A Special Purpose Acquisition Company (SPAC) is a blank – cheque/shell company existing solely on paper which is listed on the stock exchange for the sole purpose of acquiring with a company and helping it list on the stock exchange with little regulatory troubles. [1]

How SPACs work?

These SPACs raises money through an Initial Public Offer (“IPO’) and the same is kept in an escrow account till such time it is able to figure out a suitable target to acquire. The catch however, is that if the acquisition is not completed within 2 years from listing, then the SPAC is delisted and money returned to investors. In case a suitable target is found, shareholder approval is solicited for merger and a proxy statement containing a description of the transaction and governance matters in additional target’s financial information. On receipt of shareholder approval and regulatory clearances, target becomes a listed company.[2]

The SPAC path is preferred over a regular IPO because in such a transaction, the private company converts to a public listed company with a higher level of pricing certainty, deal-term control and in a much shorter duration of time. Further, investor confidence in these shell companies is further boosted by the fact that they have received sponsorship from well-known investors like CEO of Dell Technologies – Michael Dell.

Problems in Indian Regulatory Framework

The current framework in India is not at all supportive for SPACs as per legal practitioners because the Registrar of Companies (“ROC”) is empowered to strike-off a company which doesn’t start operations within 1 year of being incorporated as per section 248 (1) of Companies Act, 2013. So, SPACs which take two years stand no chance. Moreover, under the Securities & Exchange Board of India (“SEBI”) Act, listed companies require pre-tax operating profit of Rs. 15 crore in 3 of last 5 years (4.3.1. (b) of IGP norms) along with net tangible assets of Rs. 3 crore in last 3 years (4.3.1. (a) of IGP norms). [3]A shell company like SPAC would clearly not meet this criteria.[4]

Case Study of ReNew Power

ReNew Power was an  Indian renewable energy company which listed on the NASDAQ – the second largest stock exchange in the world which also trades securities of Amazon, Apple, Microsoft among others. This happened by ReNew Power merging with RMG Acquisition Corporation II (a SPAC) based in the United States.[5] The current shareholders of ReNew Power include Goldman Sachs, Abu Dhabi Investment Authority among others who would be holding together an approximate of 70% of the company once the deal closes. The proceeds will be used now to support growth strategy of the company, buildout of its power generation capacity and debt reduction.


SPACs are increasingly being viewed as a lucrative option[6] especially by Indian companies who find it better and much easier to list on foreign stock exchanges through SPAC rather than listing on Indian stock exchange with stringent norms. However, this loss of Indian start-ups to more developed economies is not unknown to SEBI and therefore it has constituted a expert committee to explore the viability of regulating SPACs in India. If allowed, it would be a great step ahead in promoting India as a start-up ecosystem and would benefit the government through capital gains tax.[7]









Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.


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April 2021