balance shares will be sold/transferred to employees or otherwise dealt with by the Trust in a legally permissible manner. Mahindra Finance feels that the provisions of the Sebi circular does not apply on it as the trust “has not acquired any shares from the secondary market”.
Legal experts say while it 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.