International Labor & Employment Law Committee Newsletter

Issue: February 2013

Editor: Tim Darby | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Ute Krudewagen | Canada Editor: Gilles Touchette | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Irene Lehne, Earle Mack School of Law at Drexel University

India

Notification on Linking Social Security Membership to Unique Identification Number Put in Abeyance

Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

The Employees Provident Fund Organisation (EPFO), which administers the provident fund scheme (India's largest social security system for employees), had issued a notification in mid-January1 to make it mandatory for its members to use the 'Aadhaar' platform for unique identification numbers as a part of the 'know-your-customer' credentials. The notification specified that Aadhar numbers shall be mandatory for all new members of EPFO, effective March 1, 2013 and that for existing members, the collection of the Aadhar number is to be done by June 30, 2013.

Based on discussions with Unique Identification Authority of India (UIDAI) authorities and taking into consideration the time required to obtain Aadhaar numbers, the EPFO, per notification issued February 6, 2013,2 has decided not to make Aadhaar numbers mandatory for its members with effect from March 1, 2013. The notification however requires the field officers to make maximum efforts to obtain the available Aadhaar numbers of the members of the EPFO.

1http://epfindia.gov.in/Circulars/Y2012-13/RI_UID_30051.pdf.

2http://www.epfindia.com/Circulars/Y2012-13/RI_UID_37496.pdf.

ESOP Regulations Amended to Prohibit Companies from Acquiring Their Own Securities from the Secondary Market

Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

The Indian securities market regulator has prohibited listed companies from framing any employee benefit scheme involving acquisition of the company's own securities from the secondary market. The Securities and Exchange Board of India (SEBI) issued a circular on January 17, 20131 (Circular) to amend the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (ESOP Guidelines) and the Equity Listing Agreement.

Key amendments include:

  • Amendment of the ESOP Guidelines to prohibit acquisition of securities from the secondary market:
    • New clause 22B has been included in the ESOP Guidelines stipulating that an employee stock option scheme or stock purchase scheme shall not involve acquisition of the company's own securities from the secondary market.
  • Amendment of the Equity Listing Agreement:
    • Clause 35C has been included in the Equity Listing Agreement that requires:
      • The issuer to ensure compliance with the revised ESOP Guidelines with respect to all new employee benefit schemes involving the securities of the company; and
      • The issuer to ensure that all existing employee benefit schemes, i.e., schemes framed and implemented by the company involving dealing in the securities of the company in the secondary market, before January 17, 2013 are aligned with and made to conform to the revised ESOP Guidelines by June 30, 2013.
  • Disclosure requirements:
    • Companies which have existing employee benefit schemes that do not conform to the amended ESOP Guidelines are now required to inform the details of their schemes to the stock exchanges, in the prescribed format, within 30 days of the date of issue of the Circular, i.e., February 16, 2013 and disseminate the prescribed information on their website. Some key disclosures to be made include, (i) name of the scheme; (ii) date of implementation; (iii) mode of implementation (trust route or direct route); (iv) details of the trust, trustees, and their relationship with promoters or directors of the company; (v) whether promoters/persons belonging to the promoter group/directors are also beneficiaries in the scheme and details of their entitlements; (vi) number of shares held by the trust or any other agency managing the scheme as on the date of the Circular; (vii) details of how such trust/agency is proposing to deal with the existing holding (i.e., whether to be transferred to the employees, or to be sold in the market for transferring the benefits to the employees) and timelines for the same; (viii) details of persons who are entitled to shares or benefits accruing out of the shares, which, on the date of the Circular, form part of more than 1% of the paid up share capital of the company; and (ix) details of secondary market transactions by the company or trust or such other agency managing the scheme (if any) since April 2012 in the prescribed format.

1CIR/CFD/DIL/3/2013, http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358405632526.pdf.

Companies Bill 2012 Awaiting Approval Contains Employment-Related Provisions

Alap Yadav and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

In December 2012, the lower house of the Indian parliament (the Lok Sabha) passed the Companies Bill, 2012 (Bill).1 The Bill seeks to replace the 56 years old Companies Act, 1956 (Act) and awaits the approval of the Rajya Sabha and the Presidential assent. The Bill is divided into 29 Chapters with 470 Clauses and 7 Schedules as against 658 sections and 15 schedules under the current Act. From an employment perspective, the following inclusions to and deviations from the Act are noteworthy:

  1. Officer in default: The definition of the phrase 'officer in default' has been expanded to include the following categories of individuals:
    • Any person who, under the immediate authority of the board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorizes, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; or
    • Every director, in respect of a contravention of any of the provisions of the Bill, who is aware of such contravention by virtue of the receipt by him of any proceedings of the board or participation in such proceedings without objecting to the same.
  2. Managing Director: Important changes which have been proposed by the Bill in relation to a managing director of a company are summarized below:
    • Minimum age limit for appointment of any person as a managing director has been revised to 21 years (instead of 25 years under the Act).
    • While the maximum term of managing director/manager has been fixed for five years at a time, it has been provided that re-appointment shall not be made earlier than one year before the expiry of his term, whereas under the Act, re-appointment shall not be made before the expiry of two years.
    • As per the Bill, a person cannot be appointed as managing director/manager if he has been convicted by a court of an offence and sentenced to imprisonment for more than six months. Under the Act, such a restriction from appointment is only in cases where the conviction for offence involves moral turpitude, and no imprisonment period has been prescribed.
    • The Bill requires a private company to have at least one managerial person.
    • Unlike under the Act, Central Government approval is not required for the payment of any remuneration to any director (including managing director) for services rendered in any other capacity provided such services are of a professional nature and when the nomination and remuneration committee or the board of directors is of the opinion that the person possesses necessary qualifications.
    • As per the Bill, an insurance premium taken by the company on behalf of its officers (including managing director) for indemnity for any liability arising out of a negligent act, default, misfeasance, breach of duty or breach of trust for which they may be guilty, shall not be considered as remuneration to the director or officer.
    • The Bill permits a managing director to receive remuneration or a commission from the holding or the subsidiary company, subject to requisite disclosures by the company in its board report.
  3. Key Managerial Personnel: The Act does not contain any references to Key Managerial Personnel (KMP). However, certain prescribed companies will be required to appoint KMPs i.e. (i) a chief executive officer or managing director or manager and in their absence a whole time director, (ii) company secretary; and (iii) a chief financial officer.
  4. Managerial Remuneration: With respect to companies with no profits or inadequate profits, remuneration shall be payable in accordance with new Schedule of Remuneration annexed to the Bill, and in case a company is not able to comply with such Schedule, approval of the Central Government would be necessary. Individual limits for remuneration have been enhanced in the Bill vis-à-vis the existing limits under the Act.
  5. Nomination and Remuneration Committee: The Bill provides for the constitution of a Nomination and Remuneration Committee in case of listed companies. The committee shall be responsible to formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the board of directors a policy relating to the remuneration for the directors, key managerial personnel and other employees. The committee shall consist of three or more non-executive director(s) out of which not less than one half shall be independent directors.
  6. Insider trading: The Bill introduces a new clause prohibiting insider trading of securities of a company by directors and key managerial personnel. Any non-compliance of such provisions could result in a criminal offence.

1http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdf.

India Signs Social Security Agreement with Austria

Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

India and Austria signed a social security agreement (SSA) on February 4, 2013.1 A press release issued by the Indian Embassy in Vienna, Austria highlights that the SSA will enhance cooperation on social security between the two countries and provide for the following benefits to Indian nationals working in Austria:

  • For a short-term assignment to Austria of up to 5 years, no social security contribution would need to be paid under Austrian law by the detached workers, provided they continue to make social security payment in India.
  • This benefit would be available even when the Indian company sends its employees to Austria from a third country.
  • Indian workers will be entitled to bring back the social security benefit if they relocate to India after the completion of their service in Austria.

  • Self-employed Indians in Austria would also be entitled to bring back social security benefits on their relocation to India.
  • The period of contribution in one contracting state will be added to the period of contribution in the second contracting state for determining the eligibility for social security benefits.

While the SSA with Austria has been signed, the benefits contained thereunder will come into effect only once the SSA is notified by the Government of India. In addition to Austria, India has signed SSAs with several other countries including Belgium, Germany, Switzerland, France, Luxembourg, Netherlands, Hungary, Denmark, Czech Republic, Republic of Korea, Norway, Finland, Canada, Japan and Sweden.

Please refer to our previous alerts on this subject at

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