Right of first refusal

A right of first refusal obliges a shareholder who wants to sell to offer the shares first to the holder of the right, on the same terms, before selling to a third party. It is a common transfer restriction in shareholders agreements. In Messer Holdings Limited v Shyam Madanmohan Ruia, decided on 1 September 2010, a Division Bench of the Bombay High Court held that such a right in a share purchase agreement was enforceable against the party who had agreed to it.

The question is who else it binds. A restriction that lives only in a contract is a matter between the signatories, and a company that is not a party is under no obligation to police it. Putting the restriction in the articles under the Companies Act, 2013 is what makes the company take notice. The choice is a choice of remedy: damages against a shareholder who sold in breach, or a transfer the company should not have registered. The position is stated as at 2 October 2026.