Larsen ESOPs' issue settled out of court

Two former directors on the Larsen & Toubro board have returned the employee stock option shares to the company following an out-of-court settlement reached this week with two government-owned financial institutions.

The settlement was reached after a tense two month face-off between the financial institutions, Life Insurance Corporation and General Insurance Corporation, and their nominee directors on L&T's board who refused to return the shares allotted to them by the construction major in spite of directions by both the institutions that its nominees should not accept any ESOPs.

Both the LIC representative, Kranti Sinha, and the GIC nominee, BP Deshmukh, confirmed that they have returned the shares to L&T which would now be either extinguished or allotted to someone else.

Sinha and Deshmukh have lost their jobs as independent directors on the board of L&T since the controversy broke out in early May.

As per the settlement reached between the directors and the institutions, the institutions would now withdraw the suit filed against the directors and L&T from the Bombay High Court.

Following the incident, top institutional sources said they had written to all companies not to issue any employee stock options to their nominee directors. All the companies have written back, saying they will not issue any shares to our nominees, LIC sources said.

Though the Securities and Exchange Board of India's (Sebi) guidelines allow employee stock options to independent directors on the board of any company, the guidelines are silent on ESOPs for independent directors who are nominees of institutions. The directors had cited this loophole to take home the L&T shares.

The institutions, which hold close to 26 per cent stake in L&T, had moved court after they came to know in April that the L&T directors had transferred the shares into their personal demat account. The shares, worth Rs 8 crore, were issued to them under L&T's stock option scheme of 2003.

The institutions said that even after an earlier June 2006 circular to their directors not to accept ESOPs, the two directors had accepted the shares which was against regulations.