Share Purchase Agreement Non Compete Clause

Share Purchase Agreement Non Compete Clause

In arvind Singh & Another v. Lal Pathlabs Private Limited & Ors, the Delhi High Court distinguished between profession and business in the same year and decided that the non-compete clause in a share purchase agreement was intended to limit selling shareholders of a company in the management of a pathology laboratory or diagnostic centre by forming a company that has the essential characteristics of a business (i.e. employment). i of workers, laboratory technicians, paramedics, etc.) However, the selling shareholders allowed their professional activity to continue as a pathologist and radiologist. Another important consideration to be taken into account when drafting a non-competition clause in an investment/acquisition/business transfer contract would be to ensure that any restrictions in the clause do not restrict fair competition in the market. By way of illustration, an injunction of the Competition Commission of India (“ICC”) of 21 December 2012, in respect of the sale to Hospira Healthcare India Private Limited (“HHIPL”) of the Betalactum API business of Orchid Chemicals and Pharmaceuticals Limited (OCPL), pursuant to the conclusion of a commercial transfer agreement between the two parties, that the non-competition clause was excessively restrictive in the context of that commercial transfer agreement, the OCPL and its promoter having been limited by the execution of a business transfer contract. to carry out, for a period of 8 or 5 years, activities similar to those of the activity transferred to HHIPL. The ICC had also found that the competition bans also prevented the OCPL and its sponsor from carrying out certain other research, development and testing activities, and considered that these restrictions were inappropriate. In view of the above, the parties were required to amend the non-competition rules of the Business Transfer Agreement to ensure that there were no adverse effects on competition by reducing to four years the limitation period imposed on OCPL and its promoter with respect to the Indian domestic market; and (b) the OCPL to enable the conduct of research, development and testing of new molecules.

Some other cases examined by the ICC are: (i) Clairant Chemicals (India) Limited / Lanxess India Private Limited [3], the imposition of a 5-year restriction of competition against the seller having subsequently been reduced to 3 years and therefore accepted by the ICC; and (ii) Advent International Corporation /MacRitchie Investments Pte. Limited / Crompton Greaves Consumer Electrical Limited[4], the CCI having re-authorised the transaction only by reducing the duration of the non-competition clause for the seller from 5 years to 3 years. In conclusion, the ICC assesses non-competition on the basis of two parameters: (i) that the level of the non-competition clause should be reasonable for the activities it intends to restrict and that excessive reductions beyond the objective economic necessity of the agreement should be considered inappropriate; and (ii) that the duration of the non-competition clause should strike a balance between the economic necessity of the clause and the absence/harm suffered by competition in the market. . . .

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