Bombay High Court Upholds the Validity of Option Agreements

In Banyan Tree Growth Capital LLC v. Axiom Cordages Limited[1], the Bombay High Court upheld the validity of a put option under both the Foreign Exchange Management Act, 1999 (‘FEMA’) and the Securities Contracts (Regulation) Act, 1956 (‘SCRA’).

The Bombay High Court has held that merely because a contract contains a put option in respect of securities, it cannot be termed ‘a contract in derivatives’ (such contracts contradicting the provisions of the SCRA). A put option in itself does not provide an assured return to a foreign investor. In the present case, as the price of the put securities, at the time of the exercise of the option was less than the fair market value of such securities, the transaction was compliant with the pricing guidelines prescribed under FEMA.

AZB represented Banyan Tree in the proceedings before the Bombay High Court as well as in the arbitration proceedings before that.

[1] Commercial Arbitration Petitions No. 475 & 476 of 2019.

Published In:Inter Alia - Quarterly Edition - June 2020 [ English
Date: June 30, 2020