{"id":154655,"date":"2024-10-16T00:16:12","date_gmt":"2024-10-16T00:16:12","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/10\/16\/stricter-regulatory-stance-now-esops-get-the-press-note-3-treatment\/"},"modified":"2024-10-16T00:16:12","modified_gmt":"2024-10-16T00:16:12","slug":"stricter-regulatory-stance-now-esops-get-the-press-note-3-treatment","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/10\/16\/stricter-regulatory-stance-now-esops-get-the-press-note-3-treatment\/","title":{"rendered":"Stricter regulatory stance: Now, Esops get the Press Note 3 treatment"},"content":{"rendered":"
\"Stricter<\/div>


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Mumbai: A grant of stock options<\/a> to persons located in China, Hong Kong and a few other countries is attracting the kind of scrutiny done for acquisition of shares by investors from such nations.<\/p>\n

In a move that reflects greater regulatory orthodoxy, the Reserve Bank of India<\/a> (RBI<\/a>) is learnt to have asked companies to take the government\u2019s approval for offering employees\u2019 stock option plans (Esops<\/a>) to staff based in countries sharing a land border with India.<\/p>\n

At least three companies that submitted Esop proposals for employees of overseas arms have received such instructions from banks, two persons aware of the development told ET.<\/p>\n

With this, the provisions of Press Note 3<\/a> (PN3) \u2014 which tightened the foreign direct investment (FDI) regulations in 2020 to curb any \u201copportunistic takeover\/acquisition of Indian companies\u201d amid plunging share prices during the pandemic \u2014 extends to grant of Esops to those located in bordering countries<\/a>. PN3 states that \u201can entity of a country, which shares land border with India, or where the beneficial owner of an investment into India is situated in, or is a citizen of, any such country, can invest only under the government route.\u201d <\/p>\n

Regulatory authorities probably fear that Esops can be used to sidestep PN3. For the purpose of PN3, India recognises Pakistan, Afghanistan, Nepal, Bhutan, China (including Hong Kong), Bangladesh and Myanmar as countries sharing land border with India.<\/p>\n


Some of the affected companies have drawn RBI\u2019s attention to the matter after their banks rejected the Esop forms \u2014 particularly because a grant of Esops does not immediately translate into ownership, and even upon exercise of the options, the resulting equity holdings are insignificant. An RBI spokesman did not comment on the matter.<\/p>\n

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\u201cPN3 cannot apply at the stage of \u2018grant\u2019 of Esops, except when Esops are granted to citizens of Pakistan and Bangladesh,\u201d said Harshal Bhuta, partner of chartered accountancy firm PR Bhuta & Co. \u201cAt the time of exercise of Esops, it is the \u2018beneficial ownership<\/a>\u2019 criteria that needs to be tested to determine whether the government approval<\/a> would be required in terms of PN3.\u201d<\/p>\n

Bhuta said, \u201cWhile this term has not been defined under PN3 or Rule 6(a) of RBI\u2019s non-debt instrument regulations, money laundering and corporate laws<\/a> such as PMLA and Companies Act, 2013, provide for a 10% equity ownership or control. <\/p>\n

threshold to identify \u2018beneficial owners.\u2019 Shares issued upon exercise of Esops would typically be below 10% and would not result in control. Thus, PN3 may not become applicable at this stage either.\u201d However, given the present regulatory position, a finance ministry clearance would be needed, irrespective of whether employees receiving Esops are NRIs seconded to overseas subsidiaries of Indian business groups, or foreign nationals working in such outfits.<\/p>\n

SEEKING RBI\u2019S VIEW<\/strong>
A large public sector bank, which has not processed the Esop suggestion of a corporate client, has sought RBI\u2019s views on the subject, said a person aware of the development.<\/p>\n

\u201cAs per RBI, if a prior government approval is required for foreign investment<\/a> in a company, then the same requirement applies to Esops too, even if they are not yet exercised,\u201d said Rutvik Sanghvi, partner with chartered accountancy firm Rashmin Sanghvi & Associates.<\/p>\n

\u201cWhile options may not be covered under the definition of \u2018equity instruments,\u2019 as per non-debt instrument rules, amendments made due to PN3 would equally apply to such options as if they were exercised. Any legal provision introduced, which requires security clearance from the government, should be looked at in substance, and not in form,\u201d he said.
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Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Mumbai: A grant of stock options to persons located in China, Hong Kong and a few other countries is attracting the kind of scrutiny done for acquisition of shares by investors from such nations. In a move that reflects greater regulatory orthodoxy, the Reserve Bank of India (RBI) is learnt to have asked companies to […]<\/p>\n","protected":false},"author":2,"featured_media":154656,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"tdm_status":"","tdm_grid_status":"","fifu_image_url":"https:\/\/img.etimg.com\/photo\/msid-42031747\/et-logo.jpg","fifu_image_alt":"","footnotes":""},"categories":[602],"tags":[46570,121427,121428,70875,33424,121426,3234,9914,121425,2126,12082,661,21946,15393,14780,7146],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/154655"}],"collection":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/comments?post=154655"}],"version-history":[{"count":1,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/154655\/revisions"}],"predecessor-version":[{"id":154657,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/154655\/revisions\/154657"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/media\/154656"}],"wp:attachment":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/media?parent=154655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/categories?post=154655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/tags?post=154655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}