[PUBLISHED
IN THE GAZETTE OF INDIA EXTRAORDINARY PART II, SECTION 3, SUB-SECTION (i)]
MINISTRY OF
FINANCE
(DEPARTMENT OF
COMPANY AFFAIRS)
New Delhi, the 4th December, 2003
G.S.R.923(E). -
In exercise of the powers conferred by proviso to sub-section (1) of section 79A
of the Companies Act, 1956 (1 of 1956) read with sub-section (1) of section 642
of the said Act, the Central Government hereby makes the following rules, namely
:-
1.
Short title and commencement.-
(1) These Rules may be called the Unlisted
Companies (Issue of Sweat Equity Shares) Rules, 2003.
(2) They
shall come into force on the date of their publication in the Official
Gazette.
2.
Definitions.-
In these rules,
unless otherwise defined,-
(i) "Asset" means a resource
controlled by the company and from which future economic benefits are expected
to flow to the company;
(ii)
"employee"
means :-
a)
a permanent employee of the
company working in India or out of India; or
b) a director of the company, employed as a whole time
director or executive director of a company;
(iii) "intangible Asset" means an identifiable
non-monetary asset, without physical substance, held for use in the production
or supply of goods or services, for rental to others, or for administrative
purposes;
(iv) "share price" means price of a share on a
given date arrived on the net worth basis;
(v) "value addition" means anticipated
economic benefits derived by the enterprise from expert and/or professional for
providing know-how or making available rights in the nature of intellectual
property rights, by such person to whom sweat equity is issued for which the
consideration is not paid or included in -
(a)
the normal
remuneration payable under the contract of employment, in the case of an
employee and/or
(b) monetary consideration payable
under any other contract, in the case of non-employee.
3.
Applicability.-
These Rules
shall be applicable to issue of sweat equity shares by all unlisted companies.
4.
Special resolution.-
(1) For the purpose of passing a
special resolution under clause (a) of sub-section (1) of section 79A of the
Companies Act, 1956 (1 of 1956), the explanatory statement to be annexed to the
notice for the general meeting pursuant to section 173 of the said Act shall
contain particulars as specified below.
(i)
the date of the meeting at which the proposal for issue of sweat equity
shares was approved by the Board of Directors of the
company;
(ii) the reasons/justification for the
issue;
(iii) the
number of shares, consideration for such shares and the class or classes of
persons to whom such equity shares are to be issued;
(iv) the
value of the sweat equity shares alongwith valuation report/ basis of valuation
and the price at the which the sweat equity shares will be
issued;
(v)
the names of
persons to whom the equity will be issued and the person's relationship with the
company;
(vi)
ceiling on
managerial remuneration, if any, which will be affected by issuance of such
equity;
(vii)
a statement to
the effect that the company shall conform to the accounting policies specified
by the Central Government; and
(viii)
diluted earning
per share pursuant to the issue of securities to be calculated in accordance
with the Accounting Standards specified by the Institute of Chartered
Accountants of India.
(2)
Approval of shareholders by way of separate resolution in the general
meeting shall be obtained by the company in case of grant of shares to
identified employees and promoters, during any one year, equal to or exceeding
1% of the issued capital (excluding outstanding warrants and conversion) of the
company at the time of grant of the sweat equity shares.
5.
Register of shares.-
The company
shall maintain a Register of Sweat Equity Shares issued under section 79A in the
Form specified in Schedule annexed to these rules.
6.
Restriction on issue of sweat equity shares.-
The company
shall not issue sweat equity shares for more than 15% of total paid up equity
share capital in a year or shares of the value of 5 crores of rupees, whichever
is higher except with the prior approval of the Central
Government.
7.
Disclosure in the Directors' Report.-
The Board of Directors, shall, inter alia, disclose either
in the Directors' Report or in the annexure to the Director's Report, the
following details of issue of sweat equity shares :-
(a)
Number of shares to be issued to the employees or the
directors;
(b)
conditions for issue of sweat equity shares;
(c) the
pricing formula;
(d) the total
number of shares arising as a result of issue of sweat equity
shares;
(e)
money
realised or benefit accrued to the company from the
issue of sweat equity shares;
(f) diluted Earnings
Per Share (EPS) pursuant to issuance of sweat
equity shares.
8.
Pricing of Sweat Equity Shares.-
The price of
sweat equity shares to be issued to employees and directors shall be at a fair
price calculated by an independent valuer.
9. Issue of Sweat Equity Shares
for consideration other than cash.-
Where a company
proposes to issue sweat equity shares for consideration other than cash, it
shall comply with following :
(a) The valuation of the intellectual
property or of the know-how provided or other value addition to consideration at
which sweat equity capital is issued, shall be carried out by a
valuer;
(b) the valuer shall consult such
experts, as he may deem fit, having regard to the nature of the industry and the
nature of the property or the value addition;
(c) the valuer shall submit a valuation
report to the company giving justification for the
valuation;
(d) a copy of the valuation report of
the valuer shall be sent to the shareholders with the notice of the general
meeting;
(e)
the company
shall give justification for issue of sweat equity shares for consideration
other than cash, which shall form part of the notice sent for the general
meeting; and
(f) the amount of
Sweat Equity shares issued shall be treated as part of managerial remuneration
for the purposes of sections 198, 309, 310, 311 and 387 of the Companies Act,
1956 if the following conditions are fulfilled:
(i)
the Sweat Equity
shares are issued to any director or manager; and,
(ii)
they are issued
for non-cash consideration, which does not take the form of an asset which can
be carried to the balance sheet of
the company in accordance with the relevant accounting
standards.
10. Lock-in of
sweat equity shares.-
Sweat equity
shares issued to employees or directors shall be locked in for a period of three
years from the date of allotment.
11. Certificate
from auditors.-
In the case of
every company that has allotted shares under these Rules, the Board of Directors
shall at each annual general meeting place before the shareholders a certificate
from the auditors of the company/ practising company secretary that sweat equity
shares have been allotted in accordance with the resolution of the company in
the general meeting and these Rules.
12. Accounting
policies.-
(1) Where the
sweat equity shares are issued for a non-cash consideration, such non-cash
consideration shall be treated in the following manner in the books of account
of the company:
(a)
where the non-cash
consideration takes the form of a depreciable or amortizable asset, it shall be
carried to the balance sheet of the company in accordance with the relevant
accounting standards; or
(b)
where clause
(a) is not applicable, it shall be expensed as provided in the relevant
accounting standards.
(2) In respect of sweat equity shares
issued during accounting period, the accounting value of sweat equity shares
shall be treated as another form of compensation to the employee or the director
in the financial statement of the company.
SCHEDULE
REGISTER OF
SWEAT EQUITY SHARES
(Pursuant to
Rule 5)
The register of
sweat equity shares issued by the company to be kept in the following
format:
|
S.No. |
Folio No.
/ certificate No. |
Date of
passing of resolution |
Date of
issue of sweat equity shares |
|
1 |
2 |
3 |
4 |
|
Name of
the allottee |
Status of
the allottee - whether director or employee |
Reference
to entry in register of members |
Number of
sweat equity shares issued |
|
5 |
6 |
7 |
8 |
|
Face
value of the share |
Price at
which shares issued |
Total
consideration paid by employee/director |
Lock in
period till which date |
|
9 |
10 |
11 |
12 |
Rajiv Mehrishi,
Jt. Secretary