SEBI Eases Compliance for InvITs: Key Amendments to Boost Efficiency

Introduction:

The Securities and Exchange Board of India (“SEBI”) has issued a Circular^[1] on amendments to the Master Circular for Infrastructure Investment Trusts (“InvITs”), dated May 15, 2024. These amendments, which took effect immediately, aim to enhance the ease of doing business for InvITs by revising the review process for investor complaints and adjusting the timeline for disclosing deviations in the use of proceeds. These changes stem from recommendations made by a working group constituted by SEBI, alongside insights from the Hybrid Securities Advisory Committee (“HySAC”).

About the circular:

The Master Circular, which was initially issued to consolidate various guidelines related to continuous disclosures and compliances by InvITs, underwent revisions with the issuance of this circular. The intent behind the amendments is reduce regulatory burdens and align with existing SEBI regulations, specifically the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”)..

One of the major revisions pertains to the handling and review of investor complaints. Under the previous guidelines, paragraph 4.16.4 of the Master Circular required that the Board of Directors or the Governing Body of the Investment Manager review the statement of investor complaints before it was submitted to the stock exchanges. This process ensured that all investor complaints were addressed in a timely manner before the formal submission of the statement. However, it was noted that this requirement was not in line with the LODR Regulations, where such a prior review by the Board of Directors is not mandatory. Instead, the LODR Regulations require that the statement of investor complaints be placed before the Board of Directors on a quarterly basis.

To align with the LODR Regulations, SEBI has now amended paragraph 4.16.4. According to the revised guideline, the Trustee and the Board of Directors or Governing Body of the Investment Manager are still required to ensure that all investor complaints are redressed promptly by the Investment Manager. However, the mandatory review by the Board of Directors before submission to the stock exchanges has been replaced with a quarterly review process. This adjustment not only aligns with the LODR Regulations but also simplifies the process, potentially speeding up the submission of these statements to stock exchanges.

The second amendment concerns the timeline for disclosing statements of deviation(s) or variation(s) in the use of proceeds from the stated objects. Previously, paragraph 4.17.2 of the Master Circular mandated that these statements be submitted to stock exchanges within 21 days from the end of each quarter. This timeline was intended to ensure that any deviations in the use of funds were promptly disclosed to the market, maintaining transparency and protecting investor interests.

However, based on the recommendations of the Working Group and HySAC, SEBI recognized the need to align this requirement with the LODR Regulations, which stipulate that the statement of deviation or variation in the use of proceeds should be submitted to the stock exchanges on a quarterly basis, alongside the financial results. This allows for a more integrated reporting process, reducing the administrative burden on InvITs and potentially improving the accuracy and timeliness of these disclosures.

The revised paragraph 4.17.2 now states that the statement of deviations in the use of proceeds should continue to be given until the issue proceeds have been fully utilized or the purpose for which these proceeds were raised has been achieved. Importantly, this statement must be placed before the Trustee and the Board of Directors or Governing Body of the Investment Manager for review. Following this review, the statement is to be submitted to the stock exchanges along with the submission of financial results, rather than within the previous 21-day window.

Conclusion:

The changes ensure that InvITs continue to operate in a manner that protects investor interests while facilitating efficient capital raising and utilization processes. The amendments are a positive step towards improving the operational efficiency of InvITs, aligning regulatory requirements with practical business considerations, and ensuring that the market remains responsive to the needs of both issuers and investors. The circular is available on SEBI’s website, and recognized stock exchanges are required to disseminate its contents to ensure widespread awareness and compliance.

^[1] https://www.sebi.gov.in/legal/circulars/aug-2024/amendment-to-master-circular-for-infrastructure-investment-trusts-invits-dated-may-15-2024-review-of-statement-of-investor-complaints-and-timeline-for-disclosure-of-statement-of-deviation-s-_86047.html