The Mint carries an article by Archana Rajaram and Amrita Singh that discusses the current position on the enforceability of put and call options on securities of an Indian company. The Securities Contracts (Regulation) Act, 1956 (SCRA) and the notifications issued under that permit only ‘spot delivery’ contracts in securities transactions outside the exchange. A spot delivery contract is one where the transfer of securities and payment of consideration take place on the same or next day. There is one school of thought that views options as only contingent contracts and they become completed contracts only when the option is exercised (in which case they need to be settled the same day or next day). But, the authors helpfully point to a judgment of the Bombay High Court in Niskalp Investments and Trading Co. Ltd. v. Hinduja TMT Ltd where the court refused to accept that a contingent contract is outside the purview of SCRA’s proscription. This creates further ambiguity on the enforceability of options in securities and, as the authors point out, may require clarification from SEBI.
This also brings to mind a column in the Economic Times I co-authored a few years ago on this issue, which had disappeared into cyberspace for a while but has now resurfaced (here). The difficulties in enforceability of options that appeared to exist then continue even now, but in a further compounded form owing to the Niskalp judgment.
This also brings to mind a column in the Economic Times I co-authored a few years ago on this issue, which had disappeared into cyberspace for a while but has now resurfaced (here). The difficulties in enforceability of options that appeared to exist then continue even now, but in a further compounded form owing to the Niskalp judgment.