BLANK CHEQUES AND BLOCKED DOORS: SPACs IN THE GLOBAL CAPITAL MARKETS AND INDIA’S EVOLVING REGULATORY FRAMEWORK

Abstract

Special purpose acquisition companies (SPACs), also known as blank cheque companies, are listed shell entities incorporated to locate and acquire private company in a reverse merger transaction, allowing the target to access public capital markets without an Initial Public Offering. Demise of penny stock fraud in the 1980’s and the subsequent taming of this discipline by the SEC Rule 419 created the opportunity for SPACs to become a mainstream capital markets tool and in 2021, it reached historical high of 613 listings that raised USD 162bn in the United States, but subsequently caused regulatory fire in the United Kingdom, Singapore, and Hong Kong.

This paper examines SPAC model from five different perspectives. First, it explains what SPAC, concept and formation of SPAC, investor protection and sponsor incentives is. Second, it explains the history of SPACs from blank cheque companies up until the boom in the year 2021 and the subsequent SEC rules released in the year 2024. Third, it compares US, UK, Singapore, and Hong Kong in terms of SPAC framework. Fourth, we move on to India. Despite the clear market interest in India (Yatra Online’s NASDAQ listing in 2016 and ReNew Power’s 2021 de-SPAC), we find that India’s legal foundation is not conducive to the SPAC model and we identify flaws in the Companies Act 2013, SEBI ICDR Regulations 2018, FEMA and the Income Tax Act 1961. Lastly, we take a broader perspective and expose India’s new IFSCA framework in GIFT City and identify the legal changes required for India to make the SPAC model functional in India.

The research methodology used in the paper is empirical and exploratory in nature. Several provisions belonging to transborder countries have been referred for a comparative analysis with existing Indian jurisprudence. The paper argues that India's regulatory obstacles to the SPAC model are surmountable but are the result of a statutory architecture built around the traditional operating company.