The Backdoor IPO Returns: Reverse Mergers And The New Route To Listing In India

Abstract:

For decades, the route from private enterprise to the public markets in India has followed a familiar script: an initial public offering, backed by diligence and disclosure, tested through price discovery and completed through admission to trading. That remains the conventional path, and for businesses seeking substantial primary capital and independent price discovery, it is often the right one but it is not the only one.

A different model is attracting renewed attention: using an existing listed company as the platform through which an unlisted business, or its shareholders, obtains access to the listed market. Depending on the architecture, the transaction may involve a scheme of arrangement, a share-swap acquisition, a preferential issue for consideration other than cash, or a combination. Market participants call the result a “backdoor listing”. The shorthand conceals the central problem. India’s protections for reverse listings are calibrated to the scheme of arrangement: where an unlisted business is merged into a listed company under Sections 230 to 232 of the Companies Act, 2013, SEBI’s framework imposes prior regulatory review, a minimum post-scheme public shareholding threshold, abridged-prospectus disclosure certified by a merchant banker and, in specified cases, approval by public shareholders voting separately from the promoter. Where the same economic result is pursued as a share-swap acquisition or a preferential issue, most of that architecture is not engaged. The protections attach to legal form rather than economic substance. This article examines that asymmetry through three contemporaneous transactions — Sigma–Megasoft, Shalimar Paints–Infra.Market and Purple Style Labs and argues that the question is no longer whether a business can reach the public market without an IPO, but whether the protections that would have applied to an IPO should follow the economics rather than the label.

Part I — The Architecture of a Reverse Listing

The renewed interest is best understood as a question of transaction architecture. In a conventional IPO, the unlisted issuer approaches the public market, makes a public offer, completes the prescribed disclosure and pricing process, and becomes a listed issuer on allotment. In a reverse listing, it does not. An existing listed entity becomes the vehicle through which the unlisted business is acquired, merged or integrated, with the shareholders of that business receiving securities in the listed entity as consideration.

Sigma Advanced Systems Private Limited (“Sigma”), an unlisted manufacturer of electronic products for the aerospace, defence, power and transport sectors, was amalgamated into Megasoft Limited (“Megasoft”), whose equity shares were already listed on the BSE and NSE. Megasoft’s board approved the scheme on October 18, 2024; the National Company Law Tribunal, Chennai Bench, sanctioned it; and Megasoft then renamed itself Sigma Advanced Systems Limited. The name change states the economic substance of a reverse listing as plainly as possible.

Sigma was never required to undertake an IPO or seek a fresh listing. It was folded into an existing listed vehicle, its shareholders receiving Megasoft shares at an agreed ratio, and because Sigma was wholly promoter-owned that issuance materially altered the ownership profile of the listed company. The mechanics make this a reverse merger, not merely the fact that an unlisted company reached a listed platform: amalgamation into the listed entity, consideration paid in that entity’s securities, and the incoming business emerging as the principal business of the combined enterprise.

Shalimar Paints and Infra.Market. The distinction has taken on fresh relevance following the proposed transaction involving Shalimar Paints and Hella Infra Market Limited (“Infra.Market”), the parent company of the Infra.Market business. The relationship between the two companies is itself material to the analysis: Hella Infra Market is already the promoter of Shalimar Paints, having acquired and subsequently increased a majority stake in the listed company. The proposed transaction is therefore not an unrelated business seeking out a listed platform. It is a listed subsidiary proposing to acquire its own parent, using its own securities as the currency. In August 2026, Shalimar Paints approved a proposal to acquire the equity shares and compulsorily convertible preference shares (CCPS) of Hella Infra Market through a share swap, the consideration being its own equity and CCPS and the non-cash value approximately ₹10,440 crore, subject to shareholder and regulatory approvals. It has separately proposed a Qualified Institutions Placement of up to ₹1,000 crore. Critically, the disclosed structure is not an amalgamation: Hella Infra Market would become an unlisted material subsidiary of Shalimar Paints. The regulatory consequences follow the actual structure, not the “reverse merger” label used in market commentary.

Purple Style Labs Limited, the parent of Pernia’s Pop-Up Shop, supplies the contrast. It is pursuing the traditional public-offer route. Its ₹680 crore IPO, comprising entirely a fresh issue, opened on August 31, 2026, after the company raised approximately ₹306 crore from anchor investors. One transaction uses the public offer to raise primary capital and establish a listing; the other seeks public-market access through an existing listed platform and raises capital separately.

Three transactions, then, but more to the point, three architectures. Each allocates control, dilution, valuation, and regulatory consequences among existing public shareholders, the shareholders of the unlisted business, and the listed company itself. That is why “reverse merger” is a label to be handled with care. The commercial objective may look the same, but the legal route adopted to achieve that objective can be materially different.

The difference between an IPO and a reverse listing is easiest to understand by tracing the direction of the transaction.

Conventional IPO

Reverse Listing

The commercial destination may be similar, but the legal journey is not; the difference runs through valuation, dilution, public float, shareholder voting, disclosure, takeover law, listing approvals, and continuing obligations. It also changes the question to be asked at the outset. A reverse listing should not be described simply as a way for an unlisted company to “become listed”: in some structures that company remains unlisted and becomes a subsidiary, while the listed entity is the vehicle through which its business obtains public-market exposure. Precision here prevents the legal analysis from being built around the wrong transaction.

Part II — The Commercial Case, and Its Limits

The commercial attraction is straightforward. A business may reach the scale at which public-market access is desirable while concluding that a conventional IPO is not the right transaction at that moment. Market conditions, valuation uncertainty, the cost and duration of the process and the prospect that public pricing will differ from private-market expectations all bear on the decision. A reverse listing addresses some of that. Instead of the business issuing its own securities to public investors, its shareholders receive securities of an existing listed entity, and the operating business is housed within a listed structure. Depending on the post-transaction shareholding, that can deliver liquidity and public-market visibility without a standalone IPO.

But the attraction should not be overstated. A reverse listing is not necessarily faster, cheaper or less regulated. It substitutes one set of execution risks for another. Valuation and exchange-ratio negotiations become central; public-shareholding requirements may constrain the economics; SEBI and stock-exchange review can be intensive; shareholder approvals may be required; and the listed entity's legacy liabilities and compliance history become part of the diligence exercise.

The crucial distinction is between obtaining listed-market access and raising new money. A conventional IPO combines a public offering, primary capital, price discovery, and listing in one transaction; a reverse listing can deliver access without raising fresh public capital at that stage. Infra.Market–Shalimar Paints illustrates the point: the share swap restructures ownership around a listed platform, while the separately proposed ₹1,000 crore QIP raises the capital.

That separation appeals to mature private businesses that want public-market access without letting the timing and valuation of an IPO dictate when they enter the listed market. It also means that “listing” should not be used as a proxy for “fundraising” when evaluating the transaction's commercial rationale.

Part III — The Regulatory Gateway and Its Asymmetry

SEBI has long required enhanced scrutiny of schemes involving listed entities, precisely because a restructuring should not let an unlisted business obtain the economic benefits of a listing while bypassing the protections owed to public shareholders.

Where the transaction is implemented through a scheme of arrangement, Sections 230 to 232 of the Companies Act, 2013 supply the statutory framework and the jurisdiction of the National Company Law Tribunal (“NCLT”). Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) requires the listed entity to file the draft scheme with the stock exchanges for observation or no-objection before it reaches the Tribunal, and Regulation 94 governs the exchanges’ forwarding of the scheme to SEBI.

The purpose is substantive, not procedural. SEBI’s prior review is directed at protecting minority shareholders and testing the scheme against securities law: a listed company carries public shareholders whose investment proposition the transaction may materially alter, which an ordinary contracting counterparty does not. The analysis must therefore begin with a more precise question than whether the transaction can lawfully be implemented. It must ask which framework applies to this structure, whether the public shareholders are protected, whether the disclosures permit an informed decision, and whether the post-transaction shareholding remains compliant.

Where an unlisted entity merges with a listed entity under the scheme framework, the principal safeguard concerns the post-scheme shareholding of public investors: the pre-scheme public shareholders of the listed entity, together with the Qualified Institutional Buyers of the unlisted entity, must hold not less than 25% of the merged company on a fully diluted basis.

The objective is clear. Without it, a substantially larger unlisted business could combine with a much smaller listed company, the incoming shareholders taking effective control while the existing public shareholders are left with a nominal interest. SEBI has said the requirement exists to prevent exactly that. The point is not merely mathematical: exchange ratio, valuation, capital structure and public float have to be modelled together.

The safeguard is not, however, a universal 25% test for every transaction called a reverse listing. It applies only where the transaction falls within the scheme framework. A share-swap acquisition involving no merger or scheme is governed by other provisions, principally Chapter V of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, where the listed company issues its own securities as consideration.

That distinction is not academic. On the structure disclosed by Shalimar Paints, the incoming shareholders of Hella Infra Market are proposed to receive equity shares and CCPS representing a substantial majority of the enlarged capital of the listed company. Had the same outcome been pursued as a merger into the listed entity, the post-scheme public shareholding condition would have required close examination and, on the disclosed proportions, would not obviously have been satisfied. Framed instead as an acquisition of shares against a preferential issue, the condition is not engaged.

This asymmetry is at the centre of the current debate. The 25% requirement is not a general principle that a listed company must retain meaningful public ownership after a transformative transaction. It is a condition attached to one procedural gateway. A transaction that avoids the gateway avoids the condition, even where the change in ownership, control and principal business is more dramatic than in many schemes that must satisfy it. Whether that allocation of protection remains defensible is, in our view, the most significant open question raised by the current wave of reverse listings.

The table below compares the three architectures across the protections that matter most to a public shareholder.

The table summarises the principal features of each route. The conditions applicable to any particular transaction will depend on its facts and on the exemptions relied upon.

Part IV — The Substantive Protections

In an IPO, market demand tests the issue price through book-building. In a reverse listing, there is no equivalent public price discovery for the unlisted business, so the economic centre of the transaction shifts to valuation and to the exchange ratio through which ownership of the resulting listed company is allocated. That ratio determines far more than headline value: it fixes dilution, promoter ownership, public shareholding and the balance of economic power in the enlarged entity.

Valuation therefore cannot be treated as a back-office exercise. Without conventional price discovery, the independence, methodology and evidentiary basis of the valuation are central to the credibility of the deal, and the fairness opinion, the audit committee and independent directors, shareholder disclosure and regulatory review are the only checks on the negotiated ratio.

Disclosure is the counterweight to the absence of a public offer. An IPO investor receives detailed information because the public is asked to invest directly in the issuer; in a scheme-based reverse listing, the existing public shareholders are asked to decide whether to remain invested in a company whose business, ownership and risk profile may be transformed. The SEBI scheme framework accordingly requires prescribed information on the unlisted entity in the explanatory statement, including in the abridged-prospectus format, certified by a SEBI-registered merchant banker after due diligence.

So a scheme involving a listed entity imposes IPO-like disclosure discipline on an unlisted business that is undertaking no public offer at all. The “backdoor” changes the route to the market; it does not eliminate the market's need for information.

A reverse listing can fundamentally alter the investment proposition of the listed company’s public shareholders: one business before the transaction, a substantially different one afterwards, with management, control, capital structure, risk profile and growth strategy all liable to change.

The SEBI scheme framework consequently requires public shareholder approval in specified circumstances, including where a merger of an unlisted entity reduces the voting share of the pre-scheme public shareholders by more than 5% of the total capital of the merged entity. The policy is a majority-of-minority safeguard: the promoter’s voting strength should not by itself determine the outcome of a transaction that materially affects public shareholders. In a reverse listing, this matters more than usual, because the transaction shifts the economic centre of gravity of the listed company from its existing shareholder base to the incoming shareholders.

A comparable safeguard operates outside the scheme framework, and it is easily overlooked. Where the counterparty is the promoter of the listed company or a member of the promoter group, the arrangement is a related-party transaction under Regulation 23 of the LODR Regulations and Section 188 of the Companies Act, 2013, requiring audit committee approval and a shareholder resolution on which no related party may vote. So where the unlisted business is already the promoter of the listed vehicle, the absence of a scheme does not leave the public shareholders without a vote; it relocates that vote from the scheme framework to the related-party framework. Boards should not assume a non-scheme structure dispenses with the minority’s consent. But the two regimes are not equivalent on disclosure, and an explanatory statement accompanying a related-party resolution is no substitute for abridged-prospectus disclosure of a business of this scale.

Accordingly, shareholder communication should do more than reproduce technical disclosures. The explanatory statement should allow a public shareholder to understand what the listed company owns before the transaction, what it will own afterwards, how control and economics will change, why the transaction is being undertaken, and why the consideration is fair.

The question is not only how the transaction is structured but why it is being undertaken. A transaction whose only reasonable purpose is to place an unlisted business inside a listed vehicle may attract more scrutiny than a transaction that represents a genuine business combination with a coherent commercial rationale. Obtaining public-market access can certainly be a legitimate commercial objective; the stronger position is where that objective sits alongside an independently credible business rationale.

That rationale may lie in complementary operations, supply-chain integration, scale, technology, manufacturing capability, geographic reach or financing efficiency. The distinction is simple: the listing should be a consequence of a credible corporate transaction, not the reason for it. The more dramatic the transformation of the listed entity, the heavier the burden of showing that the transaction is commercially rational and fair to its existing public shareholders.

Part V —  The Wider Legal Perimeter

Admission to trading is not the end of the exercise but the beginning of the company’s life under the continuing obligations applicable to listed entities. Those cover governance requirements, continuous disclosure, related-party controls, insider trading restrictions, minimum public shareholding and the broader discipline of public-market reporting. For a privately held business accustomed to concentrated ownership and negotiated information flows, that transition is significant. A reverse listing does not simply put securities on an exchange; it subjects the business, its management and its governance arrangements to continuing scrutiny from investors, analysts, regulators and the exchanges.

The execution timetable also deserves attention. In a 2025 settlement order concerning National Peroxide Limited, SEBI recorded that listing and trading of the company’s shares commenced 406 days after receipt of the NCLT order, against the prescribed 60-day period under the applicable scheme framework. The case is a useful practical reminder that NCLT sanction does not complete the listing process: post-sanction steps, exchange approvals and compliance with the prescribed listing timetable remain critical transaction workstreams.

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 require separate analysis. Qualifying acquisitions under a court-, tribunal- or competent-authority-approved scheme may fall within the exemption framework, but that exemption is not a blanket safe harbour for every step surrounding a reverse listing. Where incoming shareholders or promoters separately acquire shares from existing promoters, or separately acquire control, those steps need independent analysis. That matters most in transactions combining a scheme, preferential allotment, secondary acquisition and promoter reorganisation. The transaction documents should map each acquisition and transfer against the applicable takeover provisions rather than assume the whole benefits from a single exemption.

The point extends beyond the Takeover Code to the sequencing of the transaction as a whole. Where parties disclose that a share swap may be followed by a “unification” of the two entities at a later stage, the two steps should not be assessed in isolation. A structure in which control and the principal business migrate at the first step, with the formal merger following at the second, may present each step as individually unobjectionable while producing, in combination, precisely the outcome the scheme framework exists to test. By the time the merger reaches the exchanges, the shareholding pattern against which the post-scheme condition is measured may already have been reconstituted. We would expect regulators to examine connected steps together, and parties should assume they will: a two-stage transaction will be assessed on its cumulative effect, and the standards applied at the first stage should anticipate the second rather than defer to it.

Securities law is the most visible layer of a reverse listing, but rarely the only one that determines whether the transaction works. Where the route is an amalgamation, Section 2(1B) of the Income-tax Act, 1961 governs tax neutrality and Section 72A the carry-forward of losses, though Section 79 and the general anti-avoidance rules make a loss-making shell a poor reason to choose a vehicle. A share swap outside a scheme is a taxable transfer in the hands of the exchanging shareholders, with no Section 47 relief, and Sections 56(2)(x) and 50CA apply where securities move below fair market value. Non-resident registers bring the Non-Debt Instrument Rules into play, with valuation, sectoral caps, land-border approval and reporting conditions that should be settled before the swap ratio is agreed rather than after. A combination of this size will usually require suspensory clearance from the Competition Commission of India, and gun-jumping is a live risk in a staged structure.

Two further points deserve emphasis. Under Ind AS 103, a transaction in which the legal acquirer is in substance the acquired business is accounted for as a reverse acquisition: the combined entity's financial statements continue those of the unlisted operating business, not the listed one. The accounting standard already looks through legal form to economic substance. The accounts will therefore describe the transaction one way while the securities-law framework assesses it another. And because a reverse listing generates unpublished price sensitive information from the earliest discussions, the insider-trading regime applies throughout: trading windows closed, every disclosure to an adviser or counterparty logged, access kept deliberately narrow. Where price and volumes move materially before an announcement of this kind, boards should assume the trading record will be reconstructed.

India is not the first market to confront the reverse listing. The United Kingdom treats a reverse takeover as a change in the identity of the issuer: where a listed company acquires a business substantial relative to its own size, or one that fundamentally changes its business or control, the existing listing is ordinarily cancelled, and the enlarged entity must apply for admission afresh, publishing a prospectus as a new applicant would. A company transformed to that degree is a new issuer in all but name, and the public is entitled to what a new issuer must disclose. The United States reached a comparable position by a harder route, imposing seasoning requirements in 2011 (a sustained period of over-the-counter trading, audited financials and a minimum share price) after a sequence of accounting failures in reverse mergers into dormant shells.

India has adopted neither device. A listed company that acquires a business many times its own size does not lose its listing, does not re-apply for admission and serves no seasoning period. Protection is concentrated at a single point, the scheme gateway, and that gateway can be avoided by structural choice: the Indian framework allows no more than the others do. It is simply less consistent about when its protections apply. The comparison also explains the space the reverse listing occupies here. SEBI has not enabled special purpose acquisition companies for the domestic market, though the International Financial Services Centres Authority has permitted them at GIFT City. In a market without a Special Purpose Acquisition Company (“SPAC”) framework, a listed company with a modest operating business and an accommodating promoter performs much the same function.

Part VI — Designing the Transaction

A reverse listing is ultimately a multi-dimensional exercise. The parties should first identify the desired post-transaction ownership, control, public float, business composition, and capital structure, then select the legal route capable of delivering that outcome within the applicable regulatory framework.

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The precise route will depend on the facts. A statutory amalgamation, a scheme of arrangement, a share-swap acquisition, a preferential issue for consideration other than cash, or a combination of these mechanisms may produce similar commercial outcomes while engaging different legal provisions. The regulatory analysis must therefore follow the actual structure.

Designing backwards from the desired regulatory outcome is more robust than starting with the proposition that the private company wants to “get listed” and fitting a transaction around it.

For a promoter, the test is which route better serves the company’s strategic objectives, rather than which is easier.

The Infra.Market position illustrates that this is now a genuine choice rather than a fallback. The company had already taken the conventional route close to its conclusion: it filed draft offer documents with SEBI on a confidential basis in late 2025 and obtained approval for a proposed offer of the order of ₹5,000 crore. The reverse-listing proposal was announced with that approval in hand. This is a business that had secured access to the public offering process and then concluded that a different structure better served its objectives. When promoters holding a live IPO approval begin to prefer the alternative, the interesting question stops being whether the backdoor is legitimate and becomes why the front door is being declined.

Where the objective is to raise substantial fresh capital, establish independent price discovery and build a standalone listed identity, the conventional IPO remains the more appropriate route: it is purpose-built for the task and places the issuer directly before public investors. Where the objective is instead listed-market access, liquidity for existing shareholders, a business combination and capital raised separately if required, a reverse listing may be the better structure.

The choice turns on relative valuations, shareholder profiles, the scale of the incoming business, the public float, the commercial rationale, the regulatory pathway and the legacy profile of the listed company. There is no formula. The stronger proposition is the one that can be defended at once on commercial, valuation, regulatory and shareholder-protection grounds.

Conclusion: The Backdoor Is Open—But It Is Not Unlocked

The conventional IPO remains the principal route to the Indian public markets, and the Purple Style Labs offering is a reminder of its continuing relevance. But Infra.Market–Shalimar Paints shows that a mature private business can reach the same market through an existing listed platform, and Sigma–Megasoft that the statutory merger framework delivers the same result where a scheme is used. None of these should be reduced to the slogan of a “backdoor IPO”. The legal route determines the protections: a scheme engages the Companies Act, the LODR Regulations and SEBI’s scheme framework, with their requirements on review, disclosure, public shareholding and shareholder approval; a share-swap acquisition engages the rules applicable to that structure instead.

The broader lesson is not that the regulatory barriers to listing have disappeared, but that they have been placed unevenly. The scheme framework does address the risks these structures create — inadequate public shareholding, information asymmetry, unfair dilution, questionable valuations, changes in control. But it addresses them only where the parties select the route that triggers it. A framework calibrated to procedure rather than to effect will, in time, be tested by transactions designed around the procedure.

Our view is that the regulatory response should be a substance test rather than a further set of route-specific rules. Where a single transaction, or a series of connected transactions, changes the control, the principal business and the majority of the share capital of a listed company, the protections that apply to a scheme — prior regulatory review, prospectus-standard disclosure of the incoming business, independent valuation and approval by public shareholders voting separately from the promoter — should follow the economics, whatever the legal form. That would not close the backdoor. It would ensure that those who walk through it do so on the same terms as those who use the front.

The question, then, is not whether an unlisted business can reach the public market without an IPO. It is whether the transaction leaves behind a commercially coherent listed business and public shareholders whose economic interests have survived it. Where it does, the reverse listing is a legitimate alternative to the IPO. Where it does not, a listed vehicle will not rescue a transaction that was unsound to begin with.

The backdoor to India's public markets may be open but it is certainly not unlocked.

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