P Ltd. has issued puttable ordinary shares to Q Ltd. Q Ltd. has also entered into an asset-management contract with P Ltd. that entitles Q to 50% of P's net profits — well above the normal commercial 4-6% rate for such contracts. Under Ind AS 32, the puttable ordinary shares are:

Condition (6) of paras 16A-16B is an anti-abuse clause: the issuer must not have another financial instrument or contract with the puttable holder whose cash flows are based substantially on profit/loss and that has the effect of substantially restricting or fixing the residual return on the puttable instruments. A 50% management fee — far above commercial — clearly restricts residual return. Equity classification fails. If the fee were at 4-6% (commercial rate), it would not preclude equity classification.