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SEBI issues Circular on board Nomination Rights to unitholders of REITs and InvITs

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SEBI by way of two circulars has prescribed the procedure for nominating a unitholder nominee director holding not less than 10% of the outstanding units of the REIT / InvIT either individually or collectively to the board of the investment manager of the REIT / InvIT.

SEBI recently brought certain amendments to the REIT / InvIT regulations which inter alia allowed for such nomination on the board of directors of the investment manager of the said REIT / InvIT. This comes in the background of a SEBI consultation paper on special rights in REITs / InvITs which had inter alia proposed the appointing a unitholder nominee or having a unitholder council. However, based on public feedback that such a council may be seen as vitiating the role of the board of directors of the investment manager by acting as parallel decision making body, the Hybrid Securities Advisory Committee of SEBI decided to drop the proposal of having a unitholder council.

The present circular of SEBI, in line with the requirements of the Companies Act, 2013 inter alia prescribes the following:

(i) Conditions for nomination of a Unitholder nominee director – (a) unitholders shall have a right to appoint but not an obligation to appoint, (b) the right to nomination shall not be available to the shareholder, associate, HoldCo or SPV of the REIT / InvIT or its manager, (c) the board of directors shall formulate a policy for the appointment and evaluation parameters of such nominee director etc.

(ii) First time nomination – The circular provides for modalities on (a) intimation to all unitholders, (b) notice by such unitholders who wish to exercise the board nomination right etc.

(iii) Subsequent nomination by unitholders on an annual basis.

(iv) Periodic review of unitholding of Eligible Unitholder(s) who have exercised the board nomination right.

(v) Change in Unitholder Nominee Director or withdrawal of nomination.

(vi) Vacating of office of a Unitholder Nominee Director.

(vii) Amendment of Trust Deed and Investment Management Agreement – The circular provides that the trustee / investment period within a period of six months from the date of this circular, ensure that the trust deed and the investment management agreement of the REIT / InvIT are amended to provide for nomination and appointment of Unitholder Nominee Directors; and

(viii) Eligibility criteria for the Unitholder nominee director.

The SEBI circular is enclosed for the reference of the readers.

Readers can also share their views with Regstreet Law Advisors at info@regstreetlaw.com.

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