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CS Executive · Capital Market and Securities Laws · Share Based Employee Benefits and Sweat Equity

Vistara Foods Ltd completed a buy-back of its equity shares under section 68 of the Companies Act, 2013. Four months later, an employee exercises vested options under the company's existing ESOP scheme and seeks allotment. Which statement is correct?

The allotment is permitted. Section 68(8) restricts a further issue of the same kind of shares for six months after buy-back, but excepts bonus issues and discharge of subsisting obligations such as stock option schemes. Exercise of existing vested options is such an obligation.

  1. AAllotment is permitted, since section 68 allows discharge of subsisting obligations such as stock option schemes within the six-month restrictionCorrect
  2. BAllotment is barred for six months after the buy-back without any exception
  3. CAllotment is permitted only through a fresh special resolution
  4. DAllotment is permitted only if the company first files a declaration of solvency again

Explanation

Section 68(8) bars a further issue of the same kind of shares for six months after buy-back, except by bonus issue or in discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures. Allotment on exercise of existing options therefore falls within the exception.

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