Framework
1. Name, objective and effective date
This plan shall be called the Saffron Labs Employee Stock Option Plan 2026 (the "Plan"). The objective of the Plan is to attract, retain and reward Employees of Saffron Labs Private Limited (the "Company") by granting them Options to acquire Equity Shares, so that they participate in the growth in value of the Company. The Plan was approved by the Board on 9 October 2026 and by the shareholders by special resolution under Section 62(1)(b) of the Companies Act 2013 read with Rule 12 of the Companies (Share Capital and Debentures) Rules 2014 on 20 October 2026 (the "Effective Date"). The Plan shall remain in force until the earlier of the tenth anniversary of the Effective Date and its termination under Clause 24, save that Options granted before such date shall continue to be governed by the Plan until exercised, lapsed or cancelled. Every Grant under the Plan shall be made in accordance with the shareholders' agreement to be entered into at the closing of the Company's Series A investment, as amended from time to time (the "SHA"), and the Articles.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The plan has a name, a purpose and two birth dates: the Board meeting that approved it and the shareholders' meeting that passed the special resolution. The second date is the one that matters legally, because Rule 12 does not let a company grant options without that resolution. The plan runs for ten years from the shareholder approval, but any option granted inside that period keeps living under the plan until it is exercised or lapses.
What it means for you
You cannot make a single grant until the special resolution of 20 October 2026 has been passed and, in practice, until Form MGT-14 has been filed within 30 days of it. If you promised options in offer letters before that, those promises are contractual commitments to grant, not grants; honour them with letters dated after the resolution. The ten-year life means the pool you create at Series A will outlive your next two rounds, so write the plan to survive a bigger cap table.
What is normal
A plan life of 10 years is standard; some plans run indefinitely and rely on the termination clause. Adopting the plan at the same shareholders' meeting as the priced round is normal, and most Series A term sheets make the adopted plan a condition precedent to closing. Expect 2 to 4 weeks between the Board approval and the shareholder resolution for a company with a handful of shareholders.
How to negotiate it
Three asks. First, have the investor accept the plan text as a schedule to the SSA so that no re-approval is needed after closing. Second, state the purpose broadly (attract, retain, reward) so that grants to existing employees for retention are plainly inside the objective. Third, make the effective date the shareholder resolution date, not the Board date, so that the one-year minimum vesting under Rule 12(6)(a) is never miscounted from a grant that was not yet valid.
2. Definitions
In this Plan: "Cause" means the Employee's conviction for an offence involving dishonesty, fraud or moral turpitude, wilful and material breach of the employment agreement or the confidentiality or intellectual property undertakings which, if capable of remedy, is not remedied within 30 days of written notice, or gross misconduct established after a disciplinary inquiry, and does not include poor performance; "Compensation Committee" means the committee constituted under Clause 4; "Employee" has the meaning in Clause 5; "Exercise Period" means the period in which a Vested Option may be exercised under Clause 13; "Fair Market Value" means the value of an Equity Share determined by a merchant banker registered with the Securities and Exchange Board of India under Rule 3(8) of the Income-tax Rules 1962; "Good Leaver" and "Bad Leaver" have the meanings in Clauses 17 and 18; "Grant Letter" means the letter under Clause 6; "Liquidity Event" means a Change of Control, a sale of all or substantially all of the assets of the Company, a Qualified IPO or a Drag Sale, each as defined in the SHA; "Option" means a right granted under this Plan to subscribe for one Equity Share at the Exercise Price; "Vesting Date" means a date on which an Option vests under the Grant Letter. Capitalised terms not defined here shall have the meanings given in the SHA.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The dictionary for the plan. Two definitions do most of the work: cause, which decides who is a bad leaver, and liquidity event, which decides when the exit clauses fire. The plan borrows its other defined terms (change of control, qualified IPO, drag sale) from the Series A SHA so that the two documents cannot disagree about what a sale is.
What it means for you
Narrow definitions protect you as much as your employees. If cause is wide enough to cover a missed sales target, every departure becomes a dispute about whether vested options survive, and your senior hires will discount the grant accordingly. Borrowing the SHA's definitions also means that when the SHA is restated at Series B, the plan moves with it without an amendment. Fair market value is pinned to the Rule 3(8) merchant banker report, which is the figure the tax law uses, so the plan and the payslip speak the same number.
What is normal
Cause limited to fraud, conviction, wilful material breach and gross misconduct after an inquiry, with a 30-day cure period, is the market norm in Indian plans at Series A; 15 to 30 days is the usual cure window. Liquidity event definitions that track the SHA's change of control (usually a transfer of more than 50 percent of voting rights) are standard. Fewer than one plan in five still defines cause to include performance, and investors rarely insist on it.
How to negotiate it
Keep cause narrow and exclude performance in terms. Add a cure period of at least 30 days for breaches capable of remedy. Define a liquidity event to include a sale of substantially all assets and a drag sale, so that the change of control test cannot be sidestepped by selling the business rather than the shares. Finally, tie fair market value to the Rule 3(8) report so that no committee can set a different number for buy-backs from leavers.
3. Pool size, source and recycling
The aggregate number of Options that may be granted under the Plan shall not exceed 1,00,000 (one lakh), each Option entitling the holder on exercise to one Equity Share of face value ₹10 (the "Pool"), being 10 percent of the share capital of the Company on a Fully Diluted basis as at the closing of the Company's Series A investment (the "Closing"). Equity Shares to be allotted on exercise shall be issued as fresh Equity Shares under Section 62(1)(b) of the Companies Act 2013 and not acquired from any shareholder. Options that lapse, are forfeited or are surrendered without being exercised shall be added back to the Pool and shall be available for further Grants ("Recycling"). Any increase in the Pool shall require a special resolution of the shareholders and shall be a Reserved Matter under Clause 14 of the SHA, and shall dilute all shareholders of the Company pro rata. The Pool shall be adjusted under Clause 22 on any bonus issue, split, consolidation or reorganisation.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The pool is fixed at one lakh options, one share each, which is 10 percent of the company counted as if every option and every preference share had already become an equity share. Shares come from a fresh issue, not from the founders' holdings. Options that die unexercised go back into the pool. Making the pool bigger needs the shareholders and the investor.
What it means for you
The 10 percent came out of your side of the cap table at the term-sheet stage (the pool was created pre-money, so the founders and angels paid for it, not Marigold), which the Term Sheet Explainer covers under the option pool shuffle. From here the pool is a budget: 1,00,000 options is roughly 20 grants the size of Priya Nambiar's, so plan the first 18 months of hiring against it. A top-up is a reserved matter, which means a negotiation with Marigold about who is diluted; that is why unused and lapsed options returning to the pool matters.
What is normal
Pools of 7.5 percent to 12.5 percent fully diluted are normal at Series A in India, with 10 percent the most common ask. Recycling of lapsed options is standard; pools without recycling are a drafting error, not a negotiating position. A fresh-issue pool is near universal; trust-held pools, where the trust buys shares and sells to employees, are rarer in companies before Series B because of the Section 67(3) funding limits and the trust's compliance cost.
How to negotiate it
Ask for three things. Size the pool to a named hiring plan rather than a round number, and show the investor the plan; a 10 percent pool that is 60 percent allocated at Series B strengthens your hand against a pre-money top-up then. Make recycling explicit and include options surrendered in a cashless exercise. Agree now that a future top-up to replace options exercised or granted will be approved by the Investor Majority without the pool shuffle being re-run against the founders alone.
4. Administration
The Plan shall be administered by the Board acting through a Compensation Committee of three directors, being Meera Krishnan (chair), Rohan Kapoor and Ananya Rao, or such other members as the Board may appoint, provided that the Investor Director shall at all times be a member. The Committee shall have the power to select Employees for Grants, determine the number of Options, the Exercise Price, the vesting schedule, performance conditions and the terms of each Grant Letter, interpret the Plan, and frame procedures for exercise, allotment and record keeping, in each case consistently with the Plan and the SHA. No Grant above 0.5 percent of the Fully Diluted share capital, no Grant to a Promoter, no vesting schedule shorter than four years with a one-year cliff and no amendment of the Plan shall be made without the prior written consent of the Investor Director. The Company shall maintain a register of Options in Form SH-6 at its registered office, entered forthwith on each Grant, vesting, exercise, lapse and forfeiture and authenticated by the company secretary or a person authorised by the Board, and shall make the disclosures required by Rule 12(9) in the Board's report for each financial year.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
A three-director committee runs the plan: the independent director chairs it, and the investor's nominee and the CEO sit on it. The committee picks who gets what and on what terms, inside the plan. Four decisions need the investor director's written yes. The company keeps a statutory register of options in Form SH-6 and reports on the plan in every Board's report.
What it means for you
The committee is where you spend the pool, so its composition matters: with Meera Krishnan in the chair and Rohan Kapoor on it, a grant to your own co-founder or a change to your own vesting will be decided by people who are not you. That is a feature when a senior hire asks whether grants are fair. The SH-6 register is a hard obligation: the Registrar and any diligence lawyer at Series B will ask for it, and a register rebuilt from memory is a red flag. Put every grant letter number, vesting date and exercise into it the same week.
What is normal
A committee of 2 to 3 directors with the investor director as a member is normal from Series A; before a priced round the Board itself usually administers the plan. Investor consent thresholds between 0.25 percent and 1 percent fully diluted per grant are market; 0.5 percent at a ₹100 crore post-money is in the middle. The Rule 12(9) Board's report disclosures (options granted, vested, exercised, lapsed, in force, money realised, and employee-wise details for KMP and large grants) are statutory and not negotiable.
How to negotiate it
Ask for a deemed-consent rule: if the Investor Director does not object within 10 business days of a written request, consent for a grant within the approved annual grant calendar is deemed given. Keep the CEO on the committee so that hiring is not slowed. Set the consent threshold as a percentage of the pool rather than of the company (say 5 percent of the pool, which is 5,000 options) so it scales when the pool is topped up. Delegate routine administration (letters, register entries, exercise processing) to the company secretary by name.
Eligibility and grants
5. Eligibility
An "Employee" eligible for a Grant means (a) a permanent employee of the Company working in India or outside India; (b) a director of the Company, whether whole-time or not, other than an independent director; and (c) a permanent employee or director (other than an independent director) of a subsidiary of the Company, in India or outside India, or of its holding company, provided that Grants under this sub-clause (c) shall be made only after a separate special resolution of the shareholders under Rule 12(4). The following shall not be eligible: (i) an employee who is a Promoter or belongs to the promoter group; and (ii) a director who, directly or indirectly through a relative or a body corporate, holds more than 10 percent of the outstanding Equity Shares; provided that, the Company being a startup recognised by the Department for Promotion of Industry and Internal Trade, exclusions (i) and (ii) shall not apply until the expiry of ten years from 14 February 2023, the date of its incorporation, in accordance with the proviso to Rule 12(1)(c). No consultant, adviser, retainer, intern or contractor shall be eligible, nor any person engaged through a third party. Eligibility shall not create any entitlement to a Grant.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Who may receive options: permanent employees anywhere, directors other than independent directors, and the same people at a group company (after a separate special resolution). Who may not: promoters and large-shareholder directors, except that the startup exception switches those two bars off until February 2033. Consultants, advisers and contractors are out entirely.
What it means for you
The eligibility list is Rule 12's, not yours; the clause copies it because a grant to an ineligible person is void and cannot be fixed later. Two consequences for Saffron. Your adviser network cannot be paid in options; give them cash, a stock appreciation right under Clause 23 or sweat equity. And the founders can receive grants only because of the DPIIT startup exception, which expires on 13 February 2033, the last safe date for a founder grant, or earlier for new grants if Saffron stops being a startup, for example by crossing the turnover limit; after that any option granted to a promoter is prohibited, although options granted before then survive. Note the SHA layer too: a grant to a promoter needs the Investor Director regardless.
What is normal
Every compliant Indian plan uses the Rule 12 definition verbatim; the only choices are whether to include group-company employees (most plans do, with the separate resolution) and whether to use the startup exception for founders (a minority of DPIIT-recognised companies do, usually once, to equalise founder holdings). Independent directors cannot be granted options under Rule 12 or Section 149(9), and that is universal. Options to advisers are the single most common illegality in home-made plans.
How to negotiate it
Three asks. Keep sub-clause (c) in the plan now, with the separate special resolution passed at the same meeting, so a future subsidiary's staff can be granted without a fresh EGM. Record the DPIIT exception with the exact expiry date so a 2032 founder grant is not mistaken for a breach. Agree with the investor in the SHA that a founder grant that equalises holdings after a founder secondary, or that replaces reverse-vested shares, is pre-approved up to a stated number of options.
6. Grant process and the Grant Letter
Grants shall be made by the Compensation Committee on the recommendation of the Chief Executive Officer (or, for a Grant to the Chief Executive Officer, of the chair of the Committee) and shall be recorded in the minutes of the Committee and noted by the Board at its next meeting. Within 30 days of the Committee's resolution the Company shall issue to the Employee a Grant Letter stating the number of Options, the Grant Date, the Exercise Price, the vesting schedule and any performance condition, the Exercise Period and the terms on which the Options lapse. The Grant shall take effect only if the Employee signs and returns the Grant Letter together with a nomination in the form prescribed by the Company within 30 days of its receipt (the "Acceptance Period"); failing which the Grant shall be deemed withdrawn and the Options shall return to the Pool. The "Grant Date" shall be the date of the Committee's resolution, and the one-year minimum vesting period under Rule 12(6)(a) shall be reckoned from that date. The Company shall enter each Grant in the register in Form SH-6 and shall provide the Employee with a copy of the Plan.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
How a grant is born: the CEO recommends, the committee resolves, the letter goes out within 30 days, and the employee has 30 days to sign it and name a nominee. If they do not, the grant lapses back to the pool. The grant date is the committee's resolution date, and the statutory one-year clock to the first vesting runs from that day.
What it means for you
The date discipline here protects you twice. Rule 12 counts the minimum one year from the grant, so an unsigned or backdated letter can make a cliff vesting unlawful. And the Income-tax Act does not care about the grant date at all (tax is at exercise), so there is no tax reason to hurry a letter. Treat the 30-day acceptance period as real: an employee who never signed has no options, and a diligence lawyer will treat unsigned letters as contingent liabilities. The nomination form is what lets a family exercise under Clause 19 without a succession certificate.
What is normal
A 30-day acceptance period is standard; some plans allow 60 or 90 days. Making grants in two or four fixed cycles a year, so that one merchant banker report serves every grant in the cycle, is normal from Series A. Setting the grant date at the committee resolution is near universal; offer-letter promises are drafted as a commitment to recommend a grant, not as a grant. The copy of the plan to the employee is required by good practice and asked for in every diligence.
How to negotiate it
Ask your counsel to add a deemed-acceptance fallback for employees abroad or on leave (acceptance by email counts), a rule that offer letters say "recommend a grant of up to N options, subject to the Plan and the Committee", and a standing Board authorisation so that the CEO and company secretary can sign grant letters without a fresh Board meeting. Against your senior hires, resist requests to backdate grant dates to the joining date; offer a larger grant instead.
7. Exercise price
The price payable by an Employee on exercise of an Option (the "Exercise Price") shall be determined by the Compensation Committee for each Grant and stated in the Grant Letter, and shall not be less than the face value of an Equity Share, being ₹10. The Exercise Price for Grants made on 1 December 2026 shall be ₹100 per Option, against a Fair Market Value of ₹640 per Equity Share determined by Aralu Capital Advisors in October 2026. The Committee may set different Exercise Prices for different Grants and may, consistently with the accounting policies of the Company, set an Exercise Price at a discount to Fair Market Value. The fair value of the Options at the Grant Date shall be recognised as an employee benefits expense over the vesting period in accordance with Ind AS 102 or the Guidance Note on Accounting for Share-based Payments issued by the Institute of Chartered Accountants of India, as applicable to the Company. Nothing in this Clause shall give rise to any tax liability of the Employee before exercise. The Exercise Price shall be adjusted under Clause 22.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The committee sets the price for each grant, never below the ₹10 face value. The first grants are at ₹100 against a merchant banker's valuation of ₹640, a deep discount. The options' fair value is a cost in the company's accounts, spread over the vesting period, but it does not create any tax for the employee until the option is exercised.
What it means for you
A low exercise price is the cheapest retention tool you have: it costs no cash, the accounting expense is non-cash and sits below EBITDA in most investor models, and the employee's tax is unchanged because the perquisite is measured against fair market value at exercise, not grant. The ₹640 figure is below Marigold's ₹1,000 per CCPS because equity ranks behind the preference stack; use that gap in your hiring conversations. Agree the accounting treatment with Rao & Hegde before the first grant, because the Ind AS 102 charge needs an option valuation (usually Black-Scholes) at each grant date.
What is normal
Exercise prices between face value (₹10) and about 50 percent of fair market value are normal in Indian startups before Series B; face-value plans are common in companies whose employees cannot fund a high exercise price, and fair-market-value plans are rare outside listed companies. The accounting charge under Ind AS 102 or the ICAI Guidance Note is unavoidable; for Saffron, 5,000 options at a fair value of about ₹570 each (₹540 of it intrinsic value) is about ₹28.5 lakh spread over 4 years.
How to negotiate it
Ask the investor to accept a face-value or near face-value price in the SHA, with the committee free to raise it for later grants. Ask your auditors to agree the valuation inputs (volatility, expected life, risk-free rate) once a year rather than per grant. Give your senior hires a price that is fixed in the letter and cannot rise; resist "price to be fixed at vesting" drafts. Keep the discount in the plan text, not in a side letter, so Rule 12(3) compliance is visible.
8. Grant limits
No single Grant shall exceed 5,000 Options (being 0.5 percent of the Fully Diluted share capital at the Closing) and no Employee shall in any financial year be granted Options exceeding that number in aggregate, in each case without the prior written consent of the Investor Director under Clause 10 of the SHA. Grants to an identified Employee in any one year equal to or exceeding 1 percent of the issued capital of the Company (excluding outstanding warrants and conversions) at the time of the Grant shall additionally require a separate special resolution of the shareholders under Rule 12(4)(b). The aggregate of Options granted and outstanding together with Equity Shares allotted on exercise shall at no time exceed the Pool. The Compensation Committee shall approve an annual grant calendar by 30 April each year, setting out the expected Grants for the year by band of seniority, and Grants within the calendar shall be deemed to have the consent of the Investor Director unless the Investor Director objects in writing within 10 business days of receiving the calendar. Grants outside the calendar shall be made in the ordinary way under Clause 6.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Two ceilings. The SHA ceiling: 5,000 options (0.5 percent) to one person without the investor director's consent. The statutory ceiling: a grant of 1 percent or more of issued capital to one person in a year needs a separate shareholders' resolution under Rule 12(4)(b), which the plan requires to be a special resolution. The pool is the aggregate cap. An annual grant calendar, once shown to the investor director, pre-clears the grants inside it.
What it means for you
At Saffron 0.5 percent is exactly Priya Nambiar's grant, so every future head-of-function grant sits at the consent line. The calendar mechanism is how you avoid asking Rohan Kapoor for permission every time you hire: show him the year's plan in April and the silence rule does the rest. Watch the Rule 12 test separately; it is measured against issued capital, not fully diluted capital, and the rules do not say whether CCPS count in issued capital, so test the 1 percent against issued equity capital alone, on which a grant that is 0.5 percent fully diluted can be more than 1 percent of the shares in issue. Check the arithmetic with your company secretary before each large grant.
What is normal
Per-grant consent thresholds of 0.25 percent to 1 percent fully diluted are normal at Series A; an annual aggregate per person is less common but useful. The Rule 12(4)(b) 1 percent test and the Rule 12(9) disclosure of grants of 5 percent or more of the options granted in a year, or 1 percent or more of issued capital, apply to every unlisted company. Deemed-consent windows of 7 to 15 business days are common where the investor director sits on the committee.
How to negotiate it
Ask for the grant calendar and deemed consent in the SHA itself, not only in the plan. Ask for the consent threshold to exclude replacement grants (for example when an employee's options lapse and are regranted on a new schedule). Ask that CCPS be counted as converted when the committee measures a grant against the 0.5 percent line, which the words Fully Diluted already achieve, and have the company secretary run the separate Rule 12 issued-capital test in writing before any grant above 2,500 options.
Vesting
9. Vesting schedule
Options shall vest in accordance with the vesting schedule in the Grant Letter, subject to the Employee remaining in continuous employment or office with the Company on each Vesting Date. There shall be a minimum period of one year between the Grant Date and the first Vesting Date, as required by Rule 12(6)(a). Unless the Grant Letter provides otherwise, 25 percent of the Options shall vest on the first anniversary of the Grant Date (the "Cliff") and the balance shall vest in 36 monthly instalments on the same day of each month thereafter, so that all Options have vested on the fourth anniversary of the Grant Date, the cumulative number of Vested Options on each Vesting Date being rounded down to a whole number. The Compensation Committee may prescribe a different vesting schedule for any Grant, provided that no schedule shall provide for vesting earlier than one year from the Grant Date and that any schedule under which all Options vest in less than four years, or with a cliff shorter than one year, shall require the prior written consent of the Investor Director. Vested Options not exercised within the Exercise Period shall lapse under Clause 13.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The default calendar: nothing for the first year, a quarter of the options on the first anniversary, then one forty-eighth every month until the fourth anniversary. Vesting needs the employee to still be employed on each date. The committee may write a different calendar into a grant letter, never faster than one year to the first vesting, and anything quicker than the four-year default needs the investor director.
What it means for you
The one-year cliff is the law, not a choice: Rule 12(6)(a) sets it, so a hire who leaves at month 11 gets nothing however the letter is worded. The monthly tail after the cliff is your choice and it is the employee-friendly one; quarterly or annual vesting after the cliff keeps more options unvested at any point and makes departures lumpier. The investor consent on faster schedules exists because vesting speed is how founders might reward themselves or their friends; keep it, and use the committee for the exceptions. Run the calendar through the vesting schedule generator on this page before signing any letter.
What is normal
Four years with a one-year cliff and monthly vesting after it is the norm in 2026 for Indian startups; quarterly vesting after the cliff is the main variant. Cliff percentages of 20 to 25 percent are standard; some plans back-load (10, 20, 30, 40 percent a year) to favour retention. Three-year schedules appear for senior hires who join at Series B or later. Five-year schedules have largely disappeared.
How to negotiate it
Keep monthly vesting after the cliff; it reduces disputes and makes pro rata outcomes easy. Ask the investor for pre-approval of a 3-year schedule for hires above a stated seniority band (say CXO roles), so the committee can offer it without a consent request. Fix the rounding rule in the plan (round the running total down at each date, so instalments differ by at most one option) so no letter can be read two ways. For your own senior hires, resist requests for back-dated vesting credit for time before the grant; offer a larger grant or a one-off bonus instead.
10. Performance vesting
The Compensation Committee may make the vesting of all or part of the Options under a Grant conditional on the achievement of one or more performance conditions stated in the Grant Letter, in addition to the time-based schedule under Clause 9. Each performance condition shall be objective and capable of measurement from the audited or management accounts of the Company, a customer contract, a product release or another verifiable record, and shall state the measurement period, the threshold, target and maximum levels of achievement and the number of Options vesting at each level, with pro rata vesting between levels unless the Grant Letter provides otherwise. The Committee shall determine achievement within 60 days of the end of the measurement period and shall notify the Employee in writing; its determination, made in good faith and on the stated records, shall be final. Where a condition becomes incapable of achievement because of a corporate action of the Company, including a Liquidity Event, the Committee shall determine achievement on a fair and reasonable basis having regard to performance to that date. Performance Options shall in all cases remain subject to the minimum one-year period under Rule 12(6)(a).
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The committee may attach targets to some or all of a grant, on top of the time schedule. Targets must be objective and measurable from records, with threshold, target and maximum levels and pro rata vesting between them. The committee decides achievement within 60 days of the period's end and must adjust fairly if a company action, such as a sale, makes the target impossible.
What it means for you
Performance vesting is a sales tool for roles like Priya Nambiar's, but it is also the clause most likely to produce a dispute, because the person deciding achievement is the company. The discipline here (objective tests, three levels, pro rata, a 60-day deadline, a fairness rule on a sale) is what keeps it enforceable and keeps your senior hires from treating the grant as illusory. The Ind AS 102 charge for performance-vested options is also measured differently; agree with your auditors whether each condition is a market condition or a non-market condition before you grant.
What is normal
Performance conditions on 20 to 50 percent of a senior commercial hire's grant are common; conditions on engineering grants are rare. Annual recurring revenue, revenue and gross margin are the usual measures at Series A, with thresholds at 80 percent of target and maximums at 120 percent. A 30 to 90 day determination window is normal. Fully discretionary performance vesting ("as the Committee may decide") is still seen but is bad practice and resisted by candidates.
How to negotiate it
Keep the targets in the letter, not in a separate policy that can change. Ask for the fairness adjustment on a liquidity event, so that a sale 8 months into a 12-month measurement period does not void the grant. Ask that the target be measured on the same auditor-certified ARR definition the SHA uses for the Milestone, so the company cannot hold two numbers. Give the employee a right to see the committee's working within 15 days of the determination.
11. Leave, notice and transfer within the group
Vesting shall continue during any period of paid leave, including maternity leave under the Code on Social Security 2020, paternity leave, sick leave and leave approved by the Company. Where an Employee is on unpaid leave or sabbatical for a continuous period exceeding 60 days, vesting shall be suspended from the sixty-first day and each subsequent Vesting Date shall be postponed by the number of days of suspension, unless the Compensation Committee determines otherwise. Vesting shall continue during a notice period actually served, whether on resignation or on termination by the Company, but shall not continue during any period for which payment is made in lieu of notice. Where an Employee is transferred to, or seconded to, a subsidiary or the holding company of the Company, the Employee's employment shall be treated as continuous for the purposes of the Plan and the Options shall continue to vest, provided that a separate special resolution under Rule 12(4) has been passed for Employees of that company. Options shall not vest during any period of suspension pending a disciplinary inquiry, but shall vest with retrospective effect if the Employee is exonerated. The Grant Letter shall state that these rules apply and the Company shall record every suspension of vesting in the register in Form SH-6.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Paid leave of any kind counts as service and vesting continues. Unpaid leave pauses vesting after 60 days and pushes every later vesting date back by the pause. Notice period served counts; pay in lieu does not. A move to a group company keeps the clock running. Suspension pending an inquiry pauses vesting, restored if the employee is cleared.
What it means for you
Two of these rules decide most leaver fights. Vesting during a served notice period means an employee who resigns 20 days before a vesting date and serves 60 days of notice collects that instalment; if you want to prevent that, your only lawful tool is to accept the resignation with pay in lieu, which costs cash. The maternity rule is not optional: suspending vesting during statutory maternity leave invites a claim under the maternity benefit provisions of the Code on Social Security 2020, which replaced the Maternity Benefit Act 1961. Record pauses in the SH-6 register so that an exercise in 2030 can be reconciled.
What is normal
Continued vesting during paid leave is universal; pausing after 30 to 90 days of unpaid leave is common, with 60 days the median. Vesting during a served notice period is the Indian norm; a minority of plans stop vesting on the day the resignation is received, which candidates now resist. Group transfers preserving vesting are standard. About half of plans address disciplinary suspension expressly.
How to negotiate it
Ask your counsel to make the 60-day pause run from a single continuous absence, not cumulative days in a year, to avoid tracking disputes. Keep notice-period vesting, but pair it with a right to place a resigning employee on garden leave with pay, during which vesting continues but no new instalment exceeds the scheduled amount. Ask the investor to accept that group transfers need no consent. For a hire negotiating against you, agree that approved study or caregiving leave of up to 90 days does not pause vesting.
12. Acceleration
If, within 12 months after a Liquidity Event, the employment of an Employee is terminated by the Company or its successor other than for Cause, or the Employee resigns for Good Reason, all Options held by the Employee which have not vested shall vest in full on the date of such termination or resignation and shall be exercisable for 90 days thereafter ("Double Trigger Acceleration"). "Good Reason" means, without the Employee's written consent, a material reduction in base salary, a material diminution in role or responsibilities, or a relocation of the Employee's principal place of work by more than 50 kilometres, which is not remedied within 30 days of written notice. The Compensation Committee may, in its discretion and with the consent of the Investor Director, accelerate the vesting of all or part of the Options of any Employee or class of Employees, including on or before a Liquidity Event. Save as provided in Clause 19, no Option shall vest solely by reason of a Liquidity Event, and no Grant Letter shall provide for single-trigger acceleration. Options accelerated under this Clause shall remain subject to the one-year minimum period under Rule 12(6)(a) and to Clause 21.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Two things must happen for automatic acceleration: the company is sold, and within a year the employee is pushed out or forced out (pay cut, demotion or a move of more than 50 kilometres). Then everything vests and they have 90 days to exercise. The committee may accelerate anyone with the investor director's consent. A sale alone never vests options, except on death.
What it means for you
Single-trigger acceleration is what acquirers hate, because the team they are paying for is fully vested the day they arrive and free to leave; a plan with it lowers your price or forces the buyer to fund new retention grants. The double trigger protects your people from the common post-deal pattern (the acquirer's own head of sales keeps the job) without that cost. The discretionary power is your tool for the hard cases, such as a long-serving employee one month short of a vesting date when the deal closes; use it with the Investor Director rather than around them.
What is normal
Double-trigger acceleration with a 12-month window is the norm in Indian plans at Series A; 6 to 18 months is the range. Full acceleration on the trigger is standard; some plans accelerate only 50 percent or 12 months' worth. A good-reason definition with salary, role and relocation legs and a 30-day cure is the common form. Single-trigger acceleration survives mainly for founders in SHAs and for a small set of early employees; investors rarely accept it for the whole plan.
How to negotiate it
Hold the line on no single trigger for the plan, but ask the investor for a carve-out allowing the committee to grant single-trigger acceleration to up to 5 named early employees. Ask that good reason include loss of reporting line to the CEO for CXO roles. Make the 90-day exercise window after a trigger run from the later of the termination and the receipt of the sale proceeds, so a deferred-consideration deal does not force exercise before cash. Check that the SHA's drag clause and this clause use the same definition of liquidity event.
Exercise
13. Exercise Period and windows
A Vested Option may be exercised only during an Exercise Window, being: (a) the period of 30 days before the expected completion of a Liquidity Event notified by the Company, with the exercise taking effect immediately before completion; (b) where the Employee ceases to be an Employee as a Good Leaver, the period of 90 days from the date of cessation; (c) any annual window of not less than 15 days which the Compensation Committee may, in its discretion, open by notice to all holders of Vested Options, stating the Fair Market Value determined for that window; and (d) such other period as the Committee may permit in a particular case with the consent of the Investor Director. Notwithstanding the foregoing, every Option shall lapse, if not exercised, on the tenth anniversary of its Grant Date (the "Expiry Date"). Where an Exercise Window would otherwise end on a day that is not a business day in Bengaluru, it shall end on the next business day. A Vested Option which is not exercised within the applicable Exercise Window and which is not otherwise preserved under the Plan shall continue to be held until the earlier of the next Exercise Window and the Expiry Date, save that Options of a Good Leaver which are not exercised within the 90-day period under sub-clause (b) shall lapse.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Vested options cannot be exercised whenever the holder likes. There are four doors: the 30 days before a sale or IPO, 90 days after leaving as a good leaver, an annual window the committee may open, and a special permission with the investor director's consent. Every option dies on its tenth birthday. A continuing employee who misses a window simply waits for the next one.
What it means for you
This is the tax clause in disguise. Exercise triggers a perquisite on the fair market value less ₹100, with TDS due now, while the share is unsellable. If Priya Nambiar exercised 5,000 options at a ₹1,800 valuation with no sale in sight, she would owe about ₹26.5 lakh in tax and hold paper. Confining exercise to a liquidity event means the tax and the cash arrive together; the annual window gives employees who want to start the 24-month capital gains clock a choice. Opening a window also obliges you to buy a merchant banker report dated within the 180 days before the exercises in it.
What is normal
Exercise on a liquidity event plus a 90-day leaver window is the norm for Indian private companies at Series A; about half of plans add a discretionary annual window. A 10-year expiry from grant is standard; 5 to 7 years appears in older plans. Leaver windows of 30 to 180 days are seen, with 90 days the median. Open exercise at any time after vesting survives only in companies that have a secondary buyer or a buy-back programme.
How to negotiate it
Ask for three things. Keep the liquidity window and the annual window together, so neither the company nor the employee is trapped. Ask that the 90-day leaver window be extended automatically to the earlier of the next annual window and 12 months where the company has no merchant banker report less than 180 days old, because exercise without a current valuation is impossible to tax correctly. Make the ten-year expiry run from grant, never from vesting, so the register has one date per grant. The eligible-startup deferral under Clause 26 does not remove the need for any of this.
14. Method of exercise and payment
An Employee shall exercise Vested Options by delivering to the Company, within the Exercise Window, a notice in the form prescribed by the Compensation Committee stating the number of Options exercised, together with (a) payment of the aggregate Exercise Price by bank transfer to the Company's account, and (b) payment of, or an irrevocable authority to recover from salary or from the proceeds of a Liquidity Event, the tax deductible at source under Section 192 of the Income-tax Act on the perquisite arising on allotment, unless the tax is deferred under Section 192(1C) read with Clause 26. The Company shall not allot Equity Shares until the Exercise Price and the applicable tax have been received or secured. The Committee may, with the consent of the Investor Director and subject to applicable law, permit cashless exercise (whereby the Exercise Price and tax are funded from the sale of a portion of the Equity Shares at a Liquidity Event) or net exercise (whereby the Company allots a reduced number of Equity Shares of a value equal to the Options exercised less the Exercise Price and tax), provided that in a net exercise the Equity Shares allotted shall be fully paid at not less than face value. An exercise notice once delivered shall be irrevocable except with the Committee's consent. Partial exercise shall be permitted in multiples of 100 Options.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
To exercise, the employee sends a notice, pays the exercise price into the company's bank account and either pays the TDS on the perquisite or authorises the company to recover it from salary or sale proceeds (unless the startup deferral applies). No shares are allotted until the money and the tax are in hand. Cashless and net exercise exist only if the committee permits and the law allows. Exercise is irrevocable.
What it means for you
You are the tax collector here. Section 192 makes the company responsible for TDS on the perquisite in the month of allotment, so if you allot before you have recovered the tax you are funding an employee's tax bill with the company's cash and carrying the default risk. The deferral under Clause 26 shifts the timing for employees of an eligible startup by law, with no declaration needed, so build the employee's undertaking to report any sale within 3 days into the exercise form. Net exercise is attractive but the ₹10 face value floor under Section 53 means you cannot simply issue fewer shares for nothing; your counsel must structure it as a cash exercise netted against a buy-back or a sale.
What is normal
A notice, a bank transfer and a TDS recovery authority is the standard mechanics in India; most companies process exercises in a batch within 30 days of the window closing. Cashless exercise at a liquidity event, with the acquirer paying the exercise price and TDS out of the price, is near universal in acquisitions. Net exercise against the company itself is uncommon in private companies because of the face value and buy-back rules. Partial exercise in lots of 100 or 500 is common.
How to negotiate it
Ask the investor to pre-approve cashless exercise at any liquidity event so no consent is needed when a buyer is at the table. Ask your auditors and counsel for a one-page exercise form that bundles the notice, the payment instruction, the undertaking to report any sale within 3 days and the nomination refresh. For your senior hires, agree that where the company is late in opening a demat account or allotting, the perquisite valuation date does not move against them.
15. Allotment, demat and register of members
Within 30 days of the close of an Exercise Window, the Board (or the Compensation Committee, if the law permits) shall allot to each exercising Employee the Equity Shares to which they are entitled, by a resolution under Section 62(1)(b) of the Companies Act 2013, and the Company shall (a) file a return of allotment in Form PAS-3 with the Registrar of Companies within 30 days of the allotment under Section 39(4) of the Companies Act 2013 and Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules 2014, (b) credit the Equity Shares in dematerialised form to the Employee's demat account, and (c) enter the Employee's name in the register of members and update the register in Form SH-6. Stamp duty on the issue at 0.005 percent of the issue price shall be paid by the Company through the depository. The Employee shall open and maintain a demat account at their own cost and shall furnish the client master report with the exercise notice. The Equity Shares allotted shall rank pari passu with the existing Equity Shares from the date of allotment, save for any dividend declared for a period before allotment. Where the exercise takes effect immediately before a Liquidity Event, the Company may complete the allotment and the transfer to the acquirer on the same day.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Within 30 days of a window closing the Board allots the shares, files Form PAS-3 within 30 days, credits the shares to the employee's demat account and writes the name into the register of members. The company pays the tiny stamp duty on the issue. The employee must have a demat account. New shares rank equally with the old ones from allotment.
What it means for you
Allotment is the moment the perquisite is taxed, so the allotment date in the Board resolution fixes the tax year, while the value is taken on the exercise date; keep every exercise within 180 days of the merchant banker report. Keep the shares in demat as a matter of practice, because Saffron's investors and any buyer will expect it whatever its size. With about ₹90 lakh of paid-up capital and turnover far below the limit, Saffron is a small company under Section 2(85) of the Companies Act 2013 while it has no holding or subsidiary company, so Rule 9B does not yet require demat; Rule 9B tests this on the last day of each financial year, and if Saffron is not a small company on a 31 March, all its securities must be in demat within 18 months. Build a two-week lead time for employees' demat accounts into every window notice. The PAS-3 and SH-6 entries are what a Series B diligence team will reconcile against the pool, so file both on time.
What is normal
Allotment within 30 to 60 days of a window is the common practice; PAS-3 within 30 days is statutory for an ESOP allotment; the 15-day limit applies only to a private placement. Demat has been compulsory for private companies other than small companies since October 2023 under Rule 9B, and most startups already hold their cap table with a depository. Stamp duty on a demat issue is 0.005 percent and is collected through the depository; on 5,000 shares at a ₹100 exercise price that is ₹25. Share certificates within 2 months under Section 56(4) apply only where a company is still permitted to issue in paper.
How to negotiate it
Ask your counsel whether Section 179(3) lets the Board delegate allotments to the committee; if not, fix a Board meeting for the close of each window so exercises do not wait. Ask the investor to agree that ESOP allotments within the pool are exempt issuances and need no pre-emption waiver under the SHA, which Clause 10 of the SHA already contemplates. For a liquidity event, get the acquirer's counsel to accept an allotment and transfer on the same day with a single demat instruction, so no employee holds shares overnight. Tell employees in the window notice which depository participant the company recommends.
16. Shares after exercise
Equity Shares allotted on exercise shall be held subject to the Articles and to the SHA, and as a condition of allotment the Employee shall execute a deed of adherence to the SHA in the form scheduled to it, under which the Employee shall be bound by the rights of first refusal and tag-along in favour of the Investor and the Promoters and by the drag-along, but shall have no reserved matter, information or pre-emptive rights. No Employee shall transfer, pledge or otherwise encumber any Equity Share before a Liquidity Event, except (a) to the Company under a buy-back approved under Section 68 of the Companies Act 2013, (b) to a purchaser approved in writing by the Board and the Investor Director, or (c) under the tag-along or drag-along provisions of the SHA. Where an Employee ceases to be an Employee, the Company shall have the right, exercisable by notice within 6 months of the cessation, to buy back or to procure the purchase by a person it nominates of all Equity Shares held by the Employee, at Fair Market Value for a Good Leaver and at the price under Clause 18 for a Bad Leaver, with the consideration payable within 60 days of the notice. The Company shall be entitled to refuse to register any transfer in breach of this Clause under the Articles and Section 58(1) of the Companies Act 2013.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Once exercised, the shares are ordinary shares with strings. The employee signs up to the SHA as a minority holder: bound by ROFR, tag and drag, but with no vetoes or information rights. No sale or pledge before a liquidity event except to the company, to an approved buyer or alongside the investors. If the employee leaves, the company has six months to call the shares at fair market value (or at the bad-leaver price).
What it means for you
This clause keeps your cap table clean. Without it, every exercised employee becomes a shareholder who must be chased for signatures on the next round and who could sell to anyone the Articles do not block. The call on leaving matters most: it lets you keep ex-employees off the register before Series B, but a call at fair market value is cash out of the company, and a buy-back must meet Section 68 of the Companies Act 2013, including the one-year gap between buy-back offers. From 1 April 2026 a buy-back is taxed as a capital gain in the employee's hands, as a sale to an investor is, so nominating a buyer (a secondary investor, the founders) is mainly a way round Section 68; at a price below fair market value that route can create deemed income for buyer and seller, so take advice from a tax expert first.
What is normal
A deed of adherence as a condition of allotment is universal in Indian venture-backed companies; ROFR and tag binding the employee, with no reserved matters, is standard. Transfer lock-ups until a liquidity event are the norm; some plans allow sales to the company's existing investors in a secondary round. Call rights on leaving are common (roughly two in three plans), usually exercisable within 3 to 12 months of leaving. The Section 68 limits (10 percent of paid-up capital and free reserves by Board resolution, 25 percent with a special resolution, one buy-back a year) constrain every company call.
How to negotiate it
Ask the investor for a short-form deed of adherence for employees (two pages, no warranties). Ask that the company's call on a good leaver be an option, not an obligation, and that the price be the most recent merchant banker value so no fresh report is needed per leaver. Ask for an express right to nominate a purchaser (including the Promoters) in place of a buy-back, so a leaver's shares can still be bought in a year when Section 68 rules out a buy-back. For your employees, agree that a call on a good leaver cannot be exercised later than 12 months after leaving.
Leaving
17. Good Leaver
An Employee shall be a "Good Leaver" if they cease to be an Employee by reason of (a) resignation with the full notice required under their employment agreement having been served or waived by the Company, (b) retirement at or after the retirement age applicable to them, (c) redundancy, restructuring or the closure of the business unit in which they work, (d) termination by the Company other than for Cause, (e) expiry of a fixed-term engagement without renewal, or (f) any other circumstance which the Compensation Committee determines in writing to be a Good Leaver circumstance. On the cessation date of a Good Leaver, all Options which have not vested shall lapse immediately, and all Vested Options may be exercised within 90 days of the cessation date, failing which they shall lapse. Where the cessation date falls within 30 days before a Vesting Date, the Committee may, before the cessation date, accelerate the instalment due on that Vesting Date so that it vests on the cessation date, subject to the one-year minimum period under Rule 12(6)(a). A Good Leaver who exercises shall be subject to Clause 16. The Company shall notify a Good Leaver in writing, within 10 days of the cessation date, of the number of Vested Options, the Exercise Price, the last date for exercise and the most recent Fair Market Value.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
A good leaver is anyone who leaves for a reason other than cause or a competitor defection: resignation with proper notice, retirement, redundancy, termination without cause, end of a fixed term, or a case the committee decides to treat kindly. Unvested options die on the day they leave; vested options survive for 90 days and must be exercised in that window. The company must send a written statement within 10 days.
What it means for you
Treating a plain resignation as a good-leaver event is the single decision that makes your plan credible to candidates: the Indian market has moved away from plans where leaving for any reason forfeits everything. The cost to you is that vested options walk out of the door; that is the deal. The 90-day window then forces the leaver to find the exercise price and the TDS or lose the options; if the company has no current merchant banker report, exercise is not even practical, which is why Clause 13 lets the committee extend. The written statement within 10 days protects you from a claim that the leaver was not told the deadline.
What is normal
Resignation with notice as a good-leaver event is now the norm in Indian startup plans; about one plan in five still lists resignation as a bad-leaver event, and investors have largely stopped asking for that. A 90-day exercise window is the median, with 30 to 180 days seen. Discretionary vesting of an instalment due within 30 days of leaving appears in roughly a third of plans. Lapse of unvested options on leaving is universal.
How to negotiate it
Ask your counsel to include sub-clause (f), the committee's discretion to treat any case as a good leaver; it is your escape valve in a dispute. Ask the investor to agree that the 90-day window extends to the next exercise window where the leaver cannot lawfully exercise within 90 days (no valuation, no demat account). For your senior hires, offer the 30-day instalment discretion in the letter but not as an entitlement. Keep the written statement obligation short so a missed notice does not itself extend the window.
18. Bad Leaver
An Employee shall be a "Bad Leaver" if they cease to be an Employee by reason of (a) termination by the Company for Cause as defined in Clause 2, (b) resignation followed, within the period of any non-solicitation or confidentiality undertaking in their employment agreement, by joining or establishing a business which competes with the Company in breach of that agreement, as determined by the Compensation Committee after giving the Employee 15 days to respond, or (c) a material breach of the confidentiality or intellectual property undertakings in their employment agreement established by the Committee after an inquiry. On the cessation date of a Bad Leaver, all Options, whether vested or not, shall lapse and be forfeited without compensation. Where a Bad Leaver holds Equity Shares acquired on exercise, the Company shall have the right under Clause 16 to buy back, or to procure the purchase of, those Equity Shares at the lower of the Exercise Price paid and the Fair Market Value. Where facts constituting Cause are discovered within 12 months after a cessation which was treated as a Good Leaver event, the Committee may reclassify the Employee as a Bad Leaver, in which case any Equity Shares allotted shall be subject to the buy-back right and any unexercised Options shall lapse. Nothing in this Clause shall restrain an Employee from taking up employment after leaving; sub-clause (b) applies only where the employment agreement is breached.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
A bad leaver is someone sacked for cause, someone who leaves and breaches their contract by competing, or someone who breaks confidentiality or IP undertakings. They lose everything, vested or not, and any shares they already hold can be bought back at the lower of what they paid and the current value. Cause discovered within a year of a friendly exit can turn a good leaver into a bad one.
What it means for you
This is where plans go wrong. A bad-leaver clause that cancels vested options is common in India, relying on Rule 12(2)(k), which requires the explanatory statement to set out the conditions under which vested options may lapse, for example on termination for misconduct, read with the words "subject to the terms and conditions under the scheme" in Rule 12(8)(f). It is untested in court and only fair if cause is narrow and the process is real; the definition in Clause 2 excludes performance and requires an inquiry, so a termination for underperformance is a good-leaver event here. Sub-clause (b) is drafted carefully because Section 27 of the Indian Contract Act 1872 makes a post-employment non-compete void against an employee; the plan cannot punish competing as such, only a breach of a valid non-solicitation or confidentiality term. The buy-back price (lower of ₹100 and fair market value) returns at most the cash the leaver paid.
What is normal
Forfeiture of unvested options on a bad-leaver event is universal; forfeiture of vested options is common in India (roughly two plans in three) but is the most negotiated point for senior hires, and plans that let vested options survive at a reduced exercise window are gaining ground. Buy-back of exercised shares at the lower of cost and fair market value is the standard bad-leaver price. Look-back periods of 6 to 12 months for reclassification are common.
How to negotiate it
Against your investor, keep cause narrow, keep the 15-day response and the inquiry, and get a written statement that performance is never cause. Against your senior hires, you may concede that vested options survive for a bad leaver under sub-clause (b) but not (a) or (c). Make the Section 27 point explicit in the clause so that it is enforceable rather than struck down. Finally, align the plan's bad-leaver definition with the SHA's bad leaver definition for the founders, so one departure cannot be classified two ways.
19. Death and permanent disability
If an Employee dies or suffers Permanent Disability while an Employee, all Options held by the Employee shall vest in full on the date of death or of the certification of Permanent Disability, notwithstanding Clause 9 and the minimum vesting period under Rule 12(6)(a) to the extent the law permits, and may be exercised by the Employee or, in the case of death, by the nominee named in the nomination form or, failing a nomination, by the legal heirs of the Employee on production of a succession certificate or probate, within 12 months of the date of death or certification, failing which the Options shall lapse. "Permanent Disability" means a disability which, in the opinion of a registered medical practitioner nominated by the Company, prevents the Employee from performing the duties of their employment for the foreseeable future. The Company shall assist the nominee or heirs with the exercise, including by opening a demat account, computing the perquisite and tax under Clause 26 and, where a Liquidity Event is expected within 12 months, by extending the exercise period to 30 days after the Liquidity Event. The Compensation Committee may, with the consent of the Investor Director, permit the Company or a person nominated by it to purchase the Equity Shares allotted to a nominee at Fair Market Value within 6 months of allotment.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Death or permanent disability vests everything at once. The employee, or the nominee, or the heirs, have 12 months to exercise, and the company must help with the paperwork and the tax. If a sale is coming within a year, the deadline moves to 30 days after it. The committee may arrange a buyer for the shares at fair market value within six months of allotment.
What it means for you
This is the one place the plan accelerates on a single event, and no investor will argue with it. The practical burden falls on you: a bereaved family does not know what a demat account or Form 12BA is, so the clause makes the company responsible for walking them through exercise and the perquisite. The nomination form collected under Clause 6 is what makes this workable; without it the heirs need a succession certificate, which can take a year. Where the family has no cash for the exercise price and the tax, the fair-market-value purchase gives them a way to realise value rather than a tax bill.
What is normal
Full vesting on death or permanent incapacity in employment is required by Rule 12(8)(d) and (e), so it is universal. Exercise windows for heirs of 6 to 12 months are standard, 12 months being the median. Rule 12 does not say how those clauses sit with the one-year minimum under Rule 12(6)(a); the usual reading, that the specific rule on death and incapacity prevails, is reasonable but untested, so keep the "to the extent the law permits" qualifier. Company assistance clauses appear in roughly half of plans and are becoming standard.
How to negotiate it
Ask your counsel to include the "to the extent the law permits" qualifier and to confirm the Rule 12(6)(a) position on death in writing. Ask the investor to pre-approve a purchase of a nominee's shares at fair market value so no consent is needed at a difficult time. Make the nomination form part of the grant letter acceptance, with a change-of-nominee right on marriage or divorce. Agree internally who in finance owns the perquisite calculation for an estate so it does not fall between HR and payroll.
20. Disputes about leaver status
Any question as to whether an Employee is a Good Leaver or a Bad Leaver, the cessation date, the number of Vested Options or the application of Clauses 11, 17 and 18 shall be determined by the Compensation Committee, which shall give the Employee written notice of the proposed determination and the reasons for it and not less than 15 days to make representations in writing or in person before deciding. Where the Committee is not unanimous, the view of the independent director chairing the Committee shall prevail. The Committee's determination shall be communicated in writing within 30 days of the cessation date, and the 90-day period under Clause 17 shall run from the later of the cessation date and the date of that communication. An Employee who disputes the determination may, within 30 days of receiving it, refer the dispute to the Board, excluding any director who participated in the determination, whose decision shall be final for the purposes of the Plan without prejudice to the Employee's rights under Clause 28. Pending determination, no Vested Option of the Employee shall lapse, no Exercise Window shall close and the Company shall not exercise any buy-back right under Clause 16, but Options not vested on the cessation date shall lapse on that date as Rule 12(8)(f) requires. The Company shall keep a record of every determination with the register in Form SH-6.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The committee decides whether a departing employee is a good or bad leaver, after telling them the proposed outcome and giving them 15 days to respond. If the committee splits, the independent director's view wins. The decision must come within 30 days and the 90-day exercise clock starts from it. The employee can appeal to the Board, and no vested option lapses while the question is open, although unvested options still lapse on the leaving date.
What it means for you
Most leaver disputes in Indian startups are never litigated; they are settled by whoever has the paper. This clause gives you a process that an arbitrator or a court will respect: notice, a hearing, reasons, an independent decision-maker and an appeal. Giving the casting view to Meera Krishnan rather than to you means a bad-leaver finding against a senior employee is not the CEO's personal call, which protects you from an allegation of bad faith and makes the finding stick. The freeze on lapse and buy-back while the dispute runs is what stops an employee from losing vested options on a technicality during the argument; it cannot keep unvested options alive after the leaving date.
What is normal
A committee determination with a right to respond appears in roughly half of Indian plans; a formal appeal to the Board in fewer. Response periods of 7 to 15 days and determination deadlines of 30 to 45 days are the common ranges. Freezing lapse during a dispute is standard where the process is written down at all. Giving the independent director a casting view is less common but increasingly expected in plans at Series A and later.
How to negotiate it
Ask your counsel for exactly this process, and keep the periods short so a dispute cannot stretch past the next exercise window. Ask the investor to agree that the Investor Director does not sit on the appeal where the Investor Director was part of the committee decision. For a senior hire, agree that the company bears the cost of the merchant banker valuation needed to settle a disputed buy-back price. Record every determination in the SH-6 register so that a later exercise reconciles.
Corporate events
21. Liquidity Event treatment
On a Liquidity Event the Compensation Committee shall, by notice to all holders of Options not less than 30 days before the expected completion, determine that one or more of the following shall apply: (a) holders of Vested Options may exercise under Clause 13 and sell the Equity Shares to the acquirer on the terms applicable to the Promoters, including under the drag-along in the SHA, with the Exercise Price and the tax deductible under Section 192 being recovered from the sale proceeds; (b) Vested Options shall be cancelled against a cash payment by the Company or the acquirer equal to the price per Equity Share payable in the Liquidity Event less the Exercise Price, such payment being treated by the Company as salary and subject to deduction of tax at source ("Cash-Out"); or (c) the acquirer shall assume the Options or substitute options over its own shares of equivalent value and on terms no less favourable, with vesting continuing ("Roll-Over"). Options which have not vested shall, at the Committee's election, be assumed or substituted under (c), accelerated under Clause 12 to the extent the Committee determines with the consent of the Investor Director, or cancelled against a cash payment deferred to the original Vesting Dates and conditional on continued employment with the acquirer. Where a Liquidity Event is an initial public offering, Options shall continue under the Plan as modified to comply with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations 2021.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
When the company is sold, the committee tells option holders at least 30 days before closing which of three routes applies to vested options: exercise and sell alongside the founders, take cash for the spread (usually taxed as salary), or roll into the buyer's options. Unvested options are either taken over by the buyer, accelerated with the investor director's consent, or turned into deferred cash tied to staying. An IPO keeps the plan running under SEBI rules.
What it means for you
This is the clause your employees will read on the day the deal is announced, and the one the acquirer's counsel will negotiate hardest. The cash-out route is the simplest for everyone and employers usually treat it as salary, so TDS at slab comes off the payment (a 2026 ruling of the Income Tax Appellate Tribunal in Bengaluru treated such a payment as a capital gain, so the point is contested); a sale after exercise is taxed partly as a perquisite and partly as a capital gain, which is better for an employee who exercised long ago. Unvested options are the retention currency the buyer wants, so expect the roll-over or deferred cash route rather than acceleration. In the 2029 Kaveri exit, Saffron used route (b): vested options were cashed out at ₹4,500 a share less the ₹100 exercise price, with TDS as salary.
What is normal
Giving the committee all three routes is normal; locking in a single route is unusual. Cash-out of vested options at the deal price less exercise price is the most common outcome in Indian acquisitions; roll-over is common where the buyer is listed or venture-backed. Unvested options are assumed or replaced with retention awards in most deals, and accelerated in a minority. SEBI's 2021 regulations apply only once a company lists, and most private plans say so expressly.
How to negotiate it
Ask that the 30-day notice be a minimum and that it state the price per share, the route and the tax treatment in plain terms. Ask the investor that cash-out payments be made by the acquirer, not the company, so the company's cash is not drained on the eve of a sale. For your employees, agree that a roll-over must be on terms no less favourable overall, including the exercise window, and that deferred cash for unvested options is not forfeited if the buyer terminates them without cause. Keep the Investor Director's consent for acceleration, so the buyer cannot blame you for the decision.
22. Adjustments for bonus, split, rights and reorganisation
If the Company makes a bonus issue, sub-divides or consolidates its Equity Shares, makes a rights issue at a price below Fair Market Value, or undergoes a merger, demerger, amalgamation or other reorganisation of capital, the Compensation Committee shall make such adjustments to the number of Equity Shares subject to each outstanding Option, the Exercise Price and the Pool as are fair and reasonable to ensure that the aggregate Exercise Price payable and the economic value of the Options to the holder immediately after the event are the same as immediately before it, provided that the Exercise Price shall not be reduced below the face value of an Equity Share. On a bonus issue in the ratio of one Equity Share for every Equity Share held, for example, each Option shall thereafter entitle the holder to two Equity Shares at half the Exercise Price. No adjustment shall be made by reason of the issue of Equity Shares or other securities for cash in a financing round, the conversion of preference shares or convertible instruments, the exercise of Options or the issue of Equity Shares under any other employee plan. The Committee's determination, certified by the statutory auditors of the Company as fair and reasonable, shall be final and shall be notified to each holder within 30 days of the event and entered in the register in Form SH-6.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
If the company reshuffles its shares (bonus, split, consolidation, cheap rights issue, merger), the committee adjusts the number of shares per option and the exercise price so that the holder is exactly where they were before, and the auditors certify the arithmetic. A funding round, a conversion of preference shares or another employee grant never triggers an adjustment: that dilution is real and everyone shares it.
What it means for you
Without this clause a one-for-one bonus issue would halve the value of every option overnight, and a holder could argue the plan had been varied to their prejudice under Rule 12(5). With it, the adjustment is mechanical and the pool moves too, so a 1-for-1 bonus turns each option into a right to two shares at ₹50 each and takes the pool to 2,00,000 shares. The exclusion for financing rounds is the important business point: option holders are not protected against dilution from Series B, just as the founders are not, and the Term Sheet Explainer's anti-dilution protection belongs to the investor's preference shares alone.
What is normal
Economic-value-neutral adjustments for bonus, split and consolidation are universal; adjustment for a below-value rights issue is common; adjustment for a cheap financing round is almost never given to employees. Auditor certification of the adjustment appears in roughly half of plans and is good practice. The face-value floor on the adjusted exercise price is a statutory necessity because shares cannot be issued below ₹10.
How to negotiate it
Ask your counsel to keep the worked bonus example in the clause; it ends arguments. Ask the investor to agree that a bonus issue to fix a share-count or price-per-share problem before an IPO is pre-approved for ESOP adjustment purposes. For employees, agree that a demerger or a share swap with a parent carries their options into the new entity on equivalent terms rather than cashing them out. Make sure the Articles contain a matching adjustment power so the restated Articles and the plan agree.
23. Cash settlement alternative
Where the Compensation Committee determines, with the approval of the Board, that the allotment of Equity Shares on the exercise of an Option is impractical or unlawful in the circumstances, including where the Employee is resident outside India and the allotment would require regulatory approval under the Foreign Exchange Management Act 1999 or the laws of the Employee's country of residence, where the Company has no merchant banker valuation available within the time required, or where a Liquidity Event is structured as a sale of assets, the Committee may, in lieu of allotment, settle the exercised Options by paying the Employee a cash amount equal to the Fair Market Value of an Equity Share on the date of exercise less the Exercise Price, multiplied by the number of Options exercised, in the manner of a stock appreciation right. Any such payment shall be made within 60 days of the exercise notice, shall be treated as salary of the Employee for the purposes of the Income-tax Act and subject to deduction of tax at source under Section 192, and the Options so settled shall be cancelled and shall not return to the Pool. No Employee shall have a right to require cash settlement, and the Committee shall apply this Clause consistently among Employees in like circumstances. Cash settlement shall not be used to circumvent the transfer restrictions in Clause 16 or the Reserved Matters in the SHA.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
In defined hard cases (an employee abroad whose allotment needs regulatory approval, no current valuation, or a sale of the business rather than the shares) the committee may pay cash for the spread instead of issuing shares. The cash is salary, taxed with TDS. The options are cancelled and do not return to the pool. No employee can demand cash; the committee must treat like cases alike.
What it means for you
This clause saves you when the share route fails. An engineer in Singapore exercising options in an Indian private company raises FEMA questions (a non-resident acquiring shares, pricing guidelines, Form FC-GPR) that may be out of proportion to a small grant; paying the spread as salary is simpler for both sides. The tax outcome is worse for the employee than shares held for 24 months (slab rate rather than 12.5 percent), which is why the clause is a committee power, not an employee right. Cash settlement is also an expense in the profit and loss account rather than a share issue, and is accounted for as a cash-settled award under Ind AS 102.
What is normal
A cash settlement power in defined circumstances appears in most Indian plans drafted since 2020; an unrestricted power to cash-settle at will is rarer and resisted by investors because it drains cash. Payment within 30 to 90 days of exercise is normal. Treating the payment as salary with Section 192 TDS is the settled position. Plans typically state that cash-settled options do not recycle, to stop the pool being used twice.
How to negotiate it
Ask the investor to accept the three named circumstances and a general "impractical or unlawful" test, so the committee is not boxed in. Ask that cash settlement above a stated aggregate (say ₹50 lakh in a financial year) be a reserved matter rather than every payment. For employees abroad, agree that the company will tell them at grant whether they are likely to be cash-settled, so they can plan their own tax. Have Rao & Hegde confirm the Ind AS 102 classification before the first such payment.
Governance
24. Amendment and termination
The Board may frame administrative procedures for the Plan and correct clerical errors which do not change the meaning of any term, and may propose any other amendment which does not prejudice holders of outstanding Options, including an amendment required by law, for approval by special resolution under Rule 12(5)(a), without holders' consent, in each case with the prior written consent of the Investor Director; until such approval, any change in law which overrides the Plan shall apply by force of law. Any variation of the terms of the Plan or of outstanding Options which is prejudicial to the interests of the holders, including any increase in the Exercise Price, any lengthening of a vesting schedule, any narrowing of the Exercise Period or any widening of the definition of Cause or Bad Leaver, shall require a special resolution of the shareholders under Rule 12(5), the prior written consent of the Investor Director and, in respect of any outstanding Option, the written consent of the holder, and no such variation shall be made if it would be prejudicial to the holder within the meaning of Rule 12(5). The notice of the general meeting for any variation shall disclose the particulars required by Rule 12(5)(b), including the rationale for the variation and the details of the Employees who will benefit. The Board may terminate the Plan at any time with the consent of the Investor Director, whereupon no further Grants shall be made, but Options outstanding at termination shall continue in force on their existing terms until exercised, lapsed or cancelled. The Plan shall terminate automatically on the tenth anniversary of the Effective Date for the purposes of new Grants.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The Board can only frame administrative procedures and correct clerical errors; every other change that does not hurt option holders, including one the law requires, goes to the shareholders as a special resolution, with the investor director's consent but without the holders' consent. Anything that hurts holders (higher price, slower vesting, narrower windows, wider cause) needs a shareholders' special resolution, the investor director and the affected holder's written agreement, and Rule 12 bars changes that prejudice holders at all. The Board can stop new grants at any time; existing grants keep running.
What it means for you
Rule 12(5) is stricter than most founders expect: a variation that prejudices option holders is not merely harder to pass, it is prohibited. That protects your employees, and it also protects you from an investor who wants to tighten leaver terms after a bad quarter. The consequence is that the plan text you adopt now is close to permanent for the grants made under it, so get the leaver and exercise clauses right the first time. The termination rule means that killing the plan is not a way out of existing promises; it only closes the door to new grants.
What is normal
A Board power to amend for compliance is common, but Rule 12(5)(a) makes no exception for it: every variation, including one required by law, needs a special resolution, and the Board can only frame administrative procedures and correct clerical errors; investor consent on every amendment is standard at Series A. Special resolution plus holder consent for prejudicial variations is the Rule 12(5) baseline, and most plans copy it. Termination with continuing grants is universal. The notice disclosures for a variation (rationale, beneficiaries) are statutory.
How to negotiate it
Ask your counsel to build the common beneficial changes (longer exercise windows, faster vesting, wider good-leaver treatment) into the plan as committee discretions, because a variation of the plan itself, even a beneficial one, needs a special resolution under Rule 12(5). Ask the investor for a deemed consent after 10 business days on compliance amendments. Make the ten-year automatic sunset apply to new grants only, with a one-line power for the Board to adopt a successor plan on the same terms.
25. Compliance and disclosures
The Company shall (a) file the special resolution approving the Plan, and any special resolution varying it or approving Grants under Rule 12(4), with the Registrar of Companies in Form MGT-14 within 30 days of its passing, together with the explanatory statement containing the particulars required by Rule 12(2); (b) maintain the register of employee stock options in Form SH-6 and enter in it the particulars of every Grant, vesting, exercise, lapse and forfeiture forthwith; (c) disclose in the Board's report for each financial year, as required by Rule 12(9), the options granted, vested, exercised and lapsed, the total number of Equity Shares arising on exercise, the Exercise Price, any variation of terms, the money realised on exercise, the total number of Options in force, and employee-wise details of Options granted to key managerial personnel, to any Employee receiving in that year 5 percent or more of the Options granted, and to any Employee granted in that year Options equal to or exceeding 1 percent of the issued capital; (d) account for the Plan under Ind AS 102 or the Guidance Note on Accounting for Share-based Payments, as applicable, and disclose the expense in the financial statements; (e) reconcile the Pool, the register in Form SH-6 and the ledger of Options outstanding at the end of each quarter and report the reconciliation to the Compensation Committee; and (f) include the Plan in the annual return in Form MGT-7 where required.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
The compliance list: MGT-14 within 30 days of every ESOP resolution with the Rule 12(2) particulars; a Form SH-6 register kept up to date; a fixed set of Rule 12(9) disclosures in every Board's report, including named details of large grants and grants to key managerial personnel; proper accounting; a quarterly reconciliation of the pool; and the annual return.
What it means for you
None of this is optional and all of it is checked in diligence. The Board's report disclosures are the one that surprises founders: a grant to your CFO or a grant above the 5 percent-of-the-year's-grants line is named in a public filing, so tell the employee before they read it in the MCA records. The quarterly reconciliation is not statutory but it is what keeps the pool honest; a pool that does not tie to the SH-6 register and the Ind AS 102 ledger is the most common ESOP finding in a Series B diligence report. BizExpress handles this for clients as a package, from the MGT-14 to the Board's report and the Ind AS 102 workings.
What is normal
MGT-14 within 30 days is statutory; late filing attracts additional fees that rise with the delay and a penalty under Section 117(2). The Rule 12(9) disclosures apply to every unlisted company with an ESOP; listed companies disclose under SEBI's regulations instead. A quarterly pool reconciliation is good practice adopted by most venture-backed companies; the minimum anyone should accept is an annual reconciliation at the audit. Most companies disclose the Ind AS 102 expense as a separate line in the employee benefits note.
How to negotiate it
Ask your company secretary for a compliance calendar that ties each ESOP event to a form and a date, and have the committee minute the quarterly reconciliation. Ask the investor to accept the Rule 12(9) disclosures as satisfying the information rights on the plan, rather than a separate monthly ESOP report. Confirm with Rao & Hegde whether Saffron applies Ind AS or the Guidance Note, because the choice follows the company's accounting framework, not the plan.
26. Tax
The Employee shall be solely responsible for all taxes arising from the Grant, vesting, exercise and sale of Options and Equity Shares. On allotment of Equity Shares on exercise, the difference between the Fair Market Value of the Equity Shares on the date of exercise, determined under Rule 15(6)(d) of the Income-tax Rules 2026 (formerly Rule 3(8) of the Income-tax Rules 1962) by a Category I merchant banker registered with the Securities and Exchange Board of India on the specified date under Rule 15(8), being the exercise date or any earlier date not more than 180 days before it, and the Exercise Price paid shall be a perquisite under Section 17(2)(vi) of the Income-tax Act 1961 (renumbered under the Income-tax Act 2025 from 1 April 2026), now Section 17(1)(d) valued under Section 17(4)(h), and the Company shall deduct tax under Section 192, now Section 392. Where the Company is an eligible start-up under Section 80-IAC, now Section 140, the tax on the perquisite is deferred by law under Section 192(1C), now Section 392(3) read with Section 289(3); the deferral does not depend on any declaration, and the Act gives no option to pay at allotment instead. The Company shall deduct or pay the tax within 14 days of the earliest of (a) the end of 60 months from the end of the tax year of allotment, (b) the sale of the Equity Shares by the Employee, and (c) the Employee ceasing to be an Employee. The Employee shall tell the Company in writing of any sale within 3 days of it and shall put the Company in funds for the tax on demand. On a sale of Equity Shares the Employee's cost of acquisition shall be the Fair Market Value taken for the perquisite under Section 49(2AA), the Equity Shares shall be long-term capital assets if held for more than 24 months from allotment, and the gain shall be taxable under Section 112 or at slab rates as applicable. The Company gives no tax advice and the Employee shall obtain independent advice.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Tax is the employee's problem, but the company collects it. At allotment, the gap between the merchant banker's value and the exercise price is salary, with TDS. If the company is a Section 80-IAC eligible startup, that TDS waits until 14 days after the earliest of 60 months past the end of the tax year of allotment, a sale, or leaving. At sale, the cost base is the value already taxed, 24 months makes the shares long-term, and the gain is taxed as capital gains.
What it means for you
You carry three obligations. First, a merchant banker report dated on or within 180 days before each exercise; without it there is no lawful perquisite figure. Second, TDS under Section 192 in the month of allotment, or under the deferral if Saffron remains an eligible startup (DPIIT recognition plus the Inter-Ministerial Board certificate under Section 80-IAC are both needed, and Saffron holds both; confirm each year that it still qualifies). Third, Form 12BA reporting for every employee with a perquisite. The 24-month clock runs from allotment, not grant, which is another reason employees may want an annual exercise window.
What is normal
Every compliant Indian plan states the Section 17(2)(vi) and Rule 3(8) mechanics; most now add the Section 192(1C) deferral. A 180-day validity for the merchant banker report is statutory. The 24-month long-term test and the 12.5 percent rate for transfers on or after 23 July 2024 apply to all unlisted shares. For Priya Nambiar's grant, an exercise at ₹1,800 produces a perquisite of ₹85,00,000 and tax at 31.2 percent, ₹26,52,000; the calculator on this page shows the full working.
How to negotiate it
Ask your counsel to replace any deferral declaration in the exercise notice with the employee's undertaking to report a sale within 3 days; the deferral applies by law and needs no declaration. Ask the auditors to confirm each year that Saffron still qualifies as an eligible startup for Section 192(1C), and tell employees promptly if it stops. Agree internally that the company will fund the merchant banker report, not the employee. For a liquidity event, align the TDS recovery with Clause 21 so the acquirer's payment is net of tax. Add a right to recover the deferred TDS from sale proceeds or from the final settlement on leaving, because either event starts the 14-day clock and the company carries the default if it cannot collect.
27. No right to continued employment, no trust, no transfer or pledge of options
Nothing in the Plan or any Grant Letter shall confer on any Employee a right to continue in employment or office, restrict the right of the Company to terminate employment in accordance with the employment agreement, or form part of the Employee's salary or wages for the purposes of gratuity, provident fund, bonus, notice pay or any other statutory or contractual entitlement. The Options are a contractual right against the Company and do not constitute a trust, nor shall the Company hold any Equity Shares, money or other assets on trust for any Employee; the Company's obligations under the Plan are unfunded. An Option shall be personal to the Employee and shall not be sold, transferred, assigned, pledged, hypothecated, mortgaged or otherwise encumbered or alienated in any manner, whether voluntarily or by operation of law, other than by transmission to a nominee or legal heir on death under Clause 19, and any purported transfer or encumbrance shall be void and shall cause the Options concerned to lapse. An Employee shall have no rights as a shareholder, including voting, dividend or information rights, in respect of any Option until Equity Shares are allotted on exercise and the Employee's name is entered in the register of members. The grant of an Option in one year shall not entitle the Employee to a Grant in any later year.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Options do not buy job security, do not count as salary for gratuity, provident fund or bonus, and do not create a trust or a funded promise. They belong to the employee alone and cannot be sold, pledged or given away except on death. Until shares are actually allotted, the holder has no vote, no dividend and no information rights, and one grant creates no expectation of another.
What it means for you
Three protections for you in one clause. The salary carve-out answers a departing employee who argues that the option spread should inflate their gratuity or notice pay under the Code on Social Security 2020 and the Code on Wages 2019; the Code on Social Security defines wages widely, but an option is not normally given in place of wages, and the point is untested, so keep it in the employment agreement as well. The no-trust statement means an option holder is an unsecured creditor for a contractual right, not a beneficiary who can trace company assets. The transfer bar is Rule 12(8) restated; it also means an employee cannot borrow against options, which is why the exercise windows and the deferral matter so much.
What is normal
Every Indian plan carries all three statements; the drafting differs only in length. The ban on transfer, pledge and encumbrance is statutory under Rule 12(8)(a) and (b), and the passing of options to the nominee or heirs on death under Rule 12(8)(d) is the only exception the rule makes. Excluding options from wages for statutory benefits is standard. The Labour Codes in force since 21 November 2025 repealed the Payment of Gratuity Act 1972, so gratuity now falls under the Code on Social Security 2020, and under the Explanation to Section 2(88) of that Code remuneration in kind given in place of all or part of the wages counts as wages up to 15 percent of total wages. An option is not normally given in place of wages, and no court or ministry has said whether an option spread counts as wages for gratuity or provident fund, so the point is untested.
How to negotiate it
Ask your counsel to add that the exclusion from wages is mirrored in every employment agreement and offer letter, so the plan and the contract agree. Ask that the no-expectation statement be read aloud in the grant conversation and recorded in the acceptance, because the single most common grievance is a promised refresh grant that never came. For the employee, you may agree a right to information about the number of vested options and the latest fair market value once a year; that costs nothing.
28. Governing law, disputes and notices
The Plan and every Grant Letter shall be governed by the laws of India. Any dispute between the Company and an Employee or former Employee or their nominee or heir arising out of or in connection with the Plan or a Grant Letter which is not resolved under Clause 20 shall be referred to arbitration under the Arbitration and Conciliation Act 1996 before a sole arbitrator appointed by agreement or, failing agreement within 30 days of a request, by the Mumbai Centre for International Arbitration under its rules; the seat and venue of arbitration shall be Bengaluru and the language English. Nothing shall prevent either party from seeking interim relief under Section 9 of that Act from the courts at Bengaluru, which shall have exclusive jurisdiction subject to the arbitration agreement. Any notice under the Plan shall be in writing and delivered by hand, by courier to the address in the Company's records, or by email to the Employee's work email address and, after cessation of employment, to the personal email address last notified by the Employee, and shall be deemed received on delivery or, for email, when sent, unless a delivery failure is received. The Employee shall keep the Company informed of their address, email, bank account and demat account details. Where the Plan and a Grant Letter conflict, the Plan shall prevail; where the Plan and the SHA conflict, the SHA shall prevail as between the parties to it.
Click for the notes: what it says, what it means for you, what is normal, how to negotiate it
What it says
Indian law governs. Disputes that survive the committee and Board process go to a sole arbitrator in Bengaluru, with the MCIA appointing if the parties cannot agree, and the Bengaluru courts for urgent interim orders. Notices work by hand, courier or email, and after leaving the employee's personal email is the address. The plan beats the letter; the SHA beats the plan.
What it means for you
Arbitration keeps an ESOP dispute private and quick, which matters because the usual claim ("I was wrongly made a bad leaver") is one you would rather not fight in open court while hiring. The notice rule is more important than it looks: a leaver's 90-day window and a liquidity event notice both depend on the company being able to prove delivery, so collect a personal email at grant and refresh it at exit. The hierarchy clause settles the inevitable mismatch between a generous offer letter and the plan: the plan wins, so never promise in a letter what the plan cannot deliver.
What is normal
A sole arbitrator seated in the company's city with an institutional fallback is the standard form, matching the Series A SHA; MCIA, DIAC and the Bengaluru-based centres are the usual appointing bodies. Email notice with deemed receipt on sending is the norm. The plan-over-letter and SHA-over-plan hierarchy is universal in venture-backed companies. Arbitration costs of ₹3 lakh to ₹10 lakh for a sole-arbitrator dispute are typical, which is itself a reason for the Clause 20 process.
How to negotiate it
Ask your counsel to keep the arbitration clause identical to the SHA's so one tribunal can hear a founder and an employee dispute arising from the same exit. Ask that the company bear the arbitrator's fees in the first instance for claims under ₹25 lakh, recoverable if the employee loses, so the clause is not a barrier that invites a labour-court claim instead. Collect a personal email and a nominee in the acceptance form and make it the employee's duty to update both.
