Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: due date for vat payment :: cpt :: ACCOUNTING STANDARD :: list of goods taxed at 4% :: Central Excise rule to resale the machines to a new company :: VAT Audit :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: empanelment :: VAT RATES :: ACCOUNTING STANDARDS :: form 3cd :: articles on VAT and GST in India
General »
 The most thrilling idea before every Budget: No income tax
 Finance Ministry likely to tweak Minimum Alternate Tax norms to boost industry
 Income tax department warns people to keep away from benami transactions
 New helpline for income tax e-filing
 The Central Government notifies the Companies (Amendment) Act, 2017
 GST Returns: Government Relaxes Rectification Norms
 Will govt bring change in income tax slab? here's the present structure
 No income tax exemption to cooperative banks
 Bitcoin investors may have to pay capital gains tax
 What industry expected when Modi government implemented GST
  The Finance Resolution And Deposit Insurance Bill, 2017

SEBI's rejection of call and put options will hit these instruments hard
August, 20th 2011

The debate on the validity of call and put options is not a new one. Although this debate was dormant for some time, the securities market regulator's recent view on the issue has forced it back into news. Recently, Sebi, in its informal guidance in Vulcan Engineers matter, has reiterated the stand it took in the case of Vedanta-Cairn deal that put and call options are not valid and had directed the parties to drop the call and put option arrangement from the share acquisition agreement.

Sebi's view is that any pre-agreed buyback of shares through call and put options is not valid under the Securities Contracts (Regulation) Act, 1956. This is a sudden move. These share options had always existed and Sebi had knowledge of them, but it never approached them the way it has started doing now.

Naturally, this has not been well accepted by the legal and industry circles. Itis viewed as a retrograde step good enough to wary the investors. This will now add more uncertainty to the already-unsettled issue of enforceability of put and call options.

In spite of Sebi's view, private companies can still breathe easy, although securities of unlisted public companies may fall in this trap. Courtesy for this goes to some judicial precedents where ithas been held that provisions of Securities Contracts (Regulation) Act are not applicable to private companies but are applicable to unlisted securities of public companies. Nonetheless, it has opened the debate on the enforceability ofcall and put options.

Examining this issue from the Companies Act, 1956, perspective, there is a strong argument that these options are not really a restriction imposed by one shareholder on the other on transfer of shares. In fact, these options are mere private arrangements between two shareholders agreeing to buy or sell shares from each other, generally at a pre-determined price, on the happening of certain events.

Therefore, these options should not be treated as, and equated to, restriction on transfer of shares. The rule that an owner of a property is freely allowed to buy or sell his property should also apply with no exception to the buying or selling of shares as long as all other compliances of law are followed. Notably, the Companies Act does not prohibit and restrict shareholders from agreeing to call and put options.

Let us assume that these options are considered as restriction on transferability of shares. Even then, in a private limited company, these can still be enforced against the shareholders inter se and the company, provided they are incorporated in the articles of association (incorporation in articles is required because of the Supreme Court judgment in Rangaraj's case). The reason that these options can be enforced in a private limited company is that the Companies Act permits providing restriction on transferability of shares in a private limited company. However, the position is slightly different in the case of a public company.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Bath SEO Company Birmingham SEO Company Bradford SEO Company Brighton and Hove SEO Company Bristol SEO Company Cambridge SEO Company Canterbury SEO Company Carlisle SEO Company Chester SEO Company Chichester SEO Company Coventry SEO Compan

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions