SEBI Informal Guidance in the Matter of Infosys Limited

On March 12, 2019, SEBI issued an informal guidance pursuant to certain questions raised by Infosys Limited in relation to SEBI (Share Based Employee Benefits) Regulations, 2014 (‘SBEB Regulations’) and the Buyback Regulations. Infosys had sought the following clarifications:

i.       Whether Infosys can issue stock options grant letters (‘Grant Letters’) for issuing stock options (‘ESOPs’) to eligible employees during the ‘buyback period’ in the context of Regulation 24(i)(b) of the Buyback Regulations;

ii.      If the equity shares are to be issued by the company, pursuant to exercise of ESOPs granted during the ‘buyback period’, whether the minimum vesting period of one year (as stated in Regulation 18(1) of the SBEB Regulations) is to be computed from the date of grant of such ESOPs or from the date being one year from the expiry of the ‘buyback period’; and

iii.     Further, with respect to equity shares to be transferred by the Infosys Employee Benefits Trust to the eligible employees pursuant to exercise of ESOPs granted during the ‘buyback period’ (there being no new equity shares issued by the Infosys upon exercise of such ESOPs), whether the minimum vesting period of one year is to be computed from the date of grant of such ESOPs.

The Buyback Regulations define ‘buyback period’ as the period between the date of board of directors resolution or date of declaration of results of the postal ballot for special resolution of shareholders (as the case may be) to authorize the buyback of shares and the date on which the payment of consideration to shareholders who have accepted the buyback offer is made. Regulation 24(i)(b) of the Buyback Regulations provides that a company must not issue any shares or other specified securities including by way of bonus till the date of expiry of ‘buyback period’. Specified securities under the Buyback Regulations also include ESOPs. Regulation 18(1) of the SBEB Regulations provides that the minimum vesting period for employee stock options will be one year.

With respect to the first query, SEBI noted that the company is not prohibited from issuing Grant Letters to the employees during the buyback period but the ESOPs would convert or vest only after expiry of the buyback period and subject to Regulation 18(1) of the SBEB Regulations (which provides that in case of ESOPs, there should be a minimum vesting period of one year). With respect to the second query, SEBI noted that the minimum vesting period of one year would be computed from the date of the Grant Letters. Further, with respect to the third query, SEBI noted that with respect to equity shares which are to be transferred by the Infosys Employee Benefits Trust to the employees pursuant to exercise of ESOPs granted during the ‘buyback period’, the minimum vesting period of one year should be computed from the date of grant of such ESOPs.