Sec 62(1)(b) — ESOP issue procedure

Section 62(1)(b) is the enabling provision for issuing shares to employees under a stock option scheme, distinct from Section 62(1)(a) rights issues and Section 62(1)(c) preferential allotments. For a private company, the scheme requires shareholder approval by ordinary resolution (special resolution only where the Act requires it for a specific class of company); the resolution is filed via MGT-14, and the scheme's operating terms — pool size, eligibility, vesting, exercise window — must satisfy the conditions in Rule 12 of the Companies (Share Capital and Debentures) Rules.

Rule 12 imposes hard conditions Section 62(1)(b) does not spell out on its face: a minimum one-year vesting cliff between grant and first vesting, with no exemption available; and promoters plus directors holding more than 10% equity are barred from receiving grants unless the company is in a category exempted by notification. A scheme silent on the cliff, or grants issued to a disqualified promoter without a logged override, is a defect found at the diligence stage, not caught at grant time by a spreadsheet.

Exercise of a vested option is itself a share allotment — it needs its own board resolution and PAS-3, and it triggers perquisite tax on the spread between fair market value and exercise price in the employee's hands.

The cap table, where Sec 62(1)(b) — ESOP issue procedure appears as a computed field traced to the ledger event that created it.