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Sec.194 of companies act 2013

Vinay Garg (Service Tax Expert) (780 Points)

09 June 2014

What is the difference between 194(1)(a) and 194(1)(b) ?

Here is the text

(1) No director of a company or any of its key managerial personnel shall buy in the company, or in its holding, subsidiary or associate company—

(a) a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or

(b) a right, as he may elect, to call for delivery, or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.

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2 Replies

amit (d) (27 Points)
Replied 19 September 2014

Dear Vinay,

Section 194 talks about a right to call…that means a call option and right to make delivery..that means make delivery to someone i.e. put option.

Now the only difference between sub clause a & b is “as he may elect”…

Now you can remind yourself of call options – American and European call options.

A European call option allows the holder to exercise the option (i.e., to buy) only on the option expiration date. Though he holds the right but not the discretion on when to make such call i.e. on the expiration date he is allowed to (no other option before the expiration date) – This would be 194(1)(a). Therefore in the sub clause (a) it has been mentioned simply “a right to call for delivery”

Whereas

An American call option allows exercise at any time during the life of the option. It is at the discretion of the holder when to make a call (as he holds the right and can be exercised during the life of the option). Therefore in the sub clause (b) it has been mentioned “a right, as he may elect, to call for delivery,”

“As he may elect” means it is at discretion to exercise the call, which is only available at American call option.

Do refer your MAFA/SFM notes.

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