Proposed solutions to legal issues raised by SPV model

By Hemant Sahai, HSA Advocates

Implementing smart cities through special purpose vehicles (SPV), as proposed by the Smart City Mission Statement & Guidelines issued by the Ministry of Urban Development, raises several fundamental legal issues. In this column, we examine the feasibility of this model and propose nuanced alternative mechanisms that the states and urban local bodies (ULBs) can adopt to implement their smart city proposals.

Hemant Sahai at HSA Advocates
Hemant Sahai

The guidelines mandate the creation of an SPV, incorporated under the Companies Act, 2013, to implement each smart city proposal. SPVs so created will be responsible for all phases of smart city development projects. Each SPV will be promoted by the state or union territory (UT) government and ULB concerned, with equal shareholding between the two at all times. Private sector entities and financial institutions can take an equity stake in the SPV, provided that the state/UT government and the ULB together maintain a majority and equal shareholding and control of the SPV. Because of these requirements, the SPV – a 50:50 joint venture between the state/UT government and the ULB – will not fall within the definition of a “government company’ under the Companies Act.

Given the proposed implementation structure and existing regulatory framework governing the powers and functions of ULBs, issues that states/ULBs will need to address in implementing a smart city proposal are outlined below.

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