Calculation of diluted eps

Yes, from the AS 20 perspective, this should be treated as contingent equity shares and should be included while calculating the Diluted Earnings Per Share in accordance with AS 20.

Para 7 of AS 20 for Ready Reference 
Examples of potential equity shares are:

 (a) debt instruments or preference shares, that are convertible into equity shares;
 (b) share warrants;
 (c) options including employee stock option plans under which employees of an enterprise are entitled to receive equity shares as part of their remuneration and other similar plans; and
 (d) shares which would be issued upon the satisfaction of certain conditions resulting from contractual arrangements (contingently issuable shares), such as the acquisition of a business or other assets, or shares issuable under a loan contract upon default of payment of principal or interest, if the contract so provides.