Clouds Over Payment of Non-Compete Fees in Takeover Transactions
Consolidated Commercial Digest, December 15, 2011
Posted: 14 Dec 2011
Date Written: May 13, 2011
The new takeover code has made sweeping changes in the takeover regulation in India which is claimed to be in favor of minority shareholders. One of the crucial changes is total abolition of payment of ‘non- compete fees’ in takeover transaction. The non-compete fee is the price to be paid to the seller besides the offer price at the time of the M & A deals. The justification of non-compete fees has been a sticky issue. The SAT in E Land Fashion China Holdings Limited v. SEBI (Appeal No. 27 of 2011, dated May 24, 2011) considered the aspect of non-compete fees and reversed the order of SEBI by allowing the acquirer to pay the additional non-compete fees to the exiting promoters. However, this provision has now been shown a red light as following the TRAC recommendation SEBI made an amendment into Takeover Code for totally abolishing the provision of non-compete fees. This article will critically analyze the development in this regard and its impact on various players involved in an M & A deal.
Keywords: non compete fee, takeover transaction, E land Fashion China, M&A, new takeover code
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