The Securities Exchange Board of India (“SEBI”) through circular no. SEBI/HO/DDHS-PoD-2/P/CIR/2023/154 and SEBI/HO/DDHS-PoD-2/P/CIR/2023/153, dated and in force since September 11, 2023, has set out the detailed procedure regarding appointment of nominee directors (“Unitholder Nominee Director”) on the board of the investment managers (“Manager”) of Real Estate Investment Trusts (“ReITs”) and Infrastructure Investment Trust (“InvITs”).
Regulation 4(2)(g) and Regulation 4(2)(h) of SEBI (Infrastructure Investment Trust) Regulations, 2014 (InvIT Regulation) and SEBI (Real Estate Investment Trusts) Regulations, 2014 (ReIT Regulation) respectively provide for the rights of unitholders of InvITs and ReITs. Proviso to the InvIT Regulation and ReIT Regulation, inserted previously vide, SEBI (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2023 and SEBI (Real Estate Investment Trusts) (Second Amendment) Regulations, 2023 had introduced the right of unitholders to appoint Unitholder Nominee Directors.
The minimum criteria for a unitholder to be eligible is to hold at least 10% (ten percent) (“Minimum Threshold”) or more of the total outstanding units of the InvIT or ReIT, as the case may be, either individually or collectively. The Unitholder Nominee Director appointed in accordance with these regulations shall be non-independent directors. Following conditions have been laid down for the nomination:
Procedure for nomination of Unitholder Nominee Director:
The circulars further provide for the procedure for first time nomination, which is briefly set out below:
The provisions regarding nomination on an annual basis have also been set out in the circulars. The provisions set out above shall apply mutatis mutandis to subsequent nominations. However, the unitholding for being considered Eligible Unitholder shall be reckoned as of March 31, 2023.
Eligibility conditions for Unitholder Nominee Director:
Annexure B to the circulars set out the criteria for eligibility of a Unitholder Nominee Director, which shall be adhered to, in addition to the policy adopted by the Manager. Following are the conditions that have been laid down:
Review of unitholding of Eligible Unitholders:
Grounds of vacating of office and conditions of service of Unitholder Nominee Director:
In the following events, the Unitholder Nominee Director shall have to vacate his position:
Additionally, the Unitholder Nominee Director shall be replaced in case of death or permanent disability, and the Eligible Unitholders may propose another individual as a replacement. Further, the board of Manager shall have the power to remove a Unitholder Nominee Director for reason to be recorded in writing.
Amendment of trust deed and investment manager agreement:
The circulars provide that, in view of the SEBI (Real Estate Investment Trusts) (Second Amendment) Regulations, 2023 notified on August 17, 2023, the trust deed and investment management agreement shall be amended or be deemed to incorporate provisions to provide board nomination rights to Eligible Unitholders in the manner specified in the circulars.
Further, the trustee and the Manager are required to, within a period of 6 (six) months from the date of these circulars, ensure that the trust deed and the investment management agreement of the ReITs and InvITs are amended to provide for nomination and appointment of Unitholder Nominee Directors on the board of directors of the Manager by Eligible Unitholder(s).
This update has been contributed by Rachika Agrawal Sahay (Partner) and Mrinal Mishra (Associate).
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