SEBI’s Revised Disclosure Regime for ESOPs and SARs: A Detailed Practical Guide

Employee stock-based incentives such as ESOPs and SARs have become a key component of remuneration structures in listed entities. SEBI has progressively tightened and refined the disclosure norms around these schemes to ensure that investors clearly understand their economic impact, particularly in terms of dilution and capital structure.

This article provides an in-depth, fully updated overview of the current disclosure framework for ESOPs and SARs for listed companies in India, including the latest changes introduced through circulars issued up to March 20, 2025.

I. Statutory and Regulatory Framework for ESOPs and SARs

Multiple legislations and rule-sets jointly regulate ESOPs and SARs in the Indian securities market. For listed entities, three primary legal pillars are relevant.

1. SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

The SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (SBEB & SE Regulations, 2021) constitute the core regulatory framework governing:

  • Employee Stock Option Schemes (ESOPs)
  • Employee Stock Purchase Schemes (ESPS)
  • Stock Appreciation Rights (SARs)
  • General Employee Benefits Schemes (GEBS)
  • Retirement Benefit Schemes (RBS)
  • Sweat equity issuances

These regulations prescribe, among other things:

  • Mandatory shareholder approval (normally via special resolution)
  • Eligibility of employees and directors
  • Terms of grant, vesting, exercise, and lapse/forfeiture
  • Pricing and valuation norms
  • Lock-in or holding periods where applicable
  • Detailed disclosure obligations in the annual report and on the company’s website
  • Oversight by the Nomination and Remuneration Committee (NRC) and the Board

For equity-settled SARs of listed entities, the SBEB & SE Regulations, 2021 treat them on a similar footing as ESOPs, including for disclosure and shareholder approval purposes.

2. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) establish ongoing disclosure and corporate governance obligations for listed companies. ESOPs and SARs intersect primarily with:

  • Regulation 30 – Disclosure of material events, including key decisions relating to ESOPs and SARs.
  • Regulation 31 – Periodic disclosure of the shareholding pattern, now explicitly incorporating details related to ESOPs and other convertible instruments, especially on a fully diluted basis.

3. Companies Act, 2013

Even though SEBI regulations apply specifically to listed companies, the Companies Act, 2013 provides the foundational corporate law framework for all companies in India.

  • Section 62(1)(b) of the Companies Act, 2013 permits issuance of further share capital to employees under an ESOP, subject to:
    • Prior approval of shareholders by special resolution, and
    • Compliance with prescribed rules and conditions (including disclosures in the notice and explanatory statement).

Important distinction

  • Equity-settled SARs (where shares are issued on exercise) for listed entities fall within the scope of the SBEB & SE Regulations, 2021 and are treated similar to ESOPs.
  • Cash-settled SARs do not involve issuance of new shares and hence typically do not trigger Section 62 of the Companies Act, 2013, as there is no “further issue” of share capital.

II. Key Disclosure Obligations and New Shareholding Pattern Requirements

SEBI has made substantial changes to enhance transparency around ESOPs and SARs, particularly through amendments to the quarterly shareholding pattern and tightening event-based disclosure timelines.

A significant update is contained in SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/35 dated March 20, 2025, effective for quarters ending on or after June 30, 2025.

A. Annual Report Disclosures – Regulation 14 of SBEB & SE Regulations, 2021

Under Regulation 14 of the SBEB & SE Regulations, 2021, every listed entity operating ESOPs, ESPS, SARs or other share-based employee benefit schemes must provide extensive disclosures in its annual report.

1.