Enforceability of Put and Call Options in India

I have posted a working paper tentatively titled Investment Agreements in India: Is There an ‘Option’?, the abstract of which is as follows:

Put and call options are ubiquitous in modern investment agreements, such as those involving joint ventures as well as private equity and venture capital investments. The enforceability of put and call options in Indian companies has been the subject matter of debate due to the existence of stringent securities legislation that has been supported by strict judicial interpretation. Moreover, recent pronouncements by India’s securities regulator, the Securities and Exchange Board of India, have expressly disallowed options in securities of Indian companies (except private companies).

This article embarks on the modest task of mapping out the legal landscape that presently shapes the enforceability of put and call options in Indian companies. It seeks to review applicable legislation and analyze key judicial pronouncements that hold sway over the field. It finds that the current legal regime governing put and call options in investment agreements is fragmented and hazy and unnecessarily restricts the ability of investors in Indian companies to enter into such arrangements to protect their own interests. It calls for a reconsideration of the legal regime so that physically settled options that are customary in investment agreements may be treated as valid and legally enforceable.
The paper essentially deals with issues arising under the Securities Contracts (Regulation) Act, 1956, the notifications issued under that legislation and various court decisions interpreting those. Comments are welcome.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • Work of Art, Umakanth! Very well written and beautifully structured to present a comprehensive coverage of all issues pertinent for the analysis. Was in fact grappling with these issues a few days back and trying to understand the very nature of Options, whether they can be classified as contingent contracts or the transaction can be broken into two stages, as was discussed in the Article and it's been a very interesting read! Thanks!

    Hoping that SEBI can take some cues and take steps for clarifying the position in this regard.

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