Proposal to allow ‘Put’ & ‘Call’ Options in Shareholders’ agreements would boost foreign investment into the country

CII welcomes the decision taken by the Government to allow incorporation of ‘call’ and ‘put’ options in shareholders’ agreement. The proposal to remove restrictions on using options in shareholders’ pact for M&A and PE transactions would encourage inflow of foreign investment into the country. This was one of the key impediments to FDI flow into the infrastructure sector.

The clearance from the Law Ministry would pave the way for an amendment to be moved to the Securities Contracts (Regulation) Act, against the proposal initially moved by SEBI. Industry has been seeking an amendment to SCRA to allow put and call options not only to offer an opportunity to investors, especially foreign investors, to hedge their risks but also put to rest any doubts regarding the use of options. Overseas investors and lenders may be willing to consider short to medium term lock in periods of 3 to 5 years if put option from the resident promoters are allowed.