SEBI has issued a notification today, inter alia, permitting contracts for pre-emption including right of first refusal, tag-along or drag-along rights contained in the shareholders agreements or articles of association of companies. SEBI has also permitted contracts containing an option for purchase or sale of securities subject to the following:
(a) the title and ownership of the underlying securities are held continuously by the selling party to such a contract for a minimum period of one year from the date of entering into the contract;
(b) the price or consideration payable for the sale or purchase of the underlying securities pursuant to exercise of any option contained therein, is in compliance with all the laws for the time being in force, as applicable; and
(c) the contract has to be settled by way of actual delivery of the underlying securities.
The contracts permitted under this notification shall be in accordance with the provisions of Foreign Exchange Management Act, 1999. Further, this notification shall not affect or validate any contract which has been entered into prior to the date of this notification.
This notification supersedes the earlier SEBI notification, i.e., S.O.184 (E) dated March 1, 2000.
This notification is also in line with the proviso to section 58(2) of the Companies Act, 2013 which states that “any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract“.
This notification issued under sections 16(1) and 28 (2) of the Securities Contracts (Regulation) Act, 1956 is as follows :-
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THE GAZETTE OF INDIA
EXTRAORDINARY
PART – III – SECTION 4
PUBLISHED BY AUTHORITY
NEW DELHI, OCTOBER 3, 2013
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 3rd October, 2013
SECURITIES AND EXCHANGE BOARD OF INDIA
Notification under section 16 and 28 of Securities Contracts (Regulation) Act, 1956
No. LAD-NRO/GN/2013-14/26/6667.- In exercise of the powers conferred by sub-section (2) of section 28 and sub-section (1) of section 16 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), read with Government of India notification number S.O. 573(E), dated the 30th July, 1992 issued under section 29A of the said Act, the Securities and Exchange Board of India (hereinafter referred to as ‘the Board’) hereby rescinds the notification number S.O.184(E), dated the 1st March, 2000, except as respects things done or omitted to be done before such rescission, and declares that no person in the territory to which the said Act extends, shall, save with the permission of the Board, enter into any contract for sale or purchase of securities other than a contract falling under any one or more of the following, namely:-
(a) spot delivery contract;
(b) contracts for sale or purchase of securities or contracts in derivatives, as are permissible under the said Act or the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made under such Acts and rules, regulations and bye-laws of a recognised stock exchange;
(c) contracts for pre-emption including right of first refusal, or tag-along or drag-along rights contained in shareholders agreements or articles of association of companies or other body corporate;
(d) contracts in shareholders agreements or articles of association of companies or other body corporate, for purchase or sale of securities pursuant to exercise of an option contained therein to buy or sell the securities, where-
(i) the title and ownership of the underlying securities is held continuously by the selling party to such contract for a minimum period of one year from the date of entering into the contract;
(ii) the price or consideration payable for the sale or purchase of the underlying securities pursuant to exercise of any option contained therein, is in compliance with all the laws for the time being in force as applicable; and
(iii) the contract is settled by way of actual delivery of the underlying securities:
Provided that the contracts specified in clauses (a) to (d) above, shall be in accordance with the provisions of the Foreign Exchange Management Act, 1999 and rules or regulations made thereunder:
Provided further that nothing contained in this notification shall affect or validate any contract which has been entered into prior to the date of this notification.
Explanation.- It is hereby clarified that the contracts mentioned in clauses (c) and (d) above shall be valid notwithstanding anything contained in section 18 A read with clause (d) of sub-section (1) of section 23 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956):
Provided also that any contract for sale or purchase of government securities, gold related securities, money market securities, contracts in currency derivatives, interest rate derivatives and ready forward contracts in debt securities entered into on the recognised stock exchange shall be entered into in accordance with, —
(a) the rules or regulations or the bye-laws made under the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or the Securities and Exchange Board of India Act, 1992(15 of 1992) or the directions issued by the Securities and Exchange Board of India under the said Acts;
(b) the rules made or guidelines or directions issued, under the Reserve Bank of India Act, 1934 (2 of 1934) or the Banking Regulations Act, 1949 (10 of 1949) or the Foreign Exchange Management Act, 1999 (42 of 1999), by the Reserve Bank of India;
(c) the notifications issued by the Reserve Bank of India under the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
U. K. SINHA
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA
