SEBI mandates InvITs & ReITs to have a board of at least 6 directors, including one woman independent director

Notification No. SEBI/LAD-NRO/GN/2023/122 & EBI/LAD-NRO/GN/2023/123, Dated 14.02.2023

The SEBI has notified various amendments SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014. Various new clauses defining ‘Independent director’ and ‘senior management’ have been inserted in Regulation 2 of the regulations. The regulations shall come into force w.e.f 14.02.2023. The Key highlights of the amendments are as follows –

1. Introduction of the new definition of ‘Independent Director’ and ‘Senior Management’ [Regulation 2]

SEBI has inserted new clauses defining ‘Independent Director’ and ‘Senior Management’ in regulation 2 of the SEBI (InvITs) Regulations, 2014 and SEBI (ReITs) Regulations, 2014. These clauses set out the eligibility criteria for the appointment of independent directors, including their independence, expertise and qualifications.

Additionally, the clauses define the role and responsibilities of senior management personnel, including the CEO, CFO and COO and require them to act in the best interests of the trust and its unitholders.

2. Mandatory appointment of auditors for a maximum of six consecutive years for REITs/InvITs to bring transparency [Regulation 10]

Under the extant norms, the manager/investment manager of ReIT/InvIT is responsible for appointing an auditor for a maximum period of five consecutive years. In the case of a firm, an auditor may be reappointed for another five consecutive years, subject to the approval of unitholders in the annual meeting. The SEBI has proposed to substitute the following regulation with the new regulation.

Now, the SEBI mandates the manager/investment manager of REIT/InvIT to appoint an individual or a firm as the auditor, who shall hold office from the date of conclusion of the annual meeting in which the auditor is appointed till the conclusion of the sixth annual meeting of the unitholders. Also, the SEBI has inserted a new regulation specifying the maximum period for appointment or re-appointment of the auditor for individual and firm.

3. Mandatory limited review of consolidated accounts by REIT/InvIT auditors [Regulation 13]

The SEBI has inserted new provision mandating the auditor to undertake a limited review of the audit of all the entities or companies whose accounts are to be consolidated with the accounts of REIT/InvIT as per the Indian Accounting Standards and any addendum.

4. Mandatory transfer of unclaimed/unpaid distributions to Investor Education and Protection Fund by REITs/InvITs [Regulation 18]

Pursuant to present amendment, now the REITs/InvITs shall have to transfer any amount remaining unclaimed or unpaid out of distributions declared by a REIT/InvITs, to the Investor Education and Protection Fund (IEPF) constituted by the Board as per the instructions set by the Board under section 11 of the Act.

5. SEBI declares investment in overnight mutual funds as cash & cash equivalent for REIT/TnvITs [Regulation 20]

The SEBI, through the present amendment has clarified that investment by InvITs/REITs in overnight mutual funds, characterized by their investments in overnight securities, having a maturity of one day, shall be considered as cash and cash equivalent. Further, the amount of cash and cash equivalent shall be excluded from the value of the assets of the InvIT/REIT.

6. New obligations for managers/investment managers of REITs/InvITs introduced

The SEBI has introduced new requirements for managers/investment managers in the form of a new chapter i.e., chapter VI A/VI B under these regulations. The new chapter, called ‘Obligations of the Managers/Investment Managers’ mandates that the Board of Directors of the manager/investment manager of REITs/InvITs shall comprise of not less than six directors, including at least one women independent director.

In addition to this, the quorum for every meeting of the BODs of the manager/investment manager shall be one-third of its total strength or three directors, whichever is higher, including at least one independent director.

7. SEBI mandates Vigil mechanism and Whistle Blower Policy for manager/investment manager

The SEBI has now introduced a new requirement for managers/investment managers to formulate a vigil mechanism policy, including a whistle-blower policy to allow all directors and employees to report genuine concerns. The vigil mechanism is required to provide adequate safeguards against the victimization of directors, employees or any other person who avails the mechanism.

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