Excluding Non-funded Employee Welfare Trusts out of the ambit of proposed ESOP Regulations is a boon or a bane?

The basic premise of regulations/guidelines governing stock related employee benefit schemes is to ensure that such schemes are carried out in a fair and transparent manner and they should not be prejudice to the interest of employees, investors and public at large. 

Ms. Mohini Varshney
Assistant Vice President
+919971673332
mohini@indiacp.com

With this backdrop, the capital market watchdog SEBI floated Discussion Paper on ‘Review of guidelines governing stock related employee benefit schemes’ thereby proposing to take in its ambit all the Employee Welfare schemes which are set up, managed or financed by the company directly or indirectly through the mechanism of a Trust and which deal in
actual securities of the company whether by way of purchase from/sale in the secondary market or grant of shares made by the company. The proposed regulations specifically intend to exclude trusts/schemes which are not funded by the company or not having any outstanding loan to the company and also not under the control/management of the company.

The above exclusion seems fair from the point of view that in the absence of any such control, there won’t be much possibility of misuse of such trusts/schemes.

Other ESOP articles:

• New Outlook for Employee Welfare Trusts Shareholding in the proposed ESOP & ESPS Regulations

• Should General Employee Benefit Scheme and Retirement Benefit Scheme be covered under the ambit of ESOP Regulations?

• Whether Employee Welfare Trusts acts as an Intermediary for Employees Welfare or a Portfolio Manager for the Promoters?

• Restriction on ESOP Trusts for Secondary Market Purchases