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Enforcement of Put and Call Options – Challenges in Manoeuvring the Exit

Raj R. Panchmatia (Partner), Peshwan Jehangir (Associate Partner) and Parth Gokhale (Associate), Khaitan & Co, Mumbai

12 September 2017

An option contract is fundamentally an arrangement wherein a party to a contract is granted a right to exercise its option to either (a) ‘call’ upon the other party to buy certain of its securities or assets (i.e. a call option); or (b) ‘put’ its securities or assets and require the other party to purchase the same (i.e. a put option); typically, the right to exercise is triggered upon the occurrence or non-occurrence of certain specified events in the future. An option may be exercised at a pre-determined price or at a price determined on the basis of a prescribed formula.

Internationally, it is common to have put and call options to provide an equity investor an exit from a company. However, the enforceability of option contracts in India has for long been a grey area under Indian securities and foreign exchange control laws.

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Image credit: SEBI Bhavan, Head Office of Securities and Exchange Board of India in Mumbai by Jimmy Vikas. [CC BY-SA 3.0] via Wikimedia Commons.

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