FEMA requires observation of its provisions in letter and spirit and if any contravention may land in penalties on the erring company and individuals. There are various conditions and stipulations in case of FDI , ODI , investment by individuals in foreign shares , purchase of assets in foreign countries , extending guarantees , availing ECBs , supplier's credit . In this column , I will discuss all intricacies and complications involving the interpretation of FEMA Act provisions in detail.
Saturday, September 12, 2015
Issue or Transfer of Security by a Person Resident outside India) Regulations, 2000 - New Amendments
Issue or Transfer of Security by a Person
Resident outside India) Regulations, 2000
Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) (Fourth Amendment) Regulations,
In Regulation 2:
a. after clause (iie), the following new clause shall be added, namely:-
‘(iif) “employees’ stock option” means the option given to the
directors, officers or employees of a company or of its holding company or joint venture or wholly owned
overseas subsidiary/subsidiaries, if any, which gives such directors,
officers or employees, the benefit or right to purchase, or to subscribe for,
the shares of the company at
a future date at a pre-determined price;’
b. after clause (x), the following new clause shall be added, namely :-
“(xa) “sweat equity shares” means such equity shares as issued by a
company to its directors or employees at a discount or for consideration other than cash,
for providing their know-how
or making available rights in the nature of intellectual property rights or
value additions, by whatever name called;”
For the existing Regulation 8, the following shall be substituted, namely:
“(1) An Indian
company may issue “employees’ stock option” and/or “sweat equity shares” to its
employees/directors or employees/directors of its holding company or joint
venture or wholly owned overseas subsidiary/subsidiaries who are resident
outside India, provided that :
has been drawn either in terms of regulations issued under the Securities Exchange Board of
India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014
notified by the Central Government under the Companies Act 2013, as the case may be.
“employee’s stock option”/sweat equity shares issued to non-resident employees/directors under the
applicable rules/regulations are in compliance with the sectoral cap applicable
to the said company.
“employee’s stock option”/sweat equity shares in a company where foreign
investment is under the approval
route shall require prior approval of the Foreign Investment Promotion Board
(FIPB) of Government of India.
“employee’s stock option”/sweat equity shares under the applicable rules/regulations
to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the
Foreign Investment Promotion Board (FIPB) of Government of India.
(2) The Reserve Bank may require the company
issuing “employees’ stock option” and/or “sweat equity shares” to submit such reports and at such
frequency as it may consider necessary.
Ref Notification No. FEMA.344/2015 RBI- Dated June
What Changes have been effected after Amendment?
vThrough 11 June 2015 Amendment, the definition
of “sweat equity and ESOP “have been inserted.
vApart from ESOPs,
an Indian Company now can issue Sweat Equity Shares to its directors /
employees are not resident in India or who are resident outside India.
non-resident employees and directors of holding company abroad can receive
options / shares issued by the Indian subsidiary.
vThe non-resident directors of Wholly owned
subsidy or joint venture can receive now ESOP / Sweat equity shares from Indian
unlisted companies can issue now ESOP shares within the definition of Companies
Act 2013 to its non-resident directors / employees.
amendment is silent about the mode of offer of ESOP or Sweat Equity either
through direct allotment or through a trust.
amendment has removed the threshold limit of 5% of the paid-up capital of
Indian company has to receive approval of FIPB if the issue of shares/options
under a scheme where company has to issue shares with the FIPB approval.
cap is applicable to the Issuing Company, then , the Company has to issue ESOP
/ Sweat equity within its sectoral gap limit.
Approval from FIPB is required if ESOP or Sweat Equity is issued to citizen of
Pakistan / Bangladesh.
company has to obtain a certificate from SEBI registered Merchant Banker or
Chartered Accountant as the case may be as to the manner of arriving at the
issue prices of the shares to the resident outside India.
Company has to report to RBI within 30 days of issue the details of the issue
in a newly prescribed form.