More clarity needed on non-compete clause: Medybiz

Moreover, Greenfield FDI proposals will be allowed through the automatic route while Brownfield FDI will be vetted by the FIPB.

But a new clause has been added as per which non-compete clauses will not be allowed for pharma M&A involving FDI.

The new policy says that non-compete clause will be allowed only in special circumstances, and such requests will have to be vetted by the FIPB.

The press note however is silent on what constitutes special circumstances for allowing non compete clause

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Does the final pharma FDI policy which is now black and white serve the required concerns? Does it allay the apprehensions? Will it excite global pharma companies who are looking at India?

A: We should complement the entire government department to have some clarity on the foreign direct investment (FDI). There was lot of ambiguity and uncertainty and therefore it was holding up lot of investment in this country.

Now we are very clear that 100 percent investment is allowed in Brownfield also except for the clause of non-compete clause. It is a normal practice by any buyer and seller to have a non-compete clause. It helps to avoid the confusion in the market place.

However in this case they have said that the non-compete clause would be very selective, but the government needs to spell out what are the rules behind it and what could be the common way of addressing these issues. It should not be left very open at the discretion of the officials.

This clause might have come in because of some fears of monopolistic situation or in case of cancer products or in case of some export requirements. So, if this clause is there, there will need to be some guidelines coming out of the government that how this clause would be applicable.

Q: That seems to be the point of concern that you have raised. This business of non-compete clauses being applicable but only in special circumstances, the government has not spelt out what special circumstances will be, you are worried about discretion at the level of officers what could the better way be as far as regulators are concerned to ascertain non-compete clause situations?

A: This is fair enough. It gives government an authority to say when non-compete clause would be invoked and when it will not. At the same time, there has to be clarity of how this clause would be applicable. Also the government needs to specify which would be the agency who would be looking into this clause then we can move forward and stay with it.

Q: Who according to you could be a relevant regulator? The CCI has earlier sort of raised its hands up and said that we are not competent enough to rule on matters related to pharma. The government today has said that the FIPB will look at non-compete relates issues. Who to your mind will be better positioned?

A: They will have to take support of two or three regulators both the health ministry, the pharma ministry need to come together and form a small committee in such cases to quickly take a call whether the non-compete clause should be applied or should not be applied.

It has to have a mix of people from the government and experts from outside to take a call. This is very critical otherwise if you leave it with the discretion of few officials there then they will use it the way they interpret the entire thing. This should be avoided and there needs to be an expert committee to decide on this.

Q: You just talked about the situations in where you understand non-compete clauses would perhaps make sense, could you highlight specifically what those instances or those situations should be?

A: Assuming that the buyer is acquiring certain assets, let us say brands or a molecule which is in a monopoly situation maybe the government would like to say that non-compete clause will not be applicable.

Assuming that there are exports to certain countries which the manufacturers are doing, maybe the government says that non-compete clause will not be applicable or maybe there is some technology protected products and in that case the government may say non-compete clause may not be applicable.

Even in case of a huge brand, which has larger implication and the government has a fear that the prices may increase of brands, so they may put a non-compete clause. Maybe these are some of the circumstances where the government may would like to put up that the non-compete clause will not be applicable.