This short article has been written by Vidhan Dixit. He is a law student at National Law University Chhatrapati Sambhajinagar.
ABSTRACT
Yatra Online’s merger with a U.S.-based SPAC, where SPACs can be defined as Special Purpose Acquisition Companies, are shell entities that raise capital through an Initial Public Offering (IPO) to later merge with or acquire private companies, enabling them to go public without a traditional IPO. Often termed “blank check companies,” SPACs gained prominence in India with deals like Yatra Online’s merger with a U.S.-based SPAC in 2016. However, their rapid growth has raised investor protection concerns due to past fraud cases, such as Nikola Corp. and Akazoo, which misled investors about business prospects. Regulatory bodies like the U.S. SEC and the UK’s FCA have introduced stricter disclosure norms and safeguards, including mandatory escrow accounts and shareholder approvals, to mitigate risks.
In India, SPACs face legal hurdles under the Companies Act, 2013, which mandates business commencement within a year, conflicting with SPACs’ typical 1-2 year target acquisition timeline. SEBI’s stringent IPO eligibility criteria, such as minimum tangible assets and profitability requirements, further complicate SPAC listings. Additionally, tax implications under the Income Tax Act, 1961, pose challenges for cross-border De-SPAC transactions.
Despite these challenges, SPACs offer a faster route to public markets, prompting global regulators to refine frameworks balancing innovation and investor protection. For India to harness SPACs effectively, amendments in corporate, securities, and tax laws are essential, alongside enhanced transparency and investor education to prevent fraud and ensure sustainable growth in this evolving financial instrument.
KEYWORDS- SPAC (Special Purpose Acquisition Companies), Investor Protection, Regulatory Challenges, De-SPAC Transactions, SEBI Guideline
