The proposal of sun f&c asset management to finance its employees to buy stock options of the company has become a matter of dispute between the industry ministry and the finance ministry.
While the finance ministry rejected the proposal on the ground that the company’s decision to finance its employees to buy its own shares was not permitted as per existing policy, the industry ministry, however, supported the proposal and pointed out that this could not be the valid ground for rejection in the light of section 77 of the companies act which made available such option to a company incorporated in india.
The foreign investment promotion board has also rejected the company’s proposal.sun f&c, in its proposal had asked the board to temporarily increase foreign equity to 43.997 per cent from 43.5 per cent. out of the total 1,173,731 equity shares of rs 10 each offered to the resident shareholders, only 903,769 shares of rs 10 each were allotted to the foreign collaborator, foreign &colonial emerging market fund ltd in respect of which application money was received. for the remaining shares, the company did not receive application money from the shareholders.
The board of directors of the company decided to defer the allotment of balance shares till the time pending application money was received. till the time, the proposal said, allotment of shares to the balance resident shareholders was completed, the foreign equity participation would be marginally increased to 43.997 per cent against the approved 43.5 per cent.
Once the allotment of balance shares was completed, the foreign equity would come down to the approved level of 43.5 per cent. both the industry ministry and the finance ministry offered different view points. the finance ministry informed the board that the rbi felt that an increase in foreign equity due to non-issue of shares to resident shareholders because of pending receipt of application money mightbe considered subject to the company reverting to the approved level of foreign equityon completion of allotment.
However, the finance ministry did not support the proposal on the ground that the proposal was similar to the employees’ welfare trust model which was referred to department of company affairs and whose comments were still awaited. the industry ministry, however, clarified that the immediate issue under consideration was only the technical increase in the percentage of foreign equity resulting out of under-subscription.
Further, it said, section 77 of the companies act entitled a private company to grant loans to its employees for purchase of fully paid shares in the company. the ministry also felt that sun f&c case and employees’ welfare trust case were distinct as the ownership in the former case lay in the trust and was not employees specific, whereas in the latter, it was employee specific and the share was vested in employee even if he resigned from the company.
