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2023 (2) TMI 379 - HC - SEBIArbitration award - Share Purchase Agreement (SPA) - Legality or enforceability of the transaction of repurchase contained in the SPA - rejection of Edelweiss’s claim on the ground that the transaction of share purchase option was illegal and/or unenforceable being in breach of SCRA (Securities Contracts (Regulation) Act, 1956) - contracts in derivatives not being traded on stock exchange and hit by Section 18A of SCRA or not - HELD THAT:- We totally agree with the view expressed by the learned Single Judge that the Arbitrator’s conclusion that the purchase option contained in clauses 8.5 and 8.5.1 was illegal and unenforceable being a forward contract is an incorrect view. The judgment in MCX [2013 (9) TMI 914 - HIGH COURT OF BOMBAY] squarely deals with a purchase option, such as the present, where the purchaser of securities requires the vendor to repurchase on the occurrence of a contingency - As held in MCX, a contract giving an option to a purchaser to require repurchase of securities by his vendor on some contingency occurring would only mean that there was no present obligation at all but the obligation arose by reason of some contingency occurring. On the date when the SPA was entered into, there was no contract for sale or purchase of shares under clauses 8.5 and 8.5.1. A contract for sale or purchase of shares would come into being only at a future point of time in the eventuality of Edelweiss, which was granted such option, exercising it in future on the occurrence of a stipulated contingency. Section 18A of SCRA does not purport to invalidate any contract. It starts with a non-obstante clause, i.e., overriding effect over any other law for the time being in force. It provides that notwithstanding anything contained in any other law for the time being in force, the contracts in derivative shall be legal and valid, if such contracts satisfy the conditions mentioned therein. Section 18A of SCRA on its own does not make any particular contract illegal or invalid. What the buyer of an option buys is his right to exercise the option, often with a premium; his counter-party, who gives him such option, receives the option premium and in consideration thereof, is obliged to buy or sell the underlying asset against the option exercised by the buyer - What the law prohibits under Section 18A read with Section 16 read with the SEBI circular of 1st March 2000 is not entering into a call or a put option for sale but as rightly held by the learned Single Judge what it prohibits is trading or dealing in such option treating it as a security - Clauses 8.5 and 8.5.1 are not contract for sale or purchase of securities, but merely an option which the promisee may or may not exercise and entering into such option does not amount to making of a contract in a derivative. Such a contract was never prohibited. Appeal dismissed with costs, which we hereby fixed at Rs.5 lakhs. The cost to be paid by way of cheque drawn in favour of advocate on record for respondent within four weeks from today.
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