SEBI okays call & put options, says no to special rights

Call and put options and affirmative rights - they are standard inclusions in many shareholder agreements. But market regulator SEBI is about to change its positions on both.

CNBC-TV18’s Menaka Doshi reports that call and put options are in, whereas special rights to select investors are on their way out. Last year, when the Securities Exchange Board of India asked Vedanta to delete all call and put options in its deal with Cairn, it was one more blow to an otherwise standard clause in many shareholder agreements. Call and put options allow transacting parties to grant the other rights to buy or sell their shareholding at a future date. Accused of being non-listed derivative contracts and hence of falling foul of the Securities Contract Act, call and put options have been a vexed legal matter for long, subjecting companies and their shareholder agreements to great uncertainty. But that is about to change. SEBI is now willing to permit non-speculative or strategic options. Private equity investments in listed companies include another relatively standard feature in shareholder agreements - special rights. Financial investors often seek protection via vetos and other affirmative rights that give them power to approve management proposals on varied issues, such as capital raising or acquisitions or even a change in remunerations policies. But differential rights are frowned upon by SEBI at the time of listing. So why then are they allowed after a company has listed? The SEBI chairman has taken a strong stand on two other pending matters, one being the need to revamp global depository receipt norms so as to block abuse and that they are willing to provide companies more options to meet the July 2013 deadline of a 25% minimum public shareholding, as long as they show the desire to do so.