Advisory for Potential ESOP Litigation

A company in BFSI sector had started granting ESOPs while it was unlisted. The ESOP Plan had an exercise period (of say 5 years) commencing upon vesting of ESOPs. An employee had applied for exercise during the time company was preparing for IPO. While ignoring the exercise application (to restore pre-IPO capital structure), the company emailed to the employee advising exercise post listing.

IPO happened. But, the employee resigned (in fact asked to resign due to misconduct) resulting in his exercise period only 3 months as per ESOP Plan. In response to his repeated exercise application, the company emailed to the employee advising exercise 1 month after listing due to pending formalities with the stock exchanges.

Finally, the employee failed to exercise after 1 month of listing leading to expiry of his ESOPs. He sent a legal notice threatening for a litigation unless the company either allows exercise or compensating the opportunity loss.

Being a newly listed company with reputed investors on Board, it was taken seriously. We helped the company in meticulously interpreting all mutual communications, reason of failure by both sides, relevant SEBI provisions, circumstance in which the employee resigned, real reason employee not exercising during the final opportunity i.e. huge market price fluctuation.

Basis these findings, a detailed memorandum and draft reply was submitted to the company leading to rightful settlement without any compensation.