Messer Holdings Limited v. Shyam Modanmohan Ruia (2010) 159 Comp. Cas. 29

This case sits at the crossroads of contract and company law. It asks: can shareholders privately restrict share transfers and still be within company law? The Supreme Court did not give a final “yes/no”, but the later Section 58(2) of the 2013 Act points toward enforceability where the clause is lawful and clear.

• Big idea: Share transfer pacts can work if properly drafted and consistent with the Act and the company’s articles.
• But: The SC in this appeal criticised the litigation and avoided a definitive ruling on all points.

1. Are contractual share transfer restrictions between shareholders enforceable?
2. How do such restrictions interact with company law and the articles of association?

• Section 58(2), Companies Act, 2013: Appears to recognise that lawful restrictions on transfer of securities in a private company may be enforceable.
• Contract clauses must not defeat the Act or the articles; they must be precise and reasonable.

Earlier law under the 1956 Act produced mixed readings; the SC’s limited approach here kept debates alive.

Outcome: The Supreme Court did not deliver a final ruling answering the broad questions. It criticised the parties for consuming court time without narrowing real issues.

• The case thus left open parts of the law under the 1956 Act.
• With the later 2013 Act, Section 58(2) indicates a friendlier stance to valid transfer restrictions, yet practical uncertainties remain.

No definitive ratio on all aspects was laid down. The teaching point is caution: enforceability of transfer restrictions depends on the Act, the articles, and the exact wording of the pact.

• Shows the limits of courts when parties do not frame issues tightly.
• Highlights drafting needs: align restrictions with Section 58(2) and the company’s articles.
• Guides investors on using clear pre-emption/lock-in clauses.

• Private pacts on transfers can be valid—draft with precision and consistency.
• Mirror key restrictions in the articles where needed.
• Expect scrutiny on reasonableness and statutory compliance.

Mnemonic: “PACT-FIT-AOA”

1. PACT — write a clear shareholder pact.
2. FIT — make it fit Section 58(2) and the Act.
3. AOA — align with the Articles of Association.

Pre-emption Right

Right of existing shareholders to buy shares before outsiders.

Lock-in

A period during which shares cannot be sold.

Articles of Association (AOA)

Internal rulebook of the company binding on members.