Western Maharashtra Development Corpn. Ltd. Vs Bajaj Auto Limited [MANU/MH/0109/ 2010]
In a decision, which is likely to have a wide impact on joint ventures/investment in public companies, the Bombay High Court (“Court”) has recently held that any clause in an agreement which restricts the free transfer ability of shares of public companies is void and non- enforceable, even if such restrictive clause is incorporated in the Articles of Association of the company.
Background/Facts
Western Maharashtra Development Corporation (“Petitioner”) entered into a Protocol Agreement (“Agreement”) with Bajaj Auto Limited (“Respondent”) pursuant to which Maharashtra Scooters Ltd. (“MSL”) was incorporated as a public limited company as per the provisions of the Companies Act, 1956 (“Act”). The Petitioner and the Respondent held 27% and 24% of the shareholding of MSL respectively.
In order to ensure that the parties controlled at least 51% of the equity share capital of MSL, the Agreement contained a Clause (“Clause 7”) whereby the Petitioner and Respondent were restricted from transferring their shares to any other person without first offering the same to the other party at such rate as may be agreed to between the parties or decided upon by arbitration.
In the year 2003, the Petitioner offered to sell its shares to the Respondent at a price of Rs. 232.20 per share. The Respondent confirmed its interest in buying the shares but was not convinced with the price offered by the Petitioner and thus made a counter offer to the Petitioner to buy the shares at a price of Rs. 75 per share. Since this price was not acceptable to the Petitioner, the matter was referred to Arbitration in terms of Clause 7 of the Agreement by a joint reference made by both the parties.
Thereafter, during the pendency of the reference, the Petitioner made an application questioning the jurisdiction of the Arbitrator on the ground that :
a) the Agreement was illegal and void since
