Litigation Newsletter – Right of Pre-Emption in India – A Simple Guide

Introduction

The right of pre-emption is a special legal right that allows certain people to buy a property or shares before they are sold to an outsider. In simple terms, it means that if someone wants to sell property, certain people get the first chance to buy it before it is sold to anyone else.

This right exists in various forms:

• Under community customs
• Under personal laws (especially Muslim Law)
• Under inheritance laws
• Under company law for shareholders
• However, it is not a general right available to everyone – only specific persons can claim it. Moreover, courts in India consider pre-emption a weak right. Hence, that right can be easily defeated if procedures are not followed correctly, if there is a delay, if the right is waived or if a stronger legal claim exists.

Pre-Emption Under Muslim Law (Shufa)

Under Muslim Law, the right of pre-emption is called Shufa. The doctrine of Shufa under Muslim law granted neighbours and co-owners preferential rights to purchase adjoining or jointly owned immovable property. This ancient doctrine formed an integral part of personal law regimes under Muslim jurisprudence and was rooted in the principle of maintaining social cohesion within Muslim communities and preventing strangers from acquiring property within established neighbourhoods.

Under Muslim Law, this right can be claimed, in descending order of priority, by the co-owners of the same property, people sharing common facilities (like staircase, well, passage) and/or immediate neighbors. To successfully claim pre-emption, three strict steps must be followed:

1. Immediate demand must be made upon learning of the sale

2. Confirmation must be provided before two witnesses

3. A lawsuit must be filed promptly

Even a small delay can lead to loss of this right. It is important to note that the right is personal and expires with the death of the pre-emptor hence it cannot be passed to legal representatives.

Pre-Emption Under Indian Property Laws

Various states in India enacted pre-emption legislation to provide statutory procedures for asserting pre-emption rights. Key enactments include Punjab Pre-emption Act, 1913 and Rajasthan Pre-emption Act, 1966.

However, after India adopted its Constitution, pre-emption laws faced constitutional challenges on the ground that they violated the fundamental right to property under Article 19 (1) (f) and Article 31. The Supreme Court of India critically examined the constitutionality of state pre-emption statutes and struck down provisions that were found to be unjustifiably restrictive of personal liberty and property rights. In the case of Bhau ram v. Baji Nath Singh, AIR 1962 SC 1476, the Supreme Court ruled that:

• Pre-emption based only on being a neighbor is unconstitutional
• Pre-emption between co-owners is valid
• Pre-emption restricts free sale of property and must be used very carefully

As a result, the right to pre-emption is now treated as a limited and restricted right. The 44th Amendment (1978) repealed Article 19(1) (f) and removed the fundamental right to property from Part III of the Constitution. Property rights were reconstituted as a constitutional (but not fundamental) right under Article 300A, which provides that no person shall be deprived of property save by authority of law. Following this amendment, pre-emption laws could no longer be challenged under Article 19(1) (f) but continue to remain subject to challenge under Article 14 and Article 15.

Pre-Emption Among Family Members (Hindu Law)

Section 22 of the Hindu Succession Act, 1956, grants Class I heirs a preferential right (not pre-emption in the traditional “neighbour” sense) to acquire the share of another Class I heir when the latter wishes to transfer property inherited from an intestate. However, this right exists only when the following conditions are satisfied:

• Two or more Class I heirs inherit property from an intestate Hindu;
• One of the co-heirs intends to transfer their share of the inherited property to a third party;
• Other Class I heirs have a preferential right to acquire that share at the same price and on the same terms as offered to the third party.

Section 22 is functionally analogous to pre-emption but is more accurately described as a “preferential right” or “right of first refusal” among co-heirs. It does not extend to neighbors or other third parties and is strictly limited to Class I heirs inheriting from the same intestate. This rule exists to keep inherited family property within the family and has been upheld by courts.

Pre-Emptive Rights in Company Law (Shares)

Under section 62 of the Companies Act, 2013, when a company issues new shares, existing shareholders usually get the first right to buy the new shares, in proportion to their existing ownership. This provision is commonly referred to as governing “rights issue” of shares. This prevents loss of ownership control and dilution of share value.

However, companies can bypass this right through:

• Board and shareholder approval
• Special corporate resolutions

This is the most commonly used and strongest modern form of pre-emption in India.

Grounds for loss or defeat of pre-emption rights

One can lose their right of pre-emption if:

• A pre-emptor acts in a manner indicating abandonment, acquiescence, or waiver of the right
• There is undue delay in making a claim
• The pre-emptor dies before filing a suit
• A person who is not entitled to claim pre-emption is joined as a co-plaintiff in the suit
• A pre-emptor accepts consideration or payment from the purchaser or vendor in exchange for relinquishing the pre-emption right
• A pre-emptor is legally disabled from purchasing the property
• The underlying sale transaction is proven to be illegal, void, or sham.

Conclusion

The right of pre-emption, whilst historically significant under both customary and statutory frameworks, has evolved into a circumscribed legal remedy characterized by strict procedural requirements and limited applicability in modern Indian jurisprudence. Constitutional developments, particularly following the landmark decision in Bhau Ram v. Baij Nath Singh, have narrowed its scope by invalidating vicinage-based claims whilst upholding co-ownership rights.

The jurisprudential characterization of pre-emption as a “weak right” underscores its susceptibility to defeat through estoppel, delay, waiver, or procedural non-compliance. A successful assertion of pre-emption rights demands meticulous adherence to statutory timelines, procedural formalities and good faith conduct throughout. The contemporary relevance of pre-emption is thus confined to specific statutory contexts and co-ownership scenarios where consolidation of interests serves legitimate purposes.

In essence, pre-emption represents a qualified and increasingly restricted exception to the general principle of free alienability of property in Indian law.