Monday, 7 October 2013

SEBI notification dated 03 October 2013 permitting pre-emptive rights and put-call options

 
This alert summarizes the notification dated 3 October 2013 issued by SEBI. The recent notification rescinds notification number S.O. 184(E) dated 1 March, 2000 which restricted call and put options on the basis that such arrangements did not qualify as permitted spot delivery contracts or as legal and valid derivative contracts as per section 18A of SCRA.
The recent notification permits contracts for pre emption rights and options in shareholder agreements, subject to certain conditions.
Contracts in the nature of pre emption rights, put-call arrangements are now permitted subject to fulfillment of prescribed conditions.
This amendment is in line with the New Companies Act. As per Proviso to Section 58(2) of the Companies Act 2013, “any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract". Earlier, companies act did not expressly permit any arrangements restricting transferability of shares of public companies, leading to considerable litigation.
Further, as regards foreign investments, specific guidelines from Reserve Bank of India (“RBI”) are awaited on permissibility of put-call arrangements, if any. In 2012, RBI had sought to expressly restrict any put-call arrangements, providing the same in the consolidated FDI policy. However, same was immediately removed, in light of the adverse response and concerns from overseas investors.

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