SEBI Amendment: ‘Independent Registered Valuers’ Replace ‘Merchant Bankers’ for ESOP and Sweat-Equity Valuations [Read Circular]

The Securities and Exchange Board of India (SEBI) has introduced a major regulatory amendment to strengthen transparency in the valuation of employee compensation, replacing merchant bankers with independent registered valuers for the valuation of Employee Stock Option Plans (ESOP) and Sweat Equity.

The amendment is made via the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) (Second Amendment) Regulations, 2025, which changes the definitions contained in the original Regulations issued in 2021.

The change is significant as it aligns SEBI’s ESOP and sweat-equity framework to the provisions of Section 247 of the Companies Act, 2013 governing valuations conducted by professionals registered with the Insolvency and Bankruptcy Board of India (IBBI).

Before this change, Regulation 2(1)(ww) of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 defined “valuer” as an independent chartered accountant or merchant banker appointed to determine the value of know-how, intellectual property rights, or value addition.

The 2025 amendment substitutes this definition, specifying that “valuer” shall have the same meaning as assigned under Section 247 of the Companies Act, 2013 (18 of 2013) thereby transferring valuation duties solely to IBBI-registered valuers.

Consequently, Regulation 34(1) has also been amended to reflect the change, now stipulating that all valuations under the 2021 Regulations must be carried out by an independent registered valuer, eliminating the role of merchant bankers.

A transitional provision allows merchant bankers who had already taken up valuation assignments priorly, to complete the assignments within nine months from the commencement date of the amendment.

SEBI has also omitted the earlier sub-regulations (2) and (3) of Regulation 34 to streamline the process.

The amendment, published in the Official Gazette on December 3, 2025, will come into effect thirty days from the date of publication.

The change is touted by the regulator to ensure greater independence, standardisation and accountability in the valuation of ESOPs and sweat-equity issuances, effectively aligning SEBI’s framework with the professional valuation standards mandated by the Companies Act.

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