Drafting Right Of First Refusal Clauses: Legality, Issues & Concerns

A right of first refusal ("ROFR") is a contractual entitlement of a party to enter into a business transaction with the counterparty (to a contract) which such counterparty is desirous of executing with a third party. When tested on the principles of contract law in India, such contracts are held to be valid so long as the ROFR is exercised during the original or mutually extended term of the original contract between the parties which contains the ROFR clause. Any term of the contract which contains a negative covenant restricting freedom of trade, such as allowing exercise of the right under a ROFR Clause, beyond the terms of the contract would be in violation of Section 27 of the Indian Contract Act, 1872.¹