Put Option Clauses – A Growth Chart

The validity of put option clauses in contracts has been a subject of detailed scrutiny for the Indian government, for several years. The discourse surrounding put option clauses originated from Section 20 of the Securities Contracts (Regulation) Act, 1956 ("Act")—which was subsequently omitted by the 1995 amendment to the Act ("Amendment"). The earlier section stipulated that all options in securities would be illegal, leaving stakeholders distraught. However, the aforesaid repeal pursuant to the Amendment did not put this matter to rest, as a notification issued by the Ministry of Finance in the year 1969 was still in force. This notification provided that contracts for sale or purchase of securities which were not spot delivery contracts or contracts for cash/hand delivery/special delivery in any securities would be disallowed altogether.