Mar 31, 2023

Bombay HC Upholds Validity and Enforceability of Put Option Under SCRA

In Percept Finserve (P) Ltd. v. Edelweiss Financial Services Ltd.[1], a Division Bench of the Bombay High Court (‘HC’), upheld the validity of a put option clause contained in share purchase agreements under the Securities Contracts (Regulation) Act, 1956 (‘SCRA’). The Court, inter alia, held that: (a) a put option clause would come into being at a future point in time, upon the happening of an event or contingency and the consequent exercise of the option by a party. Thus, the contract would be complete when such option is exercised and will not be considered as a forward contract; and (b) Section 18A read with Section 16 of the SCRA read with the SEBI’s Notification dated March 01, 2000 does not prohibit entering into a call or a put option for sale, but prohibits trading or dealing in such option and treating it as a security and thus, the same cannot be termed as trade or contract in derivatives.

[1] Percept Finserve (P) Ltd. v. Edelweiss Financial Services Ltd., 2023 SCC OnLine Bom 319.




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