Enforceability Of Pre-Emption Rights/ Call & Put Option

Any foreign investor intending to make an investment in the equity share capital of any company in India prefers to have an exit option (call & put option) under the transaction document(s). An exit option generally gives flexibility to the foreign investor(s) to sell the securities in the event of (i) the project for which money is infused in India is unsuccessful; or (ii) there is a dispute between the foreign investor and the Indian party in relation to the operation of the company or a project; or (iii) there is a change in the policies of the Government of India; or (iv) the foreign investor does not want to remain invested in the company due to any other reason.

In addition to the aforesaid exit option, the parties to the transaction documents also prefer to have some pre-emptive rights such as the right of first refusal, tag-along or drag-along rights due to some commercial reasons or in order to protect their interest. The legal enforceability of such