Concerns under Private International Law

An Indian Perspective on Special Purpose Acquisition Companies, GLA-TR-001

opportunity for a SPAC to identify a target company and further commence operations does not arise.

Concerns under Private International Law

Private International law is that portion of international law that comes into question when courts in one country are faced with a foreign element or claim that would lead to conflict between the private entities and citizens across various countries and is often referred to as “conflict of laws” in the common law countries. Therefore, the domestic courts of a country will have to deal with three questions when any private international law issue arises; firstly, which country would have the jurisdiction in dealing with a dispute and the conditions which would allow the country to entertain the same?; secondly, which law would be applicable?; and thirdly, how would the foreign judgement be made enforceable?46

At this juncture it is important to examine how pertinent these questions of private international law would be in case of SPACs and how it would pose several jurisdictional issues in case any dispute arises. There are possibilities of several contractual disputes that can arise in the course of the SPAC lifecycle. The shareholders of the SPAC can sue the SPAC executives in failing to perform their fiduciary duty in and in conducting successful negotiations with the target company. Further they can also claim that the SPAC executives were grossly negligent in conducting and gathering any relevant information and meetings to effectively constitute a SPAC merger. However, this is an easy question to answer when the SPAC has initiated a merger with the company in the same country the SPAC is present. The problem would however arise if the SPAC merger were initiated with a target company with an overseas SPAC. Would the shareholders be liable to claim damages from the SPAC directors on the ground that they consciously chose to not conduct successful negotiations with the target company and buy more time thereby risking the shareholder’s investment amount in the

46 Hugh & Hazel Darling Law Library, ‘Private International Law’ (UCLA School of Law, 2021) <https://libguides.law.ucla.edu/privateinternational> accessed 07 October 2021.

SPAC?47 However, the question would be different if majority shareholders are in a different country from where the SPAC executives/directors are present. The defendants in case the suit arises can merely take the claim that since the SPAC directors and executives are present in a different country from the SPAC shareholders, the domestic contractual laws would be inapplicable. In this instance, there is a conflict of application of the substantive and procedural law which is an impediment to any subsequent dispute resolution.

There is potential for numerous disputes to arise in case of cross border De-SPAC transactions. From the Indian perspective, the framework practically complicates the listing of SPACs within India, however it allows De-SPACs of Indian target companies undertaken by any foreign or overseas SPACs. The overseas SPAC has the option to acquire the target Indian company through the merger of the target company and the overseas SPAC or through the acquisition of the target company’s share capital in consideration for cash, shares or a combination of both.48 Apart from the domestic challenges that De-SPAC transactions would pose, there are certainly other issues that can arise.

Firstly, if the target company’s shareholders can oppose the merger or acquisition and can claim that the company can negotiate a better compensation amount for the merger. This can be claimed under section 236 of the Companies Act, 2013 which specifies the procedure as to how the minority shareholding can be purchased. However, the question would be how the minority shareholders of the target company would initiate the proceedings against SPAC claiming a better price for their shares. Is the SPAC subject to the domestic laws of where the target company and shareholders are located or since the subject matter of the dispute and the SPAC executives are located

47 Quinn Emanuel Trial Lawyers, ‘Litigation Risk in the SPAC World’, (Quinn Emanuel Trial Lawyers, 2021) <https://www.quinnemanuel.com/thefirm/publications/litigation-risk-in-the-spac-world/> accessed 07 October 2021. 48 Ayesha Bharucha, Aishwarya Gupta and Aman Mihir, ‘Are Cross- Border DeSPACs Feasible- Part I’ (Lexology, 15 July 2021) <https://www.lexology.com/library/detail.aspx?g=3c9e62fc-a44d-4cbd8587-9d43d91d213b> accessed 07 October 2021.

An Indian Perspective on Special Purpose Acquisition Companies, GLA-TR-001

outside India, or would the shareholders have to proceed to the country where the SPAC is presently functioning?

Secondly, the SPAC executives/directors can easily defend the shareholder’s claim by rejecting the extension of jurisdictional status of the dispute and claim that the Indian contract and Companies acts/ rules would be inapplicable towards them and the calculation of fair market value (FMV) of purchase should be done in accordance with the domestic laws of country or should be aligned with laws of the overseas SPAC thereby creating a conflict between the application of domestic laws.49 Furthermore, even if a presumption is made that the case has been admitted within Indian courts and the domestic laws would be applicable and the litigation has favored the shareholder’s interests, the enforcement risks would arise which would warrant the Indian courts to order the defendants located in foreign place to enforce and pay the costs accordingly which might not be complied with thereby escaping accountability.

Thirdly, exceeding the jurisdictional threshold to admit cases in the domestic laws of the country can be counterproductive for the SPAC framework. Since the privatization of securities law has also become increasingly relevant through arbitration and if parties are dealing with two countries and investments that have cross border impact, then the conflict of laws is an inevitable occurrence.50 Therefore, the choice of law (substantive as well as procedural law) should precede any target company acquisition or cross border merger and the contract should be well formulated and drafted in such a way that it specifies the choice of law in case any dispute arises between parties and stakeholders. This would assist in comprehensively dealing with dispute resolution settlement mechanisms and the application of

49 Akila Agrawal, Yash Ashar, Ravi Shah and Avani Dalal, ‘Using SPAC Vehicles as a Means of Listing Outside India’ (India Corporate Law: A Cyril Amarchand Mangaldas Blog, 14 September 2020) <https://corporate.cyrilamarchandblogs.com/2020/09/using-spac-vehiclesas-a-means-of-listing-outside-india/> accessed 07 October 2021. 50 Robert Hillman, ‘Cross Border Investment, Conflict of Laws and the Privatisation of Securities Law’ (Law and Contemporary Problems, 1992) <https://scholarship.law.duke.edu/lcp/vol55/iss4/13/> accessed 07 October 2021.

domestic laws and the jurisdictional extension and rationale for the same, reducing the litigation costs and promoting efficacious dispute resolution mechanisms.