Enforceability of Put and Call Options: Reality Soon?

Although
put and call options are quite common in investment agreements, its
enforceability under Indian law has been in serious doubt due to age-old
provisions in securities laws which have not been updated to meet with the
requirement of the times. I have discussed the issue in detail in this paper and
also called “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”.
Although this
issue has been on the anvil for a long time, now there seems to be some
tangible movement towards resolution. News
reports
indicate that the Law Ministry has, based on a proposal from the
Finance Ministry, decided to permit options in investment agreements.
It is not
clear how the revisions will be effected. It could be done simply by way of a
notification by SEBI amending/repealing its earlier notification of March 1,
2000, which put paid to these options. The other alternative would be to amend
the Securities Contracts (Regulation) Act, 1956 (SCRA), which is perhaps both
unnecessary and more cumbersome given that the intervention of Parliament will
be required.
It is too
early to be euphoric because the devil is always in the detail!

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.

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