A Division Bench of the Bombay High Court has ruled in Messer Holdings Limited v. Shyam Madanmohan Ruia that a private arrangement between shareholders of a public limited company on a voluntary basis relating to share transfer restrictions (right of first refusal) is not violative of Section 111A of the Companies Act, 1956. The judgement also goes on to suggest that it is not mandatory for the Company to be a party to such an agreement relating to share transfer restrictions and it is not necessary to incorporate share transfer restrictions in the articles of association of the Company.
The judgement is interesting as it comes in the wake of the Bombay High Court judgement in Western Maharashtra Development Corporation Ltd. v. Bajaj Auto Ltd. That judgement had ruled that any pre-emptive rights over shares in public limited companies was illegal in view of the principle of “free transferability” enshrined in Section 111A of the Companies Act, 1956. The debate on enforceability of terms of shareholder agreements governing public limited companies is definitely not over yet.
Happy to receive comments/ thoughts from readers who have had a chance to read the judgement.
(Niranjan has provided a very helpful and detailed analysis of the case law in this arena including Messer Holdings after this post.)
Isn't this case going a little too far considering that even share transfer restrictions in the case of private companies have to be incorporated in the AoA of the Company (by a SC judgment if I'm not mistaken). The two ideas seem wholly incompatible.
What if there is an unlisted public company ?