No non-compete clause in case of FDI in pharma deals

The Reserve Bank today said the non-compete clause will not be applicable in acquisition of existing pharma companies by foreign entities or investors except in certain special cases.

India allows 100 per cent FDI in pharma sector. While FDI is permitted through automatic route in case of greenfield investment or new venture, government approval is required in case of brownfield or existing companies.

"... 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)," RBI said in a notification.

Under a non-compete clause a party agrees not to enter into a similar trade in competition against another party as part of a deal. The notification follows revision of the extant FDI policy for pharmaceutical sector by the government in January, 2014.

Last week, the central bank had allowed FDI in Limited Liability Partnership (LLP) formed and registered under the LLP Act, 2008 subject to the conditions.