Amendments to SEBI (Employee Stock Option Scheme and Employee)

SEBI Circular Number: SEBI Circular No. CIR/CFD/DIL/7/2013 dated May 13, 2013

Ref: SEBI Circular No. CIR/CFD/DIL/3/2013 dated January 17, 2013

Applicability: 

i.     The circular No. CIR/CFD/DIL/3/2013 dated January 17, 2013 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. Thus, the circular shall be applicable 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.

Major Amendments:

1.   The amendment to Equity Listing Agreement through insertion of Clause 35 C mandated that all the employee benefit schemes involving the securities of the company shall be in compliance with SEBI (ESOS and ESPS) Guidelines, 1999 and any other guidelines, regulations etc. framed by SEBI in this regard. The said clause also required that all the employee benefit schemes already framed and implemented by the company involving dealing in the securities of the company, before the insertion of this clause shall be aligned with and made to conform to SEBI (ESOS and ESPS) Guidelines, 1999 by June 30, 2013.

2.      The amendment to SEBI (ESOS and ESPS) Guidelines 1999 also provided that no SOS/ESPS schemes shall involve acquisition of securities of the company from the secondary market.

For further information with regard to the circular pl follow the link: http://www.sebi.gov.in/sebiweb/

Law ministry does U-turn, agrees to conciliation in Vodafone tax case

In a turnaround from its earlier position, the law ministry has given a go-ahead to resolving the Rs 11,200 crore Vodafone tax dispute through conciliation. 

The ministry had rejected the conciliation proposal from the British telecom major to settle the long-pending dispute with Indian Income-Tax authorities. 

"We have agreed to talk. We will see if there is any possibility of an agreement," new Law Minister Kapil Sibal told The Indian Express referring to the Vodafone issue. 

Earlier, the ministry had rejected the proposal on the grounds that it is not permissible under the existing Income Tax Act, 1961, and executive decisions could not override the Act. In January, the finance ministry had sent a reminder notice to the telecom giant for payment of tax following which Vodafone proposed conciliation. 

The ministry had then sought the Attorney General's view on the matter. The AG was of the opinion that the government will have to first amend the I-T Act, providing for such conciliation, only after which it would be able to go in for such an exercise. 

However, since the finance ministry is already working on a new direct tax code, it put the ministry in a tough spot on whether to bring in substantial amendments in the existing act or wait for the new code to get implemented. 

But with a new law minister in place, finance ministry officials met Sibal on Sunday following which he agreed to seek a fresh opinion of the AG on Monday. The file was cleared Monday evening and sent to the finance ministry, a ministry official said. 

"In view of the clarifications received from the finance ministry earlier, the AG has opined that there is nothing to stop the finance ministry from opening a line of communication with the telecom company," the official added. 

See more at: http://www.indianexpress.com/news/law-ministry-does-uturn-agrees-to-conciliation-in-vodafone-tax-case/1115991/#sthash.XsaLOHML.dpuf

Is Fixed Deposit with Bank an Investment under the Companies Act 1956

Let’s analyse if fixed deposit with bank is considered to be an investment under the companies act 1956 or not in different phases:

Phase 1:

In the Companies Act, Section 292, states certain powers of the Board that is required to be exercised at the Board meeting only. On an in depth analysis of the same, we can say 

 The power to invest the funds of the company (Sec 292 (1)(d))

It is to be exercised only at the board meeting.

Phase 2:

Let us analyse if fixed deposit forms part of investment. Investment normally means:

-         laying out of money in such a manner that it would produce some revenue.

-         It can be said that mere deposit of money is not considered to be an investment and

-         It must be possible to earn an income for a reasonable length of time. (Hence purchase of property for some purpose other than the receipt of income is not an investment)

Conclusion:

On analyzing the above it can be said that placement of surplus of funds by a company in the fixed deposit with the banks to earn interest income thereon constitutes investment for the purpose of section 292(1)(d) of the Companies Act.

Board approval is required to be obtained in the Board meeting.

Sitting Fee [ Section 310 ]

MINISTRY OF FINANCE

(DEPARTMENT OF COMPANY AFFAIRS)

NOTIFICATION

New Delhi, the,  24^th    July, 2003

     G.S.R. 580(E) .-  In exercise of the powers conferred by sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following rules further to amend the Companies (Central Government's) General Rules and Forms, 1956, namely:-

1.               (1) These rules may be called the Companies (Central Government's) General Rules and Forms (Third Amendment) Rules, 2003.

(2) They shall come into force on the date of their publication in the Official Gazette.

2.           In Companies (Central Government's) General Rules and Forms, 1956, for rule 10-B, the following shall be substituted, namely :-

"10-B Section 310 - For the purposes of the first proviso to section 310, the amount of remuneration by way of fee for each meeting of the Board of directors or a committee thereof, shall be as under:

(a)	Companies with a paid-up share capital and free reserves of Rs.10 crore and above or turnover of Rs.50 crore and above	Sitting fees not to exceed the sum of twenty thousand rupees
(b)	Other companies	Sitting fees not to exceed the sum of ten thousand rupees

"

Directors or Relative holding Office or Place of Profit (Sec 314)

In a Nut shell lets us see Sec 314 of the Act read with Director’s Relative (Office or Place of Profit) Rules 2011:

Applicability: It applies to both Directors and Relative of Directors of any kind of companies

Gist of the Section:

Section	Remuneration Limit	Procedure involved
Sec 314	Upto Rs. 20,000	Prior Board Approval is sufficient
Sec 314 (1)	Rs. 20,000 – Rs. 50,000	Prior Board Approval and Share holders approval in the ensuing General Meeting
Sec 314 (2)	Rs, 50,000 – Rs, 2,50,000	Prior Board Approval and Share Holders Approval and the Increase in the limit would be valid subject to Central Government Approval
Sec 314 (2)	Above Rs. 2,50,000	Prior Board Approval, Share Holders Approval and Central Government Approval

Violation of the Section:

-         Sec 314 (1): The relative has to vacate the office in the ensuing General Meeting.

-         Sec 314 (2): He’ll further have to refund all the amount received as remuneration from the Company. and has to vacate the office immediately

Sweat Equity Shares:

Meaning: Sweat equity shares are equity shares issued by a company to its employees or directors at a discount, or as a consideration for providing know-how or a similar value to the company.

Procedure and conditions to be fulfilled to issue Sweat Equity Shares:

A company may issue sweat equity shares of a class of shares already issued if these conditions are met:

a.   The issue of sweat equity shares should be authorised by a special resolution passed by the company in a general meeting.

b.   The resolution should specify the number of shares, current market price, consideration, if any, and the section of directors /employees to whom they are to be issued.

c.    A separate resolution should be passed if the shares to be issued (during any one year, to identified employees and promotes) is equal to or exceeds 1% of the issued capital (excluding outstanding warrants and conversion) as stood on the day of grant of sweat equity shares

d.      The Explanatory Statement should include the following details:

                                                              i.      The date of the meeting;

                                                             ii.      Reasons/justification for the issue;

                                                         iii.    The number of shares, consideration for such shares and the class or classes of persons to whom such equity shares are to be issued;

                                   iv.    The value of the sweat equity shares along with valuation report/ basis of valuation and the price at the which the sweat equity shares will be issued;

                                  v.      The names of persons to whom the equity will be issued and the person's relationship with the company;

                                                         vi.    Ceiling on managerial remuneration, if any, which will be affected by issuance of such equity;

                                                     vii.      A statement to the effect that the company shall conform to the accounting policies specified by the Central Government; and

                                                viii.      Diluted earning per share pursuant to the issue of securities to be calculated in accordance with the Accounting Standards specified by the Institute of Chartered Accountants of India.

e.   As on the date of issue, a year should have elapsed since the company was entitled to commence business. 

Listed Company: on Recognized Stock Exchanges

a.    SEBI (Issue of Sweat Equity) Regulations, 2002 has to be followed to issue sweat equity shares.

Listed Company: on Unrecognized Stock Exchanges

a. Sweat equity shares can be issued in accordance with such guidelines as may be prescribed.

b.     SEBI also prescribes the accounting treatment of sweat equity shares. Thus, sweat equity is expensed, unless issued in consideration of a depreciable asset, in which case it is carried to the balance sheet.

Unlisted Company:

a.      Unlisted Companies (Issue of Sweat Equity) Rules, 2003 has to be followed

b.      Sweat equity shares cannot be issued before one year of commencement of operations.

c.     Unlisted companies cannot issue more than 15 percent of the paid-up capital in a year or shares with a value of more than Rs 5 crores - whichever is higher - except with the prior approval of the central government. If the sweat equity is being issued for consideration other than cash, an independent valuer has to carry out an assessment and submit a valuation report.

d.  The company should also give 'justification for the issue of sweat equity shares for consideration other than cash, which should form a part of the notice sent for the general meeting'.

e.   The board of directors' decision to issue sweat equity has to be approved by passing a special resolution at a shareholders' meeting later in the year. The special resolution must be passed by 75 percent of the members attending voting for it.

f.       Sweat equity shares are no different from employee stock options with a one year vesting period. It is essential when a company is formed, to assure the financial investors that the knowhow providers will stay on, or for a start-up with limited resources to attract highly-qualified professionals to join the team as long-term stakeholders.

g.    These shares are given to a company's employees on favourable terms, in recognition of their work. Sweat equity usually takes the form of giving options to employees to buy shares of the company, so they become part owners and participate in the profits, apart from earning salary.

h.  Section 79A of the Companies Act lays down conditions for the issue of sweat equity shares.

 

Lock in period:

 

The Sweat Equity Shares issued shall be locked in for a period of three years from the date of allotment.

Issue of Sweat Equity for a consideration other than Cash

If the sweat equity is issued for consideration other than cash, then company shall comply with following:

• The valuation of the intellectual property or of the know-how provided or other value addition to consideration at which sweat equity capital is issued, shall be carried out by a valuer;
• The valuer shall consult such experts, as he may deem fit, having regard to the nature of the industry and the nature of the property or the value addition;
• The valuer shall submit a valuation report to the company giving justification for the valuation;
• A copy of the valuation report of the valuer shall be sent to the shareholders with the notice of the general meeting;
• The company shall give justification for issue of sweat equity shares for consideration other than cash, which shall form part of the notice sent for the general meeting; and
• The amount of Sweat Equity shares issued shall be treated as part of managerial remuneration .

Placing of Auditors Report before the Annual General Meeting.

In the General meeting subsequent to the issue of sweat equity, the Board of Directors shall place before the shareholders, a certificate from the auditors of the company that the issue of sweat equity shares has been made in accordance with the Regulations and in accordance with the resolution passed by the company authorizing the issue of such Sweat Equity Shares.

 

Disclosure in Director's Report:

 

The Board of Directors, shall, inter alia, disclose either in the Directors' Report or in the annexure to the Director's Report. Disclosure to include number of shares to be issued, conditions for issue, pricing formula, the total number of shares arising as a result of issue, money realised or benefit accrued to the company, diluted Earnings per Share (EPS) pursuant to issuance of sweat equity shares.

Registers :

The company shall maintain a specified register

Compliance Certificate

 

A certificate of compliance (with the rules framed by the authorities) duly signed by the auditors or practising company secretary should be placed before the shareholders at the annual general meeting.