SECURITIES APPELLATE TRIBUNAL, MUMBAI
IP holding Asia Singapore Pte. Ltd.
versus
Securities & Exchange Board of India
APPEAL NO. 130 OF 2011
SEPTEMBER 12, 2012
ORDER
P.K. Malhotra, Member & Presiding Officer (Offg.)
The issue that arises for our consideration in this appeal is whether the appellants are liable to pay to the public shareholders the non-compete fee that has been agreed to be paid to the outgoing promoters of the company being taken over. The facts of the case, which are not in dispute, may first be noticed.
2. Appellant no.1 is a company incorporated under the laws of Singapore. It is held by appellant no.2 i.e., International Paper Company of USA through its subsidiary IP International Holdings Inc. Appellant no.2 is said to be a global paper and packaging company and its business includes manufacturing of uncoated papers, industrial and consumer packaging.
3. Appellants entered into a share purchase agreement (SPA) with the promoters of Andhra Pradesh Paper Mills Limited (the target company) on March 29, 2011 to acquire 2,12,60,008 fully paid-up equity shares forming 53.46% share capital of the target company at a price of Rs. 523/- per share aggregating to an amount of Rs. 11,118,984,184. An exclusivity fee of Rs. 21.20 per share is also to be paid to the promoter group sellers and, therefore, it was decided by the appellants to add the same to the offer price. The equity shares proposed to be acquired under the share purchase agreement represents the equity shareholding of the promoter group sellers in the target company. In terms of regulations 10 & 12 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the takeover code), a public announcement dated April 1, 2011 was published with regard to the proposed open offer for acquisition of upto 85,67,521 shares of the target company from the existing shareholders representing 21.54% of the voting capital at a price of Rs. 544.20 per fully paid-up equity share of face value of Rs. 10 each. The said offer price was arrived at in accordance with the provisions of sub-regulation (4) of regulation 20 of the takeover code. Subsequently, in compliance with the requirement of regulation 18 of the takeover code, the appellants, through their merchant banker, filed the draft letter of offer with the Securities and Exchange Board of India (the Board) on April 15, 2011.
4. It is the case of the appellants that the promoter group sellers of the target company have been the controlling shareholders and had extensive participation in the management and operation of the target company for a substantial period of time and have gained deep knowledge of the paper and pulp industry in India and experience in the business and affairs of the target company. Being the controlling shareholders and having knowledge of business of the target company, each of the promoter group sellers of the target company are capable of offering competition. In consideration for the non-compete undertakings of the sellers as set out in the SPA as well as in the Non-Compete Agreement, the appellants agreed to pay an aggregate amount of Rs. 2,77,95,30,000 to the promoter group sellers as non-compete fee. The said non-compete fee, to be paid to the promoter group sellers, comes to Rs. 130.74 per share. The non-compete fee is within the limits of 25% of the offer price arrived at in accordance with the provisions of the takeover code. The non-compete fee was to be paid to the promoter group sellers in the proportion set out below:
Purchase Price and Non-Compete Fee to Each Seller
