Pre-emptive clauses in public companies void

By Vivek Vashi, Bharucha & Partners

In Western Maharashtra Development Corporation Ltd v Bajaj Auto Ltd, Bombay High Court considered whether a pre-emptive clause incorporated in the articles of association of a public company would be valid and enforceable.

Vivek Vashi Bharucha & Partners
Vivek Vashi
Bharucha & Partners

On 2 October 1974, Western Maharashtra Development Corporation (WMDCL) and Bajaj Auto entered into a protocol agreement in order to incorporate Maharashtra Scooters (MSL) under the Companies Act, 1956. The agreement stated that WMDCL would gain experience from Bajaj on the manufacture of two-wheeled scooters in order to install a plant and machinery for a scooter project. MSL is a public company and its shares are listed on the Bombay Stock Exchange and the National Stock Exchange.

The agreement was structured to ensure that the parties would, between them, control at least 51% of the equity capital of MSL. The agreement also stated that neither party was allowed to alter the structure of MSL, whether in terms of the number of shares or the rights, privileges, restrictions or qualifications of any class of shares.

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Vivek Vashi is the mainstay of the litigation department at Bharucha & Partners.


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