Put option

A put option is a right given to one party, usually an investor, to require another, usually a promoter, to buy its shares on stated terms. For years it was argued that an option over shares was a contract in securities other than a spot delivery contract and so prohibited under the Securities Contracts (Regulation) Act, 1956. A notification of the Securities and Exchange Board of India of 3 October 2013 closed that argument for options in a shareholders agreement or in the articles.

The notification permits the option on three conditions: the selling party must have held the securities for at least one year from the date of the contract, the price must comply with the laws in force, and the contract must be settled by actual delivery. Where the holder is a non-resident, the Reserve Bank's circular of 9 January 2014 adds that no exit price may be assured at the outset, so a put struck at cost plus a fixed return fails that test. The rule-making power over non-debt instruments moved to the Central Government in 2015, so the current text to check is the rules for non-debt instruments under the Foreign Exchange Management Act, 1999, and not the 2014 circular alone. Whether the option binds the company, and not only the promoter, depends on whether it is in the articles. The position is stated as at 2 October 2026.