Most investors will default to a stake in a business. Depending on the amount, this can vary between 1% and a majority stake of 51% or more, but it depends entirely on the amount that will be invested in relation to the total value of the business. In this context, Indian courts are inclined to follow the established principle of party autonomy and the accompanying contractual freedom. However, appropriate restrictions have been imposed by legislation or judicial precedents to ensure that a balance is maintained. One of the most important restrictions is Section 6 of the Indian Companies Act, 2013 (“Law”), which allows the law to repeal all provisions of the Association Protocol, Statutes (“AoA”) or an agreement or resolution that do not comply or contrary to the provisions of the law. The discussion on investor rights and their protection was first discussed in V.B. Rangaraj Vs. V. V.
V.B. Gopalakrishnan And Ors. (AIR1992SC453), which established the principle that, notwithstanding the restrictions contained in the agreement between the parties that must be applied to the transfer of shares, they will only be recognized if it is duly integrated into the AoA. However, restrictions on the transfer or absence of shares have a settlement date earlier than the AoA, i.e. the type of company in which the investments are made. A private company is required to legally limit the portability of its shares (as stipulated in Section 2 (68) of the Act), as the shares of a public company are freely transferable. The Court rejected Percept`s argument and distinguished option contracts as spot supply contracts defined in Section 2, point (i) from the SCRA and therefore authorized by the same regime. These are contracts in which the price of the shares is paid at the same time as the delivery of these shares. The Court held that a put option is enforceable, since the sales contract is not concluded until after the exercise of that option, which clearly removes it from the order of futures contracts.
Accordingly, the Court found that such an option is neither a futures contract nor a derivative contract under Section 2 (ac) of the SCRA, but falls directly within the definition of “cash supply contracts.” The contract will be concluded at a later date, if two conditions are met: (i) the prime contractor does not restructure within the expected time frame; and (ii) that Edelweiss use its option to require a buyout by the promoter in the event of default. It also found that the put option could not be characterized as a pre-order simply because the promoter was given some time to buy it back after exercising the put option. There was nothing to indicate that there was a lag between the payment and delivery of shares or whether the shares were delivered first, and the price would be paid later or vice versa. Any agreement on this matter may be reviewed by an expert prior to signing and legal advice must be available, including the need to record the facts. 3. You must enter into a detailed agreement specifying all the necessary clauses, i.e. profit sharing, decision-making power, power to review documents/registrations, no change of management without your written consent, secure restitution, withdrawal procedure of the amount invested, etc. The first step is to limit the transfer of shares, which achieves the dual objective of protecting investors` money in the event of other fundraising, liquidation, etc., while not unreasonably preventing the company from making more investments. However, the successful achievement of this objective depends on the effective application of denka rights instead of their investment. A cooperative regulatory and legal framework is essential to enable investment.