Non-Compete Deal Between UDPL and IBL Under Scrutiny
The Competition Appellate Tribunal has upheld a cumulative penalty of Rs. 40 million imposed by the Competition Commission of Pakistan (CCP) on United Distributors Pakistan Limited (UDPL) and International Brands (Private) Limited (IBL). The case centres on a non-compete agreement between the two companies that the CCP found to be anti-competitive and in violation of Section 4 of the Competition Act, 2010.
Proceedings began when UDPL disclosed to the Pakistan Stock Exchange that it had entered into a non-compete arrangement with IBL. Under this agreement, UDPL committed not to distribute human pharmaceutical products in Pakistan for a period of three years. In return, it was to receive a payment of Rs. 1.131 billion from IBL.
By its nature, the deal took UDPL out of the market for human pharmaceutical distribution, leaving IBL with reduced competitive pressure. The size of the payment and the length of the restriction raised immediate red flags for the competition regulator.
CCP Finds Agreement Restricts Competition and Shares Market
After examining the facts, the CCP concluded that the non-compete agreement was not a routine commercial understanding but a prohibited market-sharing arrangement. It found that UDPL was effectively paid to exit the relevant market, allowing IBL to operate with fewer rivals and greater freedom to set terms and conditions.
The Commission held that this kind of agreement restricts competition by removing an active competitor, shielding the remaining firm from competitive pressure and making it harder for new players to enter. In the CCP’s assessment, the Rs. 1.131 billion payment acted as a strong financial incentive to ensure UDPL’s withdrawal and long-term absence from the market.
Although the agreement contained a clause requiring regulatory approval, both companies failed to obtain an exemption from the CCP before implementing it. They only applied for exemption after the Commission issued show-cause notices. The CCP rejected their application, finding that the deal did not qualify for exemption under the law and that the violation had already occurred.
Tribunal Confirms Legality of Penalties on Both Companies
Following the CCP’s order, UDPL and IBL challenged the decision before the Competition Appellate Tribunal. However, the Tribunal sided with the regulator. In its ruling, it noted that the parties themselves had acknowledged the arrangement as a non-compete agreement through their own conduct and communications.
The Tribunal endorsed the CCP’s reasoning that the agreement amounted to a market-sharing arrangement prohibited under Section 4 of the Competition Act, 2010. It accepted that the agreement restricted competition by taking UDPL out of the market for three years and giving IBL a competitive advantage.
Importantly, the Tribunal observed that, once their exemption request was rejected, the companies did not pursue any further legal remedy against that specific decision. This inaction was viewed as implicit acceptance that a violation had taken place. On that basis, the Tribunal held that the penalties of Rs. 20 million each on UDPL and IBL under Section 38 were justified and lawful, maintaining the total penalty at Rs. 40 million.
Key Lessons for Businesses on Competition Compliance
The Tribunal’s decision sends a clear message to businesses operating in Pakistan’s pharmaceutical and wider corporate sector. Agreements that remove competitors from the market, even temporarily, can be treated as serious violations of competition law, especially when accompanied by large payments or other incentives.
Companies considering non-compete clauses, market exits or strategic partnerships need to assess whether such arrangements could be viewed as market sharing or collusion. Simply inserting a clause that mentions “regulatory approval” is not enough if the agreement is implemented without securing an exemption in advance.
The case also highlights the importance of engaging proactively with the CCP before finalising structural or long-term agreements that may affect competition. Seeking timely guidance and, where appropriate, applying for exemption before implementation can reduce legal risk. Ignoring these requirements can lead not only to financial penalties but also to lasting reputational damage in a highly regulated market like pharmaceuticals.
