Call/Put Options: Valid?
Before we close, there’s an important development I want to bring to your notice. The much vexed issue of options has found some clarity; thanks to the Bombay High Court’s decision in the MCX_SX case. As you know, for some time now, SEBI has held that call & put options, tag & drag rights and the like are not legally valid as they violate the Securities Contract Regulation Act, Sections 16 & 18(a). And in some cases courts have cited free transferability contained in Section 111(a) of the companies act to strike down ROFRs.
Well earlier this month, a two judge bench of the Bombay High Court said in it’s decision in the MCX-SX case that ‘a contract for the purchase or sale of the shares would come into being only at a future point of time in the eventuality of the party which is granted an option exercising the option in future. Once such an option is exercised, the contract would be completed only by means of spot delivery or by a mode which is considered lawful. Hence, the basis and foundation of the order which is that there was a forward contract which is unlawful at its inception is lacking in substance’. We asked two lawyers if this finally clears the way for call & put options
Founder, Finsec law Advisors
”This ruling comes as a huge relief for not all of them but most of these clauses because what has been validated is option contracts and not forward contracts, the issue of forward contracts still remains open.”
Nishith Desai Assocaites
“The issue whether such an option is physically traded option compared to an exchange traded option which is allowed under 18A of the Securities Contracts and Regulation Act is a question which is not answered and that is still an open-ended debate.”
Watch the accompanying video for more details..