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Applicability

These Regulations as per Chapter III, IV, V, VI shall be applicable to:

• Listed entity seeking to issue ESOS( Employee Stock Option Scheme)
• Listed entity seeking to issue SAR Scheme
• Listed entity seeking to implement GEBS(General Employee Benefit Scheme)
• Listed entity seeking to implement RBS(Retirement Benefit Scheme)
• Listed entity issuing Sweat Equity Shares
• Listed entity seeking to issue ESPS( Employee Stock Purchase Scheme)

Compliance Requirements under the Regulation

1. Administration and implementation of ESOS (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 16)

An ESOS(Employee Stock Option Scheme) shall contain the details of the manner in which the scheme will be implemented and operated. No ESOS shall be offered unless the disclosures, as specified in Part G of Schedule – I of these regulations, are made by the company to the prospective option grantees

2. Pricing of ESOS (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 17)

The company granting options to its employees pursuant to an ESOS shall be free to determine the exercise price subject to conforming to the accounting policies specified in regulation 15 of these regulations.

3. Vesting period of ESOS (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 18)

There shall be a minimum vesting period of one year in case of ESOS.

a) If options are granted under an ESOS by a company to replace options held by an employee in a merged, demerged, or amalgamated company, the period the employee held the original options will count towards the minimum vesting period under this sub-regulation.

b) Also in the event of an employee’s death or permanent incapacity, the minimum vesting period of one year does not apply, and the options will vest immediately in accordance with sub-regulation (4) of regulation 9.

c) The company implementing an ESOS shall frame an appropriate policy with respect to the death or permanent incapacity of an employee, subject to compliance with applicable laws

d) The company may specify the lock-in period for the shares issued pursuant to exercise of an option.

    4. Cases where employee fails to exercise option under ESOS (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 20)

The amount paid by the employee at the time of grant, vesting, or exercise of the option:

a) May be forfeited if the employee does not exercise the option within the exercise period, or

b) May be refunded if the options are not vested due to non-fulfilment of vesting conditions under the ESOS.

    5. Administration and implementation of ESPS (SEBI(Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 21)

An ESPS (Employee Stock Purchase Scheme) shall contain the details of the manner in which the scheme will be implemented and operated.

ESPS means Employee Stock Purchase Scheme

6. Pricing and lock-in of ESPS (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 22)

a) A company may determine the price of shares to be issued under an ESPS, subject to conforming to the accounting policies specified under regulation 15 of these regulations.

b) Shares issued under an ESPS shall be locked-in for a minimum period of one year from the date of allotment

c) Provided that in case where shares are allotted by a company under an ESPS in lieu of shares acquired by the employee under an ESPS in another company which has merged or amalgamated with the first mentioned company, the lock-in period already undergone in respect of shares of the transferor company shall be adjusted against the lock-in period required under this sub-regulation.

d) Provided further that in the event of death or permanent incapacity of an employee, the requirement of lock-in shall not be applicable from the date of death or permanent incapacity.

e) If ESPS is part of a public issue and the shares are issued to employees at the same price as in the public issue, the shares issued to employees pursuant to ESPS shall not be subject to any lock-in

   7. Administration and implementation of SAR Scheme (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 23)

(1) The SAR (Share Appreciation Rights) scheme shall outline how it will be implemented and operated.

(2) A company may implement a cash-settled or equity-settled SAR scheme, subject to these regulations. In the case of equity-settled SARs, fractional shares must be settled in cash.

No SAR shall be offered under any SAR scheme unless the disclosures, as specified in Part G of Schedule – I of these regulations, are made by the company to the prospective SAR grantees.

8. Vesting of SAR Scheme (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 24)

There shall be a minimum vesting period of one year in case of SAR scheme

a) If SAR are granted under a SAR Scheme by a company to replace SAR held by an employee in a merged, demerged, or amalgamated company, the period the employee held the original SAR will count towards the minimum vesting period under this sub-regulation.

b) Also in the event of an employee’s death or permanent incapacity, the minimum vesting period of one year does not apply, and the option will vest on death or permanent incapacity

c) The company implementing a SAR Scheme shall frame an appropriate policy with respect to the death or permanent incapacity of an employee, subject to compliance with applicable laws

     9. Rights of a SAR Holder (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 25)

The employee holding a SAR shall not have the right to receive dividend or to vote or in any manner enjoy the benefits available to a shareholder in respect of a SAR granted to him/her.

10. Administration and implementation of GEBS (General Employee Benefit Scheme) (SEBI(Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 26)

GEBS (General Employee Benefit Scheme) shall contain the details of the scheme and the manner in which the scheme shall be implemented and operated.

(a) 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.

(b) The secretarial auditor of the company shall certify compliance with aforesaid regulation at the time of adoption of such balance sheet by the company.

11. Administration and implementation of RBS (Retirement Benefit Scheme) (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 27)

(1) A company may implement a retirement benefit scheme, subject to compliance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 and other applicable laws in relation to retirement benefits

(2) The scheme must outline the benefits and how it will be implemented and operated

(i) 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.

(ii) The secretarial auditor of the company shall certify compliance with aforesaid at the time of adoption of such balance sheet by the company.

12. Issue of sweat equity shares to employees (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 30)

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.

13. Maximum quantum of sweat equity shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 31)

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

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.

14. Special resolution required for issue of sweat equity shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 32)

Special resolution is required to be passed u/s 54(1) (a) of the Companies Act, 2013 for issue of sweat equity shares. Explanatory statement to be annexed to notice for general meeting pursuant u/s 102 of Companies Act, 2013 shall contain disclosures as specified in Schedule – II of these regulations

i) 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. For passing such a resolution, voting through postal ballot and/or e-voting as specified under Companies (Management and Administration) Rules, 2014 shall also be adopted

ii) Each issue of sweat equity shares shall be voted by a separate resolution.

iii) 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.

15. Pricing of Sweat Equity Shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 33)

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 Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

16. Valuation of know how or IPR or value addition (SEBI(Share Based Employee Benefits and Sweat Equity) Regulations, 2021; SEBI(Share Based Employee Benefits and Sweat Equity) (Second Amendment) Regulations, 2025 – Regulation 34)

The valuation of the know-how or intellectual property rights or value addition shall be carried out by an independent registered valuer. The valuation of the know-how or intellectual property rights or value addition shall be carried out by an independent registered valuer.

Provided that a merchant banker shall complete the ongoing valuation assignment which has been undertaken prior to the coming into force of the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) (Amendment) Regulations, 2025 within a period of nine months from the date of coming into force of the said regulations

17. Accounting treatment of Sweat Equity Shares (SEBI(Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 35)

When sweat equity shares are issued for non-cash consideration, it shall be treated in company’s books as follows:

a) If consideration is a depreciable/amortizable asset, it will be recorded in balance sheet as per app. accounting standards

b) Else, it will be expensed as per app. accounting standards

   18. Auditor’s Certificate to be placed before AGM (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 36)

In the general meeting subsequent to the issue of sweat equity shares, the Board of Directors shall place before the shareholders, a certificate from the secretarial auditor of the company that the issue of sweat equity shares has been made in accordance with these regulations and in accordance with the resolution passed by the company authorizing the issue of such sweat equity shares.

19. Sweat equity shares to be treated as a part of managerial remuneration. (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 37)

Sweat equity shares issued will be considered part of managerial remuneration u/s196, 197 &other provisions of Companies Act 2013 if they are issued to director/manager and are issued for non-cash consideration that cannot be recorded as an asset in company’s balance sheet as per accounting standards

20. Lock-in of sweat equity shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 38)

The sweat equity shares shall be locked in for such period of time as specified in relation to a preferential issue under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended from time to time.

The provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosures Requirements) Regulations, 2018 in respect of public issue in terms of lock in and computation of promoters’ contribution shall apply if a company makes a public issue after it has issued sweat equity shares

21. Listing of sweat equity shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 39)

The sweat equity shares issued by a listed company shall be eligible for listing subject to their issuance being in accordance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

22. Acquisition of sweat equity shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 40)

Any acquisition of sweat equity shares shall be subject to the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

23. Obligations of the entity issuing sweat equity shares (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 41(a),(b)’)

Company shall ensure that –

a) Exp.statement to notice for general meeting contains disclosures under Section 54(1)(b) of Companies Act, 2013 and Regulation 32(1)of these regulations

b)secretarial auditor’s certificate required under regulation 36 is placed in the general meeting of the shareholders

24. Statement containing details of sweat equity shares to be sent to Stock Exchange (SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 – Regulation 41(c ))

The company shall within seven days of the issue of sweat equity shares, send 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

Penalty & Punishment

• U/s 15A(b) of SEBI Act 1992:Penalty for failure to furnish information, return, etc. – If any person, who is required under this Act or any rules or regulations made thereunder to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents], he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees
• Section 15HB of SEBI Act, 1992: Penalty for contravention where no separate penalty has been provided:-Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees