A PRIVATE COMPANY CANNOT ALLOT ESOPS IN EXCESS OF WHAT IS APPROVED BY THE BOARD, AND THERE MUST BE A MINIMUM GAP OF 1 (ONE) YEAR BETWEEN THE GRANT OF ESOPS AND THEIR VESTING. ROC GUJARAT Vs KRAZZY FIN PRIVATE LIMITED.

 A PRIVATE COMPANY CANNOT ALLOT ESOPS IN EXCESS OF WHAT IS APPROVED BY THE BOARD, AND THERE MUST BE A MINIMUM GAP OF 1 (ONE) YEAR BETWEEN THE GRANT OF ESOPS AND THEIR VESTING.

ROC GUJARAT Vs  KRAZZY FIN PRIVATE LIMITED.

KEY COMPLIANCE POINTS FOR ESOPS IN PRIVATE COMPANIES

BOARD APPROVAL:	ESOPs must be approved by the Board of Directors. Any allotment beyond the approved limit is invalid.
SHAREHOLDERS’ APPROVAL:	ESOP schemes also require approval by shareholders through a special resolution.
MINIMUM VESTING PERIOD:	As per Rule 12(6)(a) of the Companies (Share Capital and Debentures) Rules, 2014, there must be at least one year between the grant of options and their vesting.
NO IMMEDIATE ALLOTMENT:	ESOPs are not shares at the time of grant; they only become exercisable after vesting.
RESTRICTIONS ON TRANSFER	ESOPs granted to employees are not transferable, pledged, or hypothecated

FACTS OF THE CASE

IN MATTER OF M/S. KRAZZY FIN PRIVATE LIMITED.

➡️Company comes up ESOP Scheme name (KFPL ESOP 2021) for issue 1379 equity Shares of company during 2021-22 on 03.09.2021. and approved the 500 equity shares (ESOP) Rs.10/- under ESOP scheme to Abhishek Kandoi.

➡️Further, on 13.09.2022, Company again approved the allotment of 1,095 ESOP equity shares, comprising 200 shares to Abhishek Kandoi and 895 shares to Divyansh Mathur.

➡️Accordingly, after allotting a total of 700 shares to Abhishek Kandoi, only 679 shares remained available under the scheme. However, 895 shares were allotted to Divyansh Mathur, resulting in an excess allotment of 216 shares (895- 679 = 216).

➡️As per rule, private company cannot allot ESOPs in excess of what is approved by the Board, and there must be a minimum gap of 1 (one) year between the grant of ESOPs and their vesting. But the Company failed to comply with these requirements.

Rs 1.75  LAC PENALTY LEVIED

➡️As a result, ROC Gujarat imposed a penalty of ₹1 lakh on the Company and ₹25,000 each on its three Directors.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,