Executive Summary:
This circular, issued by SEBI, outlines the framework for unitholders of Infrastructure Investment Trusts (InvITs) to exercise their board nomination rights, as per Regulation 42h of the SEBI Infrastructure Investment Trusts Regulations, 2014. It details the conditions, procedures, and eligibility criteria for nominating a director on the Investment Manager's board. The circular is effective immediately, with certain initial actions required by Investment Managers by the end of September 2023.
Key Points / Main Content:
* **Eligibility and Conditions for Nomination:**
* Unitholders holding 10% or more of outstanding units can nominate one non-independent director ("Unitholder Nominee Director") on the Investment Manager's board.
* This right is not available if the entity already has director nomination rights as a shareholder or lender.
* Unitholders aggregating their holdings cannot participate in other groups for nomination.
* The Investment Manager must have a policy on qualifications, evaluation, remuneration, removal, and resignation of Unitholder Nominee Directors, available on the InvIT's website.
* Unitholder Nominee Directors must recuse themselves from voting on related-party transactions.
* **First-Time Nomination Process:**
* The Investment Manager must notify all unitholders by email by October 10, 2023, requesting them to indicate their interest in nominating a director.
* Interested Eligible Unitholders must notify the Investment Manager within ten days of receiving the intimation.
* Eligible Unitholders must provide candidate details, including name, DIN, profile, litigation details, Companies Act requirements, and eligibility confirmations (Annexure B).
* If multiple unitholders aggregate holdings, they must identify up to two authorized representatives.
* The notice must include unitholder details and acknowledgment of maintaining the minimum 10% holding.
* The Nomination and Remuneration Committee/Board will evaluate the candidate's eligibility within ten days of notice receipt.
* Upon confirmation of eligibility, the Investment Manager must appoint the director within thirty days.
* If the candidate is ineligible, the Investment Manager must communicate the reasons within ten days, allowing the Eligible Unitholders to propose another candidate within ten days.
* **Subsequent Nominations (Annual):**
* The Investment Manager must send an annual intimation to unitholders within ten days of each financial year's end.
* Eligible Unitholders must respond within ten days, based on their holdings as of March 31st.
* The same process as the first-time nomination applies.
* **Director's Tenure and Removal:**
* A Unitholder Nominee Director remains in office unless: the nomination is withdrawn, a change is requested, the unitholding falls below 10%, the director is unable to serve, resigns, or is removed.
* Unitholders acquiring the threshold holding during a financial year can only exercise nomination rights in the following year.
* The Investment Manager must review unitholdings monthly and report to the Trustee.
* If the holding falls below 10%, the Investment Manager must inform the Trustee, unitholders, and the director, who must then resign.
* **Change/Withdrawal/Vacating Office:**
* Eligible Unitholders can withdraw a nomination or propose a change, informing the Investment Manager and the director, who must resign. The process for proposing a new candidate is the same as the initial nomination.
* If the unitholding falls below 10%, the Eligible Unitholders must inform the Investment Manager within two working days, and the director must resign within two working days. The same applies if the unitholding falls below 10% due to fresh issuance of units.
* In case of death/disability, the Eligible Unitholders can propose a replacement.
* The Board/Nomination and Remuneration Committee can remove a director for reasons recorded in writing, including ineligibility or failure to meet policy requirements.
* **Amendment of Trust Deed and Investment Management Agreement:**
* The trust deed and investment management agreement are deemed to incorporate these nomination rights.
* The trustee and Investment Manager must formally amend the trust deed and investment management agreement within six months of this circular.
* **Eligibility Criteria (Annexure B):**
* The person must be "fit and proper" as per SEBI Intermediaries Regulations, 2008.
* The person must not be a willful defaulter or fraudulent borrower.
* The person's name must not appear on any list of disqualified directors.
* The person must not be debarred from accessing capital markets.
* The person must not have been a promoter/director of a company debarred from accessing capital markets.
Impact Analysis:
* **Infrastructure Investment Trusts (InvITs):**
* *Impact:* Must adhere to the new regulations regarding board nomination rights for unitholders, including policy formulation, intimation processes, and reporting requirements.
* *Action Required:* Formulate a policy on Unitholder Nominee Directors, send initial intimation to unitholders by October 10, 2023, review unitholdings monthly, and amend trust deeds and investment management agreements within six months.
* **Investment Managers:**
* *Impact:* Responsible for implementing the board nomination process, evaluating candidates, ensuring compliance, and reporting to the Trustee.
* *Action Required:* Implement processes for unitholder nomination, candidate evaluation, and compliance with InvIT Regulations and Companies Act.
* **Unitholders:**
* *Impact:* Eligible unitholders now have the right to nominate a director on the Investment Manager's board, giving them increased influence.
* *Action Required:* If holding 10% or more units, respond to the Investment Manager's intimation if they wish to nominate a director.
* **Trustees:**
* *Impact:* Oversee the Investment Manager's compliance with the new regulations and receive reports on unitholder eligibility.
* *Action Required:* Monitor Investment Manager's compliance and review reports on unitholder eligibility.
* **Recognized Stock Exchanges:**
* *Impact:* Required to disseminate the contents of the circular on their websites.
* *Action Required:* Post the circular on their websites.
Key Entities Referenced
Infrastructure Investment Trusts (InvITs): A type of investment trust focused on infrastructure projects, subject to SEBI regulations.
Securities and Exchange Board of India (SEBI): The regulatory authority for securities markets in India, responsible for issuing the circular.
SEBI Infrastructure Investment Trusts Regulations, 2014: The regulations governing Infrastructure Investment Trusts in India, as referenced in the circular.
Investment Manager: The entity responsible for managing the Infrastructure Investment Trust (InvIT).
Eligible Unitholders: Unitholders holding ten percent or more of the total outstanding units of the InvIT, either individually or collectively who are entitled to nominate a director.
Unitholder Nominee Director: A nonindependent director nominated by Eligible Unitholders on the Board of Directors of the Investment Manager.
The Companies Act, 2013: An act of the Parliament of India that regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company, and other related aspects.
Securities and Exchange Board of India Act, 1992: An act of the Parliament of India to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto
CIRCULAR
SEBI/HO/DDHS-PoD-2/P/CIR/2023/153 September 11, 2023
To,
All Infrastructure Investment Trusts (“InvITs”)
All Parties to InvITs
All Depositories
All Recognized Stock Exchanges
Madam / Sir,
Sub: Board nomination rights to unitholders of Infrastructure Investment
Trusts (InvITs)
1. Regulation 4(2)(h) of SEBI (Infrastructure Investment Trusts) Regulations, 2014
(“InvIT Regulations”) inter-alia provides that unitholder(s) holding not less than
ten percent of the total outstanding units of the InvIT, either individually or
collectively, shall be entitled to nominate one director on the board of directors
of the Investment Manager, in the manner as may be specified by the Board.
2. Accordingly, the framework to exercise board nomination rights by the Eligible
Unitholder(s) has been specified at Annexure - A.
3. Reporting and Monitoring
The Investment Manager of the InvIT shall, within ten days from the end of each
calendar month, review whether the Eligible Unitholder(s) who have exercised
the board nomination right, continue to have/hold the required number of units
of InvIT and make a report of the same. The Investment Manager of the InvIT
shall submit such report to the Trustee of the InvIT.
4. This circular shall come into force with immediate effect.
Page 1 of 115. This circular is issued in exercise of the powers conferred under Section 11(1)
of the Securities and Exchange Board of India Act, 1992 and Regulation 4(2)(h)
of the SEBI (Infrastructure Investment Trusts) Regulations, 2014. This circular
is issued with the approval of the competent authority.
6. The recognized Stock Exchanges are advised to disseminate the contents of
this Circular on their website.
7. This circular is available on the website of Securities and Exchange Board of
India at www.sebi.gov.in under the category “Legal Circulars”.
Yours faithfully
Ritesh Nandwani
Deputy General Manager
Department of Debt and Hybrid Securities
Tel No. +91-22-2644 9696
Email id – riteshn@sebi.gov.in
Page 2 of 11Annexure – A
Board Nomination Rights to Unitholders of Infrastructure Investment
Trusts (InvITs)
1. Definitions
1.1. “Eligible Unitholder(s)” shall mean unitholder(s) holding ten percent or more
of the total outstanding units of the InvIT, either individually or collectively.
1.2. “Unitholder Nominee Director” shall mean a non-independent director
nominated by Eligible Unitholder(s) on the Board of Directors of the
Investment Manager.
2. Conditions for Nomination of a Unitholder Nominee Director
2.1. (a) Eligible Unitholder(s) shall have the right, but not the obligation, to
nominate any person for appointment as Unitholder Nominee Director.
(b) Eligible Unitholder(s) shall be entitled to nominate only one Unitholder
Nominee Director, subject to the unitholding of such Eligible Unitholder(s)
exceeding the specified threshold. If the right to nominate one or more
directors on the Board of Directors of the Investment Manager is available to
any entity (or to an associate of such entity) in the capacity of shareholder of
the Investment Manager or lender to the Investment Manager or the InvIT
(or its HoldCo(s) or SPVs), then such entity in its capacity as unitholder, shall
not be entitled to nominate or participate in the nomination of a Unitholder
Nominee Director.
2.2. If the unitholding of more than one unitholder is aggregated for the purpose
of qualifying as Eligible Unitholder(s) to exercise the right to nominate a
Unitholder Nominee Director, then such unitholders shall not be eligible to
participate in any other group of Eligible Unitholder(s).
Page 3 of 112.3. The Board of Directors of the Investment Manager shall formulate and adopt
a policy in relation to the qualifications and criteria for appointment and
evaluation parameters of individuals nominated for Unitholder Nominee
Director. The policy shall also specify remuneration / sitting fees, process of
removal or resignation of Unitholder Nominee Directors and the role of the
Nomination and Remuneration Committee and/or the Board of Directors in
such matters. Such policy shall be made available on the website of the
InvIT.
2.4. Unitholder Nominee Directors shall recuse themselves from voting on any
transaction where either such director, such director’s associates or the
Eligible Unitholder(s) who nominated him / her or associate of such Eligible
Unitholder(s) is a party.
3. First time Nomination after the issuance of this circular
3.1. Intimation by the Investment Manager to all unitholders
3.1.1. The Investment Manager shall send a written intimation to all unitholders
on their email address(es) registered either with the Investment Manager
or with any depository, within ten days from the end of September 30,
2023, requesting them to inform the Investment Manager if any Eligible
Unitholder(s) wish to exercise the right to nominate a Unitholder
Nominee Director.
3.2. Notice by Eligible Unitholder(s) who wish to exercise the board nomination
right
3.2.1. Eligible Unitholder(s) who wish to exercise this right shall inform the
Investment Manager through a written notice within ten days of receipt
of the intimation from the Investment Manager. The Eligible Unitholder(s)
Page 4 of 11shall be reckoned based on the unitholding pattern as on September 30,
2023.
3.2.2. The Eligible Unitholder(s) shall inform the Investment Manager of the
InvIT in writing of their proposed candidate for the Unitholder Nominee
Director along with following details:
i. name of the candidate
ii. DIN of the candidate
iii. a brief profile of the candidate, including age, educational
qualifications, professional qualifications, nationality, occupation,
address, experience in the sector and sub-sector in which the InvIT
operates and directorship in other entities, together with back-up
documents
iv. details of any outstanding criminal action, regulatory action or
material civil litigation against the candidate
v. details required under The Companies Act, 2013 to facilitate the
Investment Manager for filing of Form DIR-12
vi. confirmations in relation to eligibility of the candidate as set out in
Annexure – B.
3.2.3. If multiple unitholders are aggregating their unitholding for the purpose
of nomination right then such notice shall also identify up to two
unitholders as authorized representative of the group of Eligible
Unitholder(s). Any communication by such authorized representatives to
the Investment Manager for the purpose of such nomination shall be
deemed to be on behalf of, and representative of the interests of, the
entire group of Eligible Unitholder(s).
3.2.4. The notice shall also set out the names, demat account details and
unitholding of the Eligible Unitholder(s). The notice shall also contain a
Page 5 of 11specific acknowledgement from the Eligible Unitholder(s) that their
unitholding shall be maintained at atleast ten percent of the total
outstanding units of the InvIT, failing which they shall lose the right to
have their Unitholder Nominee Director on the Board of Directors of the
Investment Manager.
3.2.5. The eligibility of a Unitholder Nominee Director shall be confirmed by the
Investment Manager, based on the evaluation done by the Nomination
and Remuneration Committee and/or the Board of Directors of the
Investment Manager in line with the policy formulated in this regard,
within ten days of receipt of notice from Eligible Unitholder(s).
3.2.6. Once the eligibility of a Unitholder Nominee Director is confirmed, the
Investment Manager shall take necessary steps to complete the
appointment of such director on the Board of Directors within thirty days
from the date of such confirmation. The Investment Manager shall
ensure that the appointment of the Unitholder Nominee Director is in
compliance with the requirements with respect to the composition of the
Board of Directors under the InvIT Regulations and other applicable
laws.
3.2.7. If the candidate proposed is not eligible or not found suitable based on
the evaluation done by the Nomination and Remuneration Committee
and/or the Board of Directors of the Investment Manager in line with the
policy formulated in this regard, the reasons shall be recorded in writing
and shall be communicated by the Investment Manager to the Eligible
Unitholder(s) within ten days of receipt of notice from Eligible
Unitholder(s). In such case, the Eligible Unitholder(s) may submit
another candidate within a period of ten days from the receipt of such
communication from the Investment Manager.
Page 6 of 114. Subsequent Nomination by unitholders on an annual basis
4.1. The Investment Manager shall send a written intimation to all unitholders on
their email address(es) registered either with the Investment Manager or with
any depository, within ten days from the end of each financial year,
requesting them to inform the Investment Manager if any Eligible
Unitholder(s) wish to exercise the right to nominate a Unitholder Nominee
Director.
4.2. Eligible Unitholder(s) who wish to exercise this right shall inform the
Investment Manager through a written notice within ten days of receipt of the
intimation from the Investment Manager. The Eligible Unitholder(s) shall be
reckoned based on the unitholding pattern of the InvIT as on March 31st of
the financial year.
4.3. The provisions contained in paragraph 3.2 above shall apply in regard to the
notice by Eligible Unitholder(s) to the Investment Manager and for
appointment of the Unitholder Nominee Director.
5. A Unitholder Nominee Director shall continue to remain on the Board of
Directors of the Investment Manager unless:
i. the nomination is withdrawn by Eligible Unitholder(s) or
ii. change in the Unitholder Nominee Director is requested by Eligible
Unitholder(s) or
iii. the unitholding of Eligible Unitholder(s) falls below the required threshold
consequent to which the Unitholder Nominee Director resign / step down
from the Board of Directors of the Investment Manager or
iv. the Unitholder Nominee Director is unable to serve or resign or is
removed from the Board of Directors of the Investment Manager for any
reason including the reasons set out in this circular.
Page 7 of 116. If any unitholder(s) acquires/holds units of the prescribed threshold of ten
percent unitholding or more during a particular financial year, then such
unitholder(s) shall be entitled to exercise the nomination right only in the
following financial year as per the process mentioned in paragraph 4.
7. Review of Unitholding of Eligible Unitholder(s) by the Investment
Manager
7.1. The Investment Manager of the InvIT shall, within ten days from the end of
each calendar month, review whether the Eligible Unitholder(s) who have
exercised the board nomination right, continue to have/hold the required
number of units of InvIT and make a report of the same. The Investment
Manager of the InvIT shall submit such report to the Trustee of the InvIT.
7.2. On review by the Investment Manager, if it is found that Eligible Unitholder(s)
do not have/hold the required number of units, then the Investment Manager
shall inform the same to the Trustee, such unitholder(s) and the Unitholder
Nominee Director. The Investment Manager and such Unitholder(s) shall
require the relevant Unitholder Nominee Director nominated by such
Unitholder(s) to resign / step down from the Board of Directors of the
Investment Manager forthwith and such Unitholder Nominee Director shall
accordingly resign / step down from the board.
8. Change in Unitholder Nominee Director or withdrawal of nomination
8.1. If an Eligible Unitholder or a group of Eligible Unitholders propose to
withdraw their nomination for the Unitholder Nominee Director that has been
appointed on the Board of Directors of the Investment Manager, then such
Eligible Unitholder(s), or their authorized representatives, shall inform the
Investment Manager and the Unitholder Nominee Director of the same, and
Page 8 of 11the Unitholder Nominee Director shall resign / step down from the Board of
Directors of the Investment Manager forthwith.
8.2. If an Eligible Unitholder or a group of Eligible Unitholders propose to change
a Unitholder Nominee Director who has been appointed on the Board of
Directors of the Investment Manager, then such Eligible Unitholder(s), or
their authorized representatives, shall inform the Investment Manager of the
proposed candidate in the manner set out in paragraph 3.2.2 to 3.2.4 of this
circular. The Investment Manager shall evaluate the proposed candidate and
the provisions of paragraph 3.2.5 to 3.2.7 of this circular shall apply.
9. Vacating of office of a Unitholder Nominee Director
9.1. If at any time, the individual or collective unitholding of the Eligible
Unitholder(s), who have nominated a Unitholder Nominee Director, falls
below ten percent of the total outstanding units of the InvIT, then the Eligible
Unitholder(s) shall, notwithstanding the requirement contained in paragraph
7 above, immediately inform the Investment Manager within two working
days from such change and the Unitholder Nominee Director shall resign /
step down from the Board of Directors of the Investment Manager within two
working days from such change.
9.2. If the individual or collective unitholding of the Eligible Unitholder(s), who
have nominated a Unitholder Nominee Director, falls below ten percent of
the total outstanding units of the InvIT on account of any fresh issuance of
units by InvIT, then the Eligible Unitholder(s) shall, notwithstanding the
requirement contained in paragraph 7 above, immediately inform the
Investment Manager within two working days from the date of allotment of
fresh units of the InvIT and the Unitholder Nominee Director shall resign /
Page 9 of 11step down from the Board of Directors of the Investment Manager within two
working days from such date of allotment.
9.3. In case of death or permanent disability of a Unitholder Nominee Director,
the Eligible Unitholder(s) that nominated such Unitholder Nominee Director
may propose another individual as a replacement in the manner described
in paragraph 3.2.2 to 3.2.7 of this circular.
9.4. The Board of Directors (including the Nomination and Remuneration
Committee) shall have the power to remove a Unitholder Nominee Director
from office, for reasons to be recorded in writing, including if the Unitholder
Nominee Director ceases to meet the eligibility criteria or other requirements,
including as set out in the policy adopted by the Investment Manager under
paragraph 2.3 of this circular.
10. Amendment of Trust Deed and Investment Management Agreement
10.1. In view of the Securities and Exchange Board of India (Infrastructure
Investment Trusts) (Second Amendment) Regulations, 2023 notified on
August 18, 2023, the trust deed and investment management agreement
shall stand amended or be deemed to incorporate provisions to provide
board nomination rights to Eligible Unitholder(s) in the manner specified in
this circular.
10.2. Further, the trustee and the Investment Manager shall, within a period of six
months from the date of this circular, ensure that the trust deed and the
investment management agreement of the InvIT are amended to provide for
nomination and appointment of Unitholder Nominee Directors on the Board
of Directors of the Investment Manager by Eligible Unitholder(s).
Page 10 of 11Annexure - B
Eligibility criteria for Unitholder Nominee Directors
The following eligibility requirements should be fulfilled by the candidates proposed
to be considered for appointment as Unitholder Nominee Directors. The Investment
Manager may supplement these requirements as it deems fit, through the policy
adopted under paragraph 2.3 of this circular.
1. The person should be “fit and proper” based on the criteria specified under
Schedule II of the Securities and Exchange Board of India (Intermediaries)
Regulations, 2008, as amended.
2. The person is not a willful defaulter or fraudulent borrower, or a promoter or
director or person in control of a company or entity categorized as such by any
bank or financial institution in accordance with the guidelines prescribed by the
Reserve Bank of India.
3. The person’s name does not appear under any list of disqualified directors issued
by the Ministry of Corporate Affairs and is not debarred from acting as a director
or member of management by any court, regulatory or supervisory authority.
4. The person is not debarred from accessing the capital markets by the Board or
any other authority.
5. The person is not or has not been a promoter or director or person in control of
any company or entity which has been debarred from accessing the capital
markets by the Board or any other authority.
Page 11 of 11