Put and call options and shareholder agreements

There is some very interesting debate on the recent SEBI mandate to Vedanta-Cairn to 'refudiate' a call/put/right of first refusal clause in their share purchase agreement. This is interesting and dangerous.

The problem arises from S. 13 of the Securities Contracts (Regulation) Act, 1956 which enables the government/SEBI from banning and making illegal - certain contracts in securities as notified. Excluded from the prohibition are 'spot contracts' contracts traded on exchange, certain pre-emption rights, warrants and convertibles and such, and securities of private limited companies.

In a differnt philosophical era, the government suspicious of the evils of speculation banned all such forwards in securities by a circular of 1969. This was replaced by a SEBI circular of 2000 continuing the ban.This prohibition is bad in its effect because it not only outlaws speculative trades (which it shouldn't) but also outlaws legitimate commercial transactions (which it definitely shouldn't). Some commentators have analysed it from the perspective of S.111A of the Companies Act, but that section was not likely used by SEBI because a) that is a gray area b) that section does not fall within SEBI's domain (S. 55A allocates SEBI's role under the Companies Act.)