Special Purpose Vehicles, commonly known as SPVs, are widely used across global financial markets for investment structuring, infrastructure development, securitization, and private equity transactions. As India’s startup ecosystem, infrastructure projects, and private markets continue to grow, many founders, investors, and fund managers often ask an important question: Is SPV legal in India?

The short answer is yes, SPVs are completely legal in India. However, their legality does not come from a single “SPV Act.” Instead, SPVs operate within the broader framework of Indian corporate, securities, tax, and regulatory laws. In other words, an SPV is not a special legal category under Indian law; it is a structure created using existing legal entities such as companies, limited liability partnerships, or trusts for a specific purpose.

To fully understand whether SPVs are legal in India, it is important to examine how they are structured, which laws govern them, how regulators view them, and how they are used in practice across sectors such as infrastructure, venture capital, and securitization.

Understanding SPVs in the Indian Legal Context

An SPV, or Special Purpose Vehicle, is a separate legal entity formed for a specific, limited objective. That objective could be executing an infrastructure project, pooling capital for an investment, holding a real estate asset, or facilitating a structured finance transaction.

In India, there is no standalone legislation that defines or exclusively regulates SPVs. Instead, SPVs are formed under existing legal frameworks such as the Companies Act, 2013, the Limited Liability Partnership Act, 2008, the Indian Trusts Act, 1882, or sector-specific regulations depending on their purpose.

Because SPVs are formed using legally recognized entity structures, they are fully legal so long as they comply with the applicable laws and regulations governing those structures.

The legality of SPVs in India is therefore not a question of permission, but of compliance. If structured correctly and operated within regulatory boundaries, SPVs are not only legal but widely encouraged in certain sectors.

SPVs Under the Companies Act, 2013

One of the most common ways SPVs are formed in India is as private limited companies under the Companies Act, 2013.

Under this law, any eligible promoters can incorporate a company with a defined object clause specifying its purpose. If the object clause restricts the company to a particular project or transaction, that company effectively functions as a SPV.

For example, in infrastructure development, a separate private limited company is often incorporated solely to execute one highway or power project. That company signs contracts, raises debt, and manages revenue specific to that project. Legally, it is simply a company under the Companies Act. Functionally, it operates as a SPV.

The Companies Act does not prohibit such structuring. In fact, the law explicitly allows companies to define limited business objectives in their memorandum of association.

SPVs in Infrastructure and Public-Private Partnerships

In India, SPVs are extremely common in infrastructure and public-private partnership (PPP) projects.

When the government awards a concession for a toll road, airport, metro system, or power plant, the concession agreement often requires the winning bidder to create a SPV. This SPV becomes the project company responsible for financing, constructing, operating, and maintaining the asset.

This structure serves multiple purposes. It isolates project risk, ensures transparency of financial flows, and provides lenders with a clear borrower entity whose cash flows are directly tied to the project.

Institutions such as the National Highways Authority of India (NHAI) frequently use SPV-based structures in highway development models such as Build-Operate-Transfer (BOT) or Hybrid Annuity Models (HAM). Each project typically has its own SPV company.

These examples clearly demonstrate that SPVs are not only legal in India, but they are a foundational part of the country’s infrastructure financing ecosystem.

SPVs in Venture Capital and Private Equity

SPVs are also widely used in India’s startup and investment landscape.

Angel investors and venture capital firms sometimes create SPVs to pool capital into a single startup investment. Instead of multiple individual investors appearing on a startup’s cap table, they invest through a single entity that represents them collectively.

In India, such SPVs are typically structured as private limited companies or limited liability partnerships. If the investment activity falls under the definition of a fund, then regulations under the Securities and Exchange Board of India (SEBI) may apply, particularly the SEBI (Alternative Investment Funds) Regulations, 2012.

The key factor determining legality is whether the SPV is structured and operated in compliance with applicable securities laws. If an SPV raises funds from the public without proper registration, it could violate securities regulations. However, if structured privately among eligible investors with proper documentation, it is fully legal.

Therefore, the legality of investment SPVs in India depends on regulatory compliance rather than prohibition.

SPVs in Securitization and Structured Finance

Another important area where SPVs operate legally in India is securitization.

Banks and financial institutions often transfer financial assets such as loan receivables into a trust-based SPV. This SPV then issues security receipts to investors. These transactions are governed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 and guidelines issued by the Reserve Bank of India (RBI).

In these cases, the SPV is structured as a trust and acts as a bankruptcy-remote vehicle. This ensures that the transferred assets remain insulated from the originating bank’s financial position.

The RBI explicitly provides regulatory frameworks for such structures, which further confirms that SPVs are legally recognized mechanisms within Indian financial law.

Tax Treatment of SPVs in India

Another important consideration when asking whether SPVs are legal in India relates to taxation.

SPVs are taxed according to the legal form they adopt. A private limited company SPV is subject to corporate tax under the Income Tax Act, 1961. An LLP SPV is taxed as a partnership entity. Trust-based SPVs follow tax provisions applicable to trusts.

In some sectors, such as Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), specific tax pass-through benefits may apply at the SPV level, subject to compliance with SEBI and tax regulations.

The Indian tax system does not prohibit SPVs. However, it scrutinizes artificial arrangements created solely for tax avoidance. Therefore, SPVs must have genuine commercial substance and not exist merely as tax shelters.

When structured with legitimate business objectives, SPVs operate legally within India’s tax framework.

Regulatory Oversight and Compliance

Although SPVs are legal in India, they are not unregulated.

Depending on the sector and purpose, SPVs may fall under the jurisdiction of:

The Ministry of Corporate Affairs for company law compliance.

The Securities and Exchange Board of India for fund and securities regulations.

The Reserve Bank of India for financial sector and securitization matters.

Sector-specific regulators such as the National Company Law Tribunal in insolvency cases.

Compliance requirements include filing annual returns, maintaining financial statements, adhering to disclosure norms, and following foreign direct investment rules where applicable.

In cross-border transactions, SPVs must also comply with India’s Foreign Exchange Management Act (FEMA).

Legality, therefore, is conditional upon compliance with these frameworks.

Situations Where SPVs Can Become Problematic

While SPVs are legal in India, improper use can create legal risk.

If an SPV is used to raise funds from the public without proper registration, it could violate securities laws. If used to divert funds or conceal liabilities, it could attract regulatory penalties or even criminal liability. If structured purely for tax evasion, authorities may disregard the entity under anti-avoidance rules.

Therefore, the structure itself is legal, but misuse can lead to legal consequences.

The Indian regulatory system focuses on substance over form. If an SPV has legitimate commercial purpose and proper governance, it is valid. If it exists merely to circumvent the law, regulators may intervene.

Why SPVs Are Common in India

India’s growing infrastructure needs, expanding startup ecosystem, and increasing participation in global capital markets have made SPVs indispensable.

They allow risk isolation, project-specific financing, investor pooling, and structured asset ownership. They provide clarity to lenders and investors by separating one project’s financial exposure from broader corporate activities.

Given these advantages, SPVs are not fringe mechanisms. They are mainstream financial structures embedded within India’s legal and regulatory framework.

Final Conclusion: Is SPV Legal in India?

Yes, SPVs are legal in India.

They are formed under existing legal frameworks such as the Companies Act, LLP Act, Trust laws, and sector-specific regulations. They are widely used in infrastructure, venture capital, securitization, and structured finance.

However, their legality depends on compliance with applicable corporate, securities, tax, and regulatory requirements. An SPV is not automatically lawful simply because it exists. It must operate within India’s legal framework and adhere to disclosure, taxation, and governance standards.

When properly structured and managed, SPVs are not only legal in India but are essential tools in the country’s financial and investment ecosystem.

For founders, investors, and fund managers operating in India, understanding the legal basis of SPVs is crucial. Used responsibly, they provide flexibility, clarity, and efficiency. Used improperly, they can attract regulatory scrutiny.

Ultimately, SPVs in India are legal, recognized, and widely adopted structures that continue to play a vital role in enabling capital formation and project development across the country’s growing economy.