Cos amend structure of trusts as abuse of staff benefit schemes draws Sebi ire

Feb 16 2013, 02:53 IST
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SummaryCompanies that formed trusts under the guise of employee benefit schemes to deal in their own shares have started falling in line after capital market regulator Sebi clamped down on such structures.

is illegal for companies to deal in their own shares, the law provides for exemptions that are misused by many. RS Loona, a former Sebi executive director, says trusts dealing in shares of the company are “not in accordance with the spirit of the law” that forced Sebi to act.

“While Section 77 of the Companies Act prohibits any company from dealing in its own shares, sub-section (2)(b) provides an exemption for trusts formed for the welfare of employees,” says Loona, who is currently the managing partner of Alliance Corporate Lawyers.

Sebi, meanwhile, adds such a structure can pose regulatory concerns and could be non-compliant with provisions of the law governing insider trading and fraudulent and unfair trade practices.

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