CG norms for REITs and InvITs aligned with equity-listed entity

Kaushal Shah, Executive | kaushal@vinodkothari.com

SEBI prescribed format for reporting CG compliance

Background

In order to promote transparency and safeguard the interests of unitholders, SEBI recognizes the importance of streamlined governance practices for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). With the existence of 5 registered REITs and 21 InvITs, SEBI aims to establish effective mechanisms that ensure the flow of accurate information and provide protection to unitholders. This article explores the significance of streamlined governance practices in the REIT and InvIT sectors, highlighting SEBI’s efforts in fostering transparency and accountability.

Based on various representations received on the applicability of Corporate Governance (‘CG’) norms on ‘REITs and InvITs, SEBI in its Board meeting held on December 20, 2022, approved the introduction of CG-related provisions in SEBI (Real Estate Investment Trust) Regulations, 2014 (‘REITs Regulations’)^[1] and SEBI (Infrastructure Investment Trust) Regulations, 2014, (‘InvITs Regulations’)^[2] vide notification dated February 14, 2023. SEBI harmonized the requirements with SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, (‘LODR/ Listing regulations’) in relation to following areas, modified considering the structure of REITs and InvITs:

Amendments effective from February 14, 2023:

• Definition of Independent Director (‘ID’), Senior Management (‘SMP’);

Amendments effective from April 1, 2023:

• Composition of Board of Directors – at least 1 woman ID, 6 directors;
• Frequency of Board meetings;
• Code of Conduct for Board and SMP;
• Succession planning for Board and SMP;
• CEO & CFO to furnish compliance certificate;
• Information about risk assessment and management;
• Evaluation of IDs;
• Constitution of Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and Risk Management;
• Vigil Mechanism;
• Secretarial Compliance Report;
• Obligations of IDs, employees including SMP, KMP, directors and promoters;
• Quarter compliance report on CG;
• Recommendation of Board on items of special business;

Requirements arising from above provisions annexed as Annexure A

In relation to the above parameters, Reg. 26G of InvIT Regulations and Reg. 26A of REITs Regulations refer to corresponding CG-related provisions of Listing Regulations that will apply to InvITs and REITs with suitable modifications^[3].

 Present SEBI Circulars

In case of the Annual Secretarial Compliance Report and reporting of compliance on CG norms, SEBI has now prescribed the format for submitting the same. The table below provides an overview of the requirements.

Particulars	Listing Regulations	REIT Regulations	InvITs Regulations
Annual Secretarial Compliance (ASC) Report	Regulation 24A	Regulation 26D	Regulation 26J
Format	February 08, 2019 read with BSE circular dated March 16, 2023 / NSE circular dated March 16, 2023	June 26, 2023	June 26, 2023
Timeline for submission	Within 60 days from the end of financial year	Within 60 days from the end of the financial year	Within 60 days from the end of the financial year
Requirement effective from	Effective already	FY 23-24, i.e. 1st ASC shall be submitted within 60 days from March 31, 2024.	FY 23-24, i.e. 1st ASC shall be submitted within 60 days from March 31, 2024.
Requirement to annex to Annual Report	Yes	Yes	Yes
Requirement to place before Board	Yes	Yes	Yes
Compliance report on CG	Regulation 27	Regulation 26E	Regulation 26K
Format	May 31, 2021	June 26, 2023	June 26, 2023
Timeline for submission	Annex -I-on a quarterly basis;Annex -II-at the end of the financial yearAnnex -III-at the end of 6 months from the close of the financial year.Annex-IV on a half-yearly  basis(w.e.f.first half year of the FY 21-22)	Annex-I– I – within twenty-one days from the end of each quarter; Annex -II–within twenty-one days from the end of the financial year on an annual basis;Annex -III–within three months from the end of the financial year on an annual basis	Annex- I – within twenty-one days from the end of each quarter; Annex -II–within twenty-one days from the end of the financial year on an annual basis;Annex -III–within three months from the end of the financial year on an annual basis
Onus of reporting	Listed entity	Manager of REIT	Manager of InvIT
Requirement effective from	Effective already	FY 23-24, i.e. first reporting shall be made for quarter ended June 30, 2023	FY 23-24, i.e. first reporting shall be made for quarter ended June 30, 2023
Requirement to annex to Annual Report	Yes	Yes	Yes
Requirement to place before Board	Yes	Yes	Yes
Onus of reporting	Listed entity	Manager of REIT	Manager of InvIT

ASC Report

The ASC Report is required to be furnished by a Practicing Company Secretary and the scope of the certificate comprises of REIT Regulation or InvIT Regulations, as the case may be, and the Listing Regulations, SEBI (ILNCS) Regulations, 2021, SEBI (PIT) Regulations, 2015 and other applicable SEBI Regulations read with the circulars and guidelines. Additionally, confirmation is to be provided on maintenance of records and details of actions taken against the REIT/ InvIT, parties to the REIT/ InvIT, its promoters, directors either by SEBI or by Stock Exchanges.

Compliance Report on CG

Annex 1 of the CG Report, required to be submitted on a quarterly basis, covers details relating to Composition and Meetings of the Board and Committees of the Investment Manager.

Annex 2 of the CG Report, required to be submitted annually, covers website-related compliances in terms of SEBI Circular dated November 29, 2016, in case of InvITs and SEBI Circular dated December 29, 2016, in case of REITs along with the annual affirmations on several provisions.

Annex 3 of the CG Report, required to be submitted within 3 months from the end of the financial year, requires disclosures relating to the annual meeting of the unit holders and disclosure of ASC report and CG report in the Annual Report.

Actionable

The entities must have already begun to comply with the CG-related requirements, given that the provisions became effective from April 1, 2023, and the first reporting on the compliance ensured will be done from the quarter ending June 30, 2023. With respect to obtaining ASC Report, the entities have time to identify and appoint a practicing company secretary who will carry out the attestation.

Annexure A

The table presented below serves as a succinct compilation that outlines and highlights the specific actionables that have arisen as a result of the recent amendments pertaining to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The purpose of this table is to provide a comprehensive overview of the various tasks, steps, or measures that need to be taken or implemented in accordance with the aforementioned amendments

Sr. No	Particulars	Brief action required
1	Composition of Board of Directors of the Manager	Not less than 6 directors, including one woman independent director
2	Meeting of Board of Directors of the Manager and frequency	Quorum – 1/3rd of total directors or 3 directors whichever is higher, including at least one independent director Board to meet at least 4 times in a year with a maximum gap of 120 days between two meetings.
3	CEO & CFO to furnish compliance certificate	CEO & CFO to provide compliance certificate to the Board of Directors of the Manager as specified in Part B of Schedule VIII ( for REITs) and as per Part B of Schedule VII (for InvITs).
4	Evaluation of IDs	Test of independence now aligned with Listing regulations.
5	Constitution of Audit, Nomination & Remuneration; and Stakeholder Relationship Committees	Constitution of the committees to be as per the corresponding provisions of Listing Regulations.
6	Vigil Mechanism, Whistle Blower policy	The Manager will now be required to formulate vigil mechanisms, including a whistleblower policy, for directors and employees to report genuine concerns. Further Audit Committee shall review the functioning of the same.
7	Secretarial Compliance report	As covered in Table 1
8	Quarterly Compliance report on Governance
9	Recommendation of Board on items of special business	The Board of Manager shall mention the special business to the unitholders expressly in the notice calling such meeting

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^[1] https://egazette.gov.in/WriteReadData/2023/243605.pdf

^[2] https://egazette.gov.in/WriteReadData/2023/243594.pdf

^[3] Sub-regulations (2), (4), (5), (9) and (10) of regulation 17 and regulations 18, 19, 20, 21, 26 and sub-regulation (1), (2), (2A), (3), (4), (5), (7), (8), (9), (10) and (11) of regulation 25 of SEBI LODR Regulations, 2015