JUDGMENT

Madan B. Lokur, J.

1. The question for consideration is whether the Appellants in this appeal are liable to pay a non-compete fee to the public shareholders of the target company as is being to be paid to the outgoing promoters of the target company which is being taken over by the Appellants. In our opinion, the answer to this question must be in the negative.

The Facts

2. Appellant No. 1 is a company incorporated under the laws of Singapore. Appellant No. 2 is the holding company of Appellant No. 1 through a subsidiary.

3. The outgoing promoters of the target company (the Andhra Pradesh Paper Mills Ltd.) are referred to hereinafter as the Bangur group. The Bangur group consists of 20 entities, both individuals and others.

4. On 29th March, 2011 the Appellants entered into two agreements with the Bangur group. In terms of the first agreement, a share purchase agreement, the Appellants and the Bangur group agreed that the Appellants would acquire the shares of the target company held by the Bangur group by purchasing 2,12,60,008 fully paid up equity shares of Rs. 10/- each forming 53.46 % of the share capital of the target company. The agreed price per share was Rs. 523/- and the aggregate amount payable to the Bangur group was about Rs. 1111.9 crores.

5. In addition to the price of Rs. 523/- per share, the Appellants agreed to pay an exclusivity fee of Rs. 21.20 per share to the Bangur group, pursuant to an exclusivity agreement of 11th November, 2010 whereby the parties concluded that it would be in their mutual interest to maintain exclusive negotiations with one another during the period the Appellants considered the proposed acquisition of shares of the target company. Consequently, the price agreed to be paid by the Appellants to the Bangur group was Rs. 544.20 per fully paid up equity share having a face value of Rs. 10/-.

6. The second agreement entered into between the Appellants and the Bangur group was a non-compete and business waiver agreement. In terms of this agreement the Appellants agreed to pay to the Bangur group an amount of about Rs. 277.95 crores, inter alia, for refraining from competing with the business of the target company either on their own or through their affiliates for a period of three years, the business of the target company being manufacturing, sale and trading of pulp and paper.

7. In terms of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the Takeover Code) [Acquisition of fifteen per cent or more of the shares or voting rights of any company: 10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations.] the Appellants gave an open offer through publication in newspapers on 1st April, 2011 for the acquisition of up to 85,67,521 fully paid up equity shares of the target company from the existing shareholders representing 21.54% of the voting capital. As per the public announcement, the Appellants fixed the price of each fully paid up equity share at Rs. 544.20 (Rs. 523/- + Rs. 21.20). We were told that the public announcement received an overwhelming response.

8. On completing these formalities, the merchant banker of the Appellants filed a draft letter of offer dated 15th April, 2011 with the Securities and Exchange Board of India (for short SEBI) in accordance with the Takeover Code.

9. Thereafter, some correspondence ensued between the merchant banker of the Appellants and SEBI. The sum and substance of this correspondence related (as far as we are concerned) to three issues connected with the non-compete fee: (1) The merchant banker was requested to provide the current business and object clause of the non-individual