Sita Ltd. intends to issue sweat equity shares to its employees for a non-cash consideration. Managing Director believes that the sweat equity shares can only be issued for consideration received in cash. Do you agree?

According to Section 2(88) of Companies Act, 2013 Sweat equity shares means such equity shares as are issued by a company to its Directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. Section 54 of the Companies Act, 2013 permits issue of sweat equity shares to employees or directors of company in recognition for providing know-how etc. Company may issue sweat equity shares at a discount or for consideration other than cash for providing know-how or making available any Intellectual Property Rights or value additions. Company should get consent of its member at General Meeting. Further, as per Rule 8(9) of the Companies (Share Capital and Debentures) Rules, 2014, company can issue sweat equity shares for non-cash consideration on the basis of valuation report in respect thereof obtained from a registered valuer. Based on above provisions, we can conclude that the view of the Managing Director is not correct.