1.P. HOLDING ASIA SINGAPORE P. LTD. & ANR. versus SECURITIES & EXCHANGE BOARD OF INDIA

Citation: [2014] 8 S.C.R. 399 · Decided: 20-08-2014 · Supreme Court of India · Bench: MADAN B. LOKUR · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2014] 8 S.C.R. 399 
1.P. HOLDING ASIA SINGAPORE P. LTD. & ANR. 
V. 
SECURITIES & EXCHANGE BOARD OF INDIA 
(Civil Appeal No. 7390 of 2012) 
AUGUST 20, 2014 
[MADAN B. LOKUR AND KURIAN JOSEPH, JJ.] 
SEBI (Substantial Acquisition of Shares and Takeovers) 
Regulations, 1997 - Regulations 10, 20(8), 8- Non-compete 
A 
B 
fee - Liability of the acquirer company to pay, to the public C 
shareholders of the target company - Held: Acquirer 
company not liable to pay non-compete fee to the public 
shareholders of the target company as it was being paid to 
the outgoing promoters of the target company which is being 
taken over by the acquirers - Ordinarily when there is a gap 
D 
of 25% between the consideration paid to the outgoing 
promoters and the non-compete fee, SEBI ought not to 
conduct any inquiry - However, if it appears to SEBI that the 
difference between the offer price and the non-compete fee 
is less than 25% but that is nevertheless a disguise or a 
E 
camouflage for reducing the cost of acquisition through a 
public offer, then SEBI can certainly delve further into the 
matter - On facts, SEBI erred in splitting the non-compete 
agreement between the acquirers and 5 members of the 
outgoing promoters on the one hand and 15 members on the 
other -
It cannot be, on a reading of the non-compete 
agreement as a whole, that a part of it is a sham in respect of 
some of the contracting parties and it is a genuine agreement 
F 
in respect of the other contracting parties - No indication that 
non-compete agreement is severable - Thus, tribunal erred 
in holding only a part of the non-compete agreement as a 
G 
sham - However, pursuant to the entering of non-compete 
agreement, non-compete period of three years has expired 
and Takeover Code has been substituted by the SEBI 
399 
H 
400 
SUPREME COURT REPORTS 
[2014] 8 S.C.R. 
A (Substantial Acquisition of Shares and Takeovers) 
Regulations, 2011 which does away with the concept of a 
separate non-compete fee, the amount being included in the 
offer price - Directions and orders passed by SEB/ and the 
tribunal aside - Subsequent events. 
B 
Appellant Company entered into a Share Purchase 
Agreement with the outgoing promoters of the target 
company to acquire 53.46% of the share capital of the 
target company held by outgoing promoters at a price of 
Rs. 5231- per share. In addition, the appellants agreed to 
C pay Rs. 21.20 per share to the outgoing promoters 
towards exclusivity fee, making it to Rs. 544.20 per share. 
The parties entered into another agreement whereby the 
appellants agreed to pay the outgoing promoters around 
Rs. 277 .95 crores, for refraining from competing with the 
D business of the target company for a period of three 
years. In terms of Regulation 10 of the SEBI (Substantial 
Acquisition of Shares and Takeovers) Regulations, 1997, 
the appellants made a public announcement f_or the 
acquisition of 21.54% of the voting capital of the target 
E company, from the existing shareholders. Thereafter, 
SEBI directed the appellants to ~evise the offer price to 
the public shareholders from Rs. 544.20 to Rs.674.93, by 
adding Rs. 130.73 per share, arrived at on the basis that 
the non-compete fee paid to the outgoing promoters, 
F because of the 20 promoter entities comprising the 
outgoing promoters group, only 5 of them were eligible 
to get the non-compete fee. Aggrieved, the appellants 
filed an appeal. The tribunal dismissed the appeal holding 
that the non-compete agreement was a sham which 
G resulted in depriving other shareholders of the target 
company of their rightful claim to get a just price for their 
shares. Hence, the instant appeals. 
H 
The question which arose for consideration was 
whether the appellants-acquired company are liable to 
l.P. HOLDING ASIA SINGAPORE P. LTD. v. SECURITIES 401 
& EXCHANGE BOARD OF INDIA 
pay a non-compete fee to the public shareholders of the 
A 
target company as it was bein,g paid to the outgoing 
promoters of the target company which is being taken 
over by the appellants . 
. Allowing the appeal, the Court 
HELD: 1.1. The tribunal committed a jurisdictional 
error by misunderstanding the scope of Regulation 20(8) 
B 
of the SEBI (Substantial Acquisition of Shares and 
Takeovers) Regulations, 1997. This Regulation provides 
that any payment made to persons other than the target C 
company in respect of a non-compete agreement in 
excess of 25% of the offer price arrived at under sub-
Regulation (

Excerpt shown. Read the full judgment & AI analysis in Lexace.