This verdict will have a bearing on the way PE deals, especially in unlisted companies, are structured, say industry observers. "The order will impact PE deals in unlisted companies because in such transactions there are restrictions on transfer of shares," said Jagannadham Thunuguntla, equity head, SMC Capitals. He, however, added that PEs would find a way out.

1. PEs may need to recast deal setup
Peter Arackal, TNN, Mar 12, 2010, 12.12am IST
MUMBAI: With the Bombay high court ruling against any restriction on transfer of shares in
public companies, the structuring of PE deals has come under scanner.
Rejecting an arbitral award governing a "pre-emptive right" on transfer of shares in the Western
Maharashtra Development Corporation (WMDC) vs Bajaj Auto (BAL) case, Justice D Y
Chandrachud said the award was "completely contrary to the governing principles of law....and is
patently illegal".
A pre-emptive right on transfer of shares requires a shareholder to give another a chance to buy
his shares before they are offered to a third party.
This verdict will have a bearing on the way PE deals, especially in unlisted companies, are
structured, say industry observers. "The order will impact PE deals in unlisted companies
because in such transactions there are restrictions on transfer of shares," said Jagannadham
Thunuguntla, equity head, SMC Capitals. He, however, added that PEs would find a way out.
"Every problem comes with a solution. PEs will now enter into an agreement with the promoter
in his personal capacity, and will not involve the company at all," Thunuguntla said. According
to him, 90% of PE deals are executed in unlisted companies because of lucrative valuations. Of
the $9 billion PE deals in 2009, $8 billion was sealed with unlisted companies.
Amrish Shah, partner, Ernst & Young, said: "PE players will now have to look outside articles of
associations to secure their pre-emptive rights."
The court has ruled against rights of pre-emption in favour of shareholders of a public company
as violating Section 111 (A) of the Companies Act, 1956. The section provides that shares of a
public company will be freely transferable.