c) of the said Regulations defines “Associate Company” as follow:

“Associate Company” shall have the same meaning as defined under Section 2(6) of the Companies Act, 2013.

Further, as per Section 2(6) of the Companies Act, 2013, the term Associate Companies includes Joint Ventures. It is therefore noted that the provisions of the Regulations shall apply to those companies whose shares are listed on any recognised stock exchanges in India and has a scheme, which is set up, funded, or guaranteed and controlled or managed by the company or any other company in its group for direct or indirect benefit of the employees.

However in the given case of MineGame Group, the proposed scheme is being setup by MineGame Group and though the said scheme is for the benefit of the employees of joint venture but linked to the share of MineGame Group and not to listed company MineGame Ltd. Thus the said scheme does not come under the ambit of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 3(b) (Syllabus 2017).

Direct Route for ESOPs

1.Company forms a compensation committee and define the eligibility criteria of ESOPs.

2.Company issue fresh shares for ESOPs.

3.After vesting period employees can exercise the option.

4.On exercise of an option company issues the shares to the eligible employees.

Trust Route for ESOPs

1.Company forms an Employee Welfare Trust.

2.Company grants loan to the trust for subscribing shares.

3.Company issues fresh shares to the Trust and option to the Eligible Employees.

4.Employees exercise the options.

5.Trust transfers the Shares to the employee upon receipt of exercise price.

6.Trust repays the loan to the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(c) (Syllabus 2017).