Earned, Not Forfeited: Bombay High Court Declines To Interfere With Award Enforcing Vested Equity Entitlement

A Single Judge of the Bombay High Court (“Court”), by a judgment dated August 5, 2026 in Waterfield Advisors Private Limited v. Sridhar Kurpad, Commercial Arbitration Petition No. 1149 of 2025., dismissed a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) to an award directing specific performance of an equity-linked remuneration promise. The Court held that the Arbitral Tribunal’s construction of the Appointment Letter and Grant Letter (as defined hereinunder) was reasonable and could not be revisited as an appeal on facts or law. It also rejected the Company’s attempt to rely on the absence of a formal Employee Stock Option Plan (“ESOP”), an omission attributable to the Company, to defeat the employee’s quantified entitlement. Importantly, the judgment is a decision on the limited supervisory jurisdiction under Section 34 of the A&C Act, rather than an adjudication of every statutory step required for an allotment under ESOP.

Brief Facts

The Respondent joined the Petitioner Company (“Company”) as Director Operations on August 24, 2011. Clause 3 of his Appointment Letter (“Appointment Letter”) offered equity aggregating to 0.9% (point nine percent) of the Company’s share capital, to be allocated in tranches during Year 1 to Year 3 and to vest during Year 4 to Year 6, subject to continued employment. The allocation of equity, and any relinquishment of vested shares upon termination, were linked to Company policies to be made available to the Respondent. On March 1, 2017, while the Respondent was in his sixth year of employment, the Company issued a Grant Letter (“Grant Letter”) recording his entitlement to receive 31,878 (thirty-one thousand eight hundred seventy-eight) equity shares at face value, to be transferred by the Waterfield Employee Benefit Trust, subject to the Board’s determination.

Following a period of absence, the Respondent tendered his resignation. By a letter dated April 10, 2018, the Company accepted the resignation and relieved him with effect from September 1, 2017. The Respondent first demanded allotment of the shares on December 8, 2018. On October 15, 2020, the Company refused stating that the allocation was subject to its internal policy and the sole discretion of its Board, and that the options stood relinquished because the Respondent had ceased to be an employee. The Respondent invoked arbitration under Clause 12 of the Appointment Letter. By an Award dated December 18, 2024 (“Award”), the Arbitral Tribunal directed specific performance of the Appointment Letter and Grant Letter by allotment of 31,878 (thirty-one thousand eight hundred seventy-eight) equity shares and the execution of all acts and documents necessary to effect the transfer. It also awarded costs of INR 1,551,265 (Indian Rupees One Million Five Hundred Fifty-One Thousand Two Hundred Sixty-Five) and issued incidental directions concerning the stamping of the Appointment Letter. The Tribunal found that the entitlement had vested before cessation of employment and that the absence of an ESOP policy did not defeat the claim (paras. 2.5-2.12).

The Company challenged the Award before the Court under Section 34 of the A&C Act, alleging conflict with the public policy of India and patent illegality (para. 2.13).

Issue

1. Whether the contractual equity entitlement had vested before cessation of employment, or amounted only to unvested options?

2. Whether the alleged failure to exercise the vested options before resignation defeated the Respondent’s entitlement?

Contentions of the Petitioner

The Company contended that the Award violated Section 53 of the Companies Act, 2013 (“Companies Act”), which prohibits the issue of shares at a discount except as sweat equity, and Section 62(1)(b) of the Companies Act read with Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 (“Share Capital Rules”), which contemplate a formal ESOP scheme, a special resolution and prescribed disclosures. It was argued that the Tribunal had selectively read Clause 3 of the Appointment Letter and the Grant Letter; ignored the termination and relinquishment language and the Board’s discretion; conflated grant, vesting and exercise; and thereby rewritten the parties’ contract.

The Company further contended that damages were adequate and specific performance was inequitable because it would introduce an ex-employee as a shareholder eight years after his resignation. It also relied on the Respondent’s alleged failure to evince interest in the shares before his resignation was accepted.

Relying on Indian Railways Catering and Tourism Corporation Limited v. Brandavan Food Products, 2025 SCC OnLine SC 2369., and P. Daivasigamani v. S. Sambandan, (2024) 14 SCC 793., the Company submitted that rewriting a contract can shock the judicial conscience and that damages, rather than specific performance, were the appropriate relief. On that basis, it alleged patent illegality in the Award.

Contentions of the Respondent

The Respondent submitted that several grounds advanced in Court had not been urged before the Arbitral Tribunal. According to him, the parties had proceeded on the basis that, if the Appointment Letter and Grant Letter demonstrated vesting, the absence of an ESOP policy and his resignation would not defeat the claim. It was emphasized that the refusal letter dated October 15, 2020 relied only on cessation of employment and that later defences were afterthoughts. The quantified Grant Letter was relied upon and it was submitted that the Company had neither called upon the Respondent to exercise the options or pay the price, nor denied shares to similarly placed former employees despite the absence of an ESOP policy. Finally, restricted scope of review under Section 34 of the A&C Act was relied upon, which excludes re-appreciation of evidence or review on the merits.

Decision

At the threshold, the Court restated that Section 34 of the A&C Act is not an appellate jurisdiction. An award cannot be set aside merely for an erroneous application of law or through re-appreciation of evidence; a possible view on the evidence and a reasonable construction of the contract must ordinarily prevail. Interference is confined to the statutory grounds under Sections 34(2) and 34(2-A) of the A&C Act, including patent illegality that goes to the root of the award.

On the contract, the Court held that Clause 3 of the Appointment Letter prescribed the quantum, duration and schedule of vesting, while the Grant Letter removed any residual doubt by quantifying 31,878 (thirty-one thousand eight hundred seventy-eight) shares as consideration for services rendered. Clause 9 of the Appointment Letter preserved remuneration, allowances and perquisites accrued before termination. Since the entitlement had vested before termination and no prevailing Company policy directed relinquishment, the relinquishment caveat in Clause 3 of the Appointment Letter was not attracted. It was held that the Tribunal’s construction was therefore reasonable and did not rewrite the contract.

On the company-law objections, the Court acknowledged that Section 62(1)(b) of the Companies Act and Rule 12 of the Share Capital Rules contemplate an ESOP scheme, a special resolution and prescribed disclosures. It nevertheless held that the Appointment Letter and Grant Letter had, “by and large”, prescribed the conditions concerning vesting and lapse, and that the Company could not take advantage of its own failure to frame an ESOP scheme after offering equity as part of the Respondent’s remuneration. The Tribunal had also found no fault in the Respondent’s alleged non-exercise and had relied on comparable employees receiving shares despite the absence of a policy. Those findings were neither perverse nor patently illegal.

On the remedy, the Court held that any error in applying the law of specific performance would amount, at most, to an erroneous application of law, which was outside the scope of Section 34 of the A&C Act. The petition was accordingly dismissed with costs.

Argus Comment

The ruling reinforces arbitral autonomy and minimal judicial intervention under Section 34 of the A&C Act, underscoring the high threshold required to establish patent illegality or contract-rewriting, and reaffirming that courts will not substitute the tribunal’s plausible contractual interpretation with their own.

Although the judgment did not separately analyse the objection raised under Section 53 of the Companies Act, the absence of a special resolution or every corporate step required to implement the Award, it did emphasise on a vital commercial and employment jurisprudence: corporate entities cannot invoke internal regulatory or policy failures to escape contractual commitments agreed upon with the employees. The decision also supports specific performance where equity was consideration for services, but the conclusion is fact-specific and viewed through the lens of Section 34 of the A&C Act.

Please find attached a copy of the Judgment, here.