Nov 23, 2013

SEBI’s Re-assess the Role of Employee Welfare Trusts

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SEBI’s Re-assess the Role of Employee Welfare Trusts

With the intent to align the working of Employee Welfare Trusts in Listed Companies with the internationally accepted practice on one hand and to ensure transparency in the operations of the said Trusts on the other, SEBI has reconsidered the proposal of allowing secondary market acquisitions by Trusts.

In January 2013, the Capital Market Regulator, SEBI had debarred the Employee Welfare Trusts to purchase and sell the shares in the Secondary market under the cloak of the ESOP Schemeas these Trusts were being used as portfolio managers for the Promoters with the sole objective to inflate, depress, maintain or fluctuate the price of their own shares by engaging in fraudulent and unfair trade practices

However, the market regulator has finally been swayed with the representations received from corporate houses, trustee firms etc. and accordingly, drifted a discussion paper for public comments with the primary objective of framing a comprehensive set of regulations not only governing the working of employee welfare trusts dealing in secondary market acquisitions but also bringing all types of Employee Welfare Trusts under the ambit of said regulations.

Main highlights of the discussion paper are outlined as follows:

  • Augmenting dictatorial base thereby bringing all employee benefit schemes other than schemes which does not involve shares of the company under the ambit of Regulatory framework;

  • Broadening horizons for rewarding Employees without resulting in dilution of existing capital base of the Listed entities;

  • Mandatory Shareholders’ approval in cases where acquisition of shares is from secondary market;

  • Provisions for putting upper cap on the secondary market acquisition under varied Employee Welfare Schemes;

  • Provisions relating to gifting of shares by Promoters or any other person to Trusts;

  • Minimum holding period of 6 months is recommended for shares acquired through secondary market;

  • Trusts can participate in exits options available to shareholders like Buy-back and Open Offers;

  • Shares held by the Trust will not be considered as a part of public float;

  • If promoters hold 75% shareholding then the trust is not eligible to buy shares from the secondary market;

  • Corporates will get 2-year transition period to migrate to new Regulation;

Considering the importance and impact of Employee Welfare Schemes on the public at large, SEBI has invited inputs and suggestions from the Public in the prescribed format.

Accordingly, you can mail your valuable suggestions on or before 5th December, 2013 at

CP Viewpoint:

In our view, SEBIs initiative is surely considered as a welcoming step that aims at streamlining the regulatory framework with the dynamic business environment thereby ensuring transparency in the operations of the Employee Welfare Trusts on one hand and bringing all Welfare Schemes involving Shares of the Listed Entities under the dictatorial roof.

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