Can my employer cancel my vested ESOPs if I am terminated?

Question

I was terminated from my job and my employer says all my ESOPs, including vested ones, stand forfeited. Is this legal? Before I spend money on it, I want to know whether Companies Act 2013, Section 62 gives me a remedy here and what proof I would need. Any Section numbers I can quote when I write to them would be useful.

MyVakeel Legal Desk · Accepted Answer

Companies Act 2013, Section 62, Indian Contract Act 1872, Section 23 and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021 is what decides this question in India. Read it alongside the provisions named, because the relief available to you turns on the facts you can prove on paper.

ESOP rights are governed primarily by the specific ESOP scheme and grant letter, which must be consistent with the company's Articles of Association and applicable SEBI regulations for listed companies.

Generally, vested options that have not yet been exercised may lapse on termination as per the scheme's terms, but many schemes distinguish between termination for cause and termination without cause, giving more favourable treatment for the latter.

A forfeiture clause that is unreasonable, one-sided, or applied in a manner inconsistent with the scheme document can be challenged as void under Section 23 of the Contract Act for being opposed to public policy or as an unconscionable bargain.

If shares have already been allotted upon exercise of options before termination, those shares are the employee's property and cannot be unilaterally forfeited by the employer without a specific enforceable buy-back or forfeiture clause.

Disputes over ESOP forfeiture are typically pursued as breach of contract before a civil court, or through arbitration if the ESOP agreement contains an arbitration clause, rather than before labour forums.

In practice, in this order: 1) Obtain and carefully read your ESOP grant letter and scheme document for forfeiture and termination clauses; 2) Distinguish between vested-but-unexercised options and already allotted shares to assess your rights; 3) Send a legal notice disputing forfeiture if the scheme terms do not support the employer's action; 4) Pursue civil suit or arbitration as per the dispute resolution clause in the ESOP agreement.

Timing matters here: Companies Act 2013, Section 62 works on limitation periods, so a esop forfeiture claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in labour law.