SEBI introduces guidelines for REITs and InvITs board nomination rights

The Securities and Exchange Board of India (SEBI) has taken a significant step in the regulation of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). On Monday, SEBI released a framework that allows eligible unitholders to exercise board nomination rights in these trusts. This decision, which was approved during SEBI's board meeting on June 28, aims to enhance transparency and corporate governance within REITs and InvITs. Eligible unitholders are those who hold 10 percent or more of the total outstanding units of a REIT or InvIT, whether individually or collectively. The framework provides a structured process for these unitholders to nominate directors to the board, thereby playing an active role in the governance of these trusts.

To exercise their nomination rights, eligible unitholders must communicate their proposed candidate for the nominee director position to the trust's investment manager in writing. This communication should include essential details about the candidate, such as their name, Director Identification Number (DIN), and a comprehensive profile covering aspects like age, educational qualifications, professional background, nationality, occupation, address, experience in the relevant sector, and any directorships in other entities. Additionally, any outstanding criminal or regulatory actions or significant civil litigation against the candidate must be disclosed along with supporting documentation.

Once the candidate is proposed, the investment manager has the responsibility to review the nomination. If the candidate is deemed ineligible or unsuitable, the manager must promptly notify the unitholders in writing within ten days of receiving the suggestion. In such cases, the eligible unitholders have the option to put forward an alternative candidate within a specified timeframe from the date of the manager's communication. SEBI has also introduced measures to ensure that eligible unitholders continuously meet the required unit-holding threshold. Managers of REITs and InvITs are mandated to conduct a review within ten days from the end of each calendar month to verify whether eligible unitholders who have exercised board nomination rights still hold the necessary number of units.

To maintain transparency and oversight, the manager is obligated to submit a report to the trust's trustee, as per the guidelines. This report should detail the results of the review and confirm the eligibility of unitholders who have nominated directors. Crucially, eligible unitholders have the right to nominate individuals for the position of unitholder nominee director but are not obligated to do so. This empowerment grants them an active role in the decision-making process of REITs and InvITs while promoting corporate governance and accountability. SEBI's framework represents a significant development in the regulatory landscape for REITs and InvITs, aligning with global best practices and fostering greater transparency, participation, and accountability within these investment vehicles.

REITs primarily allocate capital to completed and income-producing real estate assets. These trusts draw inspiration from mutual funds and are often publicly traded, offering a high degree of liquidity, similar to stocks. The NSE characterizes an InvIT as a collective investment scheme resembling mutual funds. This allows investors to directly invest in infrastructure projects and receive a portion of the income as returns. The InvIT is structured hierarchically, with sponsors establishing it. Privately placed InvITs can invest in both under-construction and income-generating assets, while public InvITs primarily focus on completed and revenue-generating assets.

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SEBI introduces guidelines for REITs and InvITs board nomination rights

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