ESOPs BY FOREIGN HOLDING TO THE EMPLOYEES OF ITS INDIAN SUBSIDIARY

List of Prescribed Compliances- Under FEMA and Companies Act, 2013

A) Compliances Under FEMA:

In compliance of Master Circular on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad (Master Circular No. 11/2015-16)

Section (C): Other Investments in Foreign Securities

C.1 (d): General permission has been granted to a person resident in India who is an individual –

1. To purchase equity shares offered by a foreign company under its ESOP Schemes,
   1. If he is an employee, or, a director of an Indian office or branch of a foreign company, or, of a subsidiary in India of a foreign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/SPV irrespective of the percentage of the direct or indirect equity stake in the Indian company.
   2. AD Category – I banks permitted to allow remittances for purchase of shares by eligible persons under this provision irrespective of method of  operationalisation of the scheme, i.e. where the shares under the scheme are offered directly by the issuing company or indirectly through a trust / a Special Purpose Vehicle (SPV) / step down subsidiary, provided
      1. The shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and 
      2. An Annual Return (Annex B) is submitted by the Indian company to RBI through AD Category – I bank giving details of remittances / beneficiaries, etc. 
2. A person resident in India may transfer by way of sale the shares acquired,
   1. Provided that the proceeds thereof are repatriated immediately on receipt thereof and
   2. In any case not later than 90 days from the date of sale of such securities.
3. Foreign companies are permitted to repurchase the shares issued to residents in India under any ESOP Scheme provided
   1. The shares were issued in accordance with the Rules / Regulations framed under Foreign Exchange Management Act, 1999,
   2. The shares are being repurchased in terms of the initial offer document, and
   3. An annual return (in Annex. C) to be submitted through the AD Category – I bank giving details of remittances / beneficiaries, etc.

B) Compliances Under Companies Act, 2013:

Register of Directors and KMP with their Shareholding is to be maintained by every Company. (Section 170)

In compliance of Section 170 of Companies Act, 2013 & Rule 17 of Companies (Appointment and Qualifications of Directors) Rule, 2014, Register of Directors and KMP with their Shareholding is to be maintained by every Company.

According to which, the details of securities held by Directors and KMPs in the Company or its holding, subsidiary, subsidiary of company’s holding company or associate companies shall be disclosed/filled in with said Register.

Compliances Required:

1. In case ESOP issued by Holding company to the employees of subsidiary: Annual Return (in Annex B) to RBI through AD.
2. In case, shares repurchased by Holding company, issued to residents in India under any ESOP Scheme provided: Annual Return (in Annex B) to RBI through AD.
3. Details of said ESOP shareholding, issued to Directors/KMPs: entries with Register of Directors and KMP to be maintained.

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ACS Shelly Sharma

An Associate Member of Institute of Company Secretary of India (ICSI) having a rich experience of more than 3 years of Corporate Law Compliances, Due Diligence, FDI , ECB compliances and representing before RBI. Currently engaged as Manager-Regulatory with RSJ Professionals Private Limited for managing regulatory compliances of its clients through Lexcomply.