Option clauses in commercial agreements are useful, popular and flexible in commercial agreements. But are they enforceable under Indian law? The case is far from clear, argues Ankit Guha.

Option clauses are a very common feature in shareholder agreements, share subscription agreements and many other investment related agreements. With a put option the holder has the right to sell its securities to the other party, with a call option holder will have the right to buy the securities from the other party, often at an agreed price. These can be used to hedge risks or provide an uplift to a party if securities should rise in value.

However, the enforceability of these options under Indian law is not settled.