Enforceability Of Option Clauses In India
- IJLLR Journal
- Jul 17, 2023
- 2 min read
Vedant Lathi, ILS Law College, Pune
ABSTRACT
The objective of this paper is to follow the development of the regulatory framework surrounding option clauses, examining the legal nature of options and scope and application of the Securities Contracts (Regulation) Act, 1956 (SCRA). Additionally, it will investigate the current legal standing of call and put options in transactional documents and analyse how call and put options interact with the SCRA and Foreign Exchange Management Act, 1999 (FEMA).
Introduction
The enforceability of put and call options in Indian company securities has been a topic of a heated debate within the Indian legal community on multiple occasions.
Derivatives are a form of financial instruments which are traded in the securities market and whose values are derived from the value of the underlying variables like the share price of a particular scrip in the cash segment of the market or the stock index of a portfolio of stocks.
There are two types of derivative instruments, futures and options. A future contract is an agreement between two parties to buy or sell an asset at a certain time in future at a price agreed upon on the date of the agreement.
An option gives the option-holder the right to either buy a specified number of shares of, or sell a specified number of shares to, the option provider at a specified price on the occurrence of an event. If the option holder has the right to buy shares from the option provider it is termed as call option. If the option-holder has the right to sell shares to the option provider it is termed put option.
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