Can't allow non-compete clause in pharma FDI: RBI

Non-compete clauses are common in M&As where the sellers agree not to launch business in the same domain

Don't want to miss the best from Business Standard?

In backdrop of Indian pharma industry is leading for a consolidation with more inbound deals are taking place, the Reserve Bank of India (RBI) has said that non-compete clauses will not be allowed for foreign direct investment (FDI) in the pharmaceutical sector, expect in special circumstances.

Non-compete clauses are common in merger & acquisitions (M&As) where the sellers agree not to launch business in the same domain. In the absence of non-compete clauses, the seller can start similar business without the permission from the buyer.

Foreign investors are allowed to take a 100% equity stake in pharmaceutical companies in India and that policy will remain the same, RBI said in a notification on Monday.

"The extant FDI policy for pharmaceutical sector has since been reviewed and it has now been decided with immediate effect that the existing policy would continue with the condition that 'non-compete' clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board (FIPB) of the Government of India," the statement said.

In January, Department of Industrial Policy and Promotion issued a statement saying that non-compete clauses will require special permission.

In recent past, Indian pharma industry has seen large inbound buyouts where US-based Abbott had acquired domestic formualtion business of Piramal, Mylan's acquisition of Strides Arcolabs and the latest $3.2-billion acquisition of Ranbaxy by Sun Pharma.