SEBI CLARIFIES THE ROLE OF COMPLIANCE OFFICERS IN LISTED ENTITIES: A STRUCTURAL UPDATE
Securities and Exchange Board of India ("SEBI"),vide its circular dated April 1, 2025, has offered important clarification on the position and reporting level of Compliance Officers under Regulation 6(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. This update is crucial for listed entities in shaping their corporate governance standards, particularly regarding the designation and hierarchy of Compliance Officer in a listed entity. The clarification is as follows:
- Compliance Officer in the organization structure of the listed entity, required to be 'one-level below the board of directors' means one-level below the Managing Director or Whole-time Director(s) who are part of the board of directors of the listed entity (This will be in line with Regulation 2(1)(o) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Section 2(51) of the Companies Act, 2013).
- In case a listed entity does not have a Managing Director or a Whole-Time Director, then the Compliance Officer shall not be more than one-level below the Chief Executive Officer or Manager or any other person heading the day-to-day affairs of the listed entity
To read the circular click here
SEBI AMENDS THE INVIT REGULATIONS AND REIT REGULATIONS
SEBI, vide its notifications dated April 1, 2025, and April 22, 2025, has notified the SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2025 ("InvIT Amendment Regulations") and the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2025 ("REIT Amendment Regulations"), thereby amending the SEBI (Infrastructure Investment Trusts) Regulations, 2014 ("InvIT Regulations") and the SEBI (Real Estate Investment Trusts) Regulations, 2014 ("REIT Regulations").
The key amendments include:
- Vacancy in office of independent director/ director: InvIT Regulations/ REIT Regulations require the investment manager/ manager to have: (i) at least half of its directors in case of a company or members of the governing board in case of a limited liability partnership as independent, and not directors or members of the governing board of an investment manager/ manager of another Infrastructure Investment Trust ("InvIT")/ Real Estate Investment Trust ("REIT"); (ii) at least 6 directors of which at least 1 woman independent director. The InvIT Amendment Regulations/ REIT Amendment Regulations have provided that if by a vacancy in the office of an independent director/ director, the investment manager/ manager becomes non-compliant with such requirement, such vacancy shall be filled as follows – (i) if such vacancy arises due to expiry of the term of office, then the resulting vacancy shall be filled not later than the date such office is vacated; or (ii) if such vacancy arises due to any other reason, the resulting vacancy shall be filled within 3 months from the date of such vacancy.
- Role and responsibilities of the trustee: The trustee shall ensure transparency, accountability, due diligence and compliance with the InvIT Regulations/ REIT Regulations, act impartially in their fiduciary capacity, protect the interests of unitholders and ensure effective management oversight over the investment manager/ manager and the InvIT/ REIT. This amendment shall come into effect on 180th day from April 2, 2025, for InvITs and from April 23, 2025, for REITs. The trustee may engage external consultants during the period of 18 months from April 2, 2025, for InvITs and from April 23, 2025, for REITs, in this regard. An illustrative list of roles and responsibilities to guide the trustee is specified in Schedule X/ Schedule XII which has been added through the InvIT Amendment Regulations/ REIT Amendment Regulations, respectively. These, inter alia, include asset management oversight, regulatory compliance and reporting, record-keeping, etc.
- Transfer of locked-in units: The locked-in
units of the sponsor or its sponsor group entities in accordance
with Regulation 12(5) of the InvIT Regulations/ Regulation 11(3) of
the REIT Regulations may be transferred only amongst such sponsor
or its sponsor group entities subject to the condition that lock-in
on such units shall continue for the remaining period with the
transferee and such transferee shall not be eligible to transfer
such units till the lock in period has expired. In case of an
InvIT/ REIT with multiple sponsors, the locked in units held by a
sponsor or its sponsor group entities can be transferred only
amongst such sponsor or its own sponsor group entities and shall
not be transferred to any other sponsor or their sponsor group
entities.
Provided further that in case of change in sponsor, locked-in units held by the outgoing sponsor or its sponsor group entities may be transferred to the incoming sponsor or its sponsor group entities provided that the incoming sponsor or its group entities shall meet the minimum unitholding requirements after the transfer.
In case of conversion to self-sponsored investment manager/ manager, locked-in units held by the outgoing sponsor or its sponsor group entities may be transferred to the self sponsored investment manager/ manager or its shareholders or group entities of self sponsored investment manager/ manager provided that the self-sponsored investment manager/ manager or its shareholders or group entities of self-sponsored investment manager/ manager shall meet the minimum unitholding requirements after the transfer. - Investment conditions: (i) InvITs raising funds by public issue and (ii) REITs shall not invest more than 20% of the value of its assets in:
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- unlisted equity shares of a company which provides project management/ property management and other incidental services, subject to the following conditions: (A) such services are provided exclusively to the InvIT/ REIT, its HoldCo(s) and SPV(s); and (B) the entire shareholding or interest in such company is held by the InvIT/ REIT either directly or through its HoldCo(s) or SPV(s);
- units of liquid mutual funds schemes where the credit risk value is at least 12 and which fall under the Class A-I in the potential risk class matrix as specified by SEBI;
- interest rate derivatives, including interest rate futures, forward rate contract and interest rate swap subject to the following conditions: (A) investment in interest rate derivative shall be solely to hedge an underlying interest rate risk in the existing borrowings which qualifies as an effective hedge as per the applicable Indian Accounting Standards; (B) that such investment shall only be made as a user or a client of such interest rate derivative, and shall not be in the nature of market making; (C) adequate disclosures regarding investment in interest rate derivative shall be made in the annual report; (D) for valuation of the investment in interest rate derivative, norms applicable for mutual funds shall be followed; and (E) the requirements applicable to the clients or users of interest rate derivatives, including those specified by the Reserve Bank of India ("RBI"), are complied with;
- equity shares of a company exclusively holding common infrastructure subject to the condition that the REIT, its HoldCo(s) and/or SPV(s) shall own entire shareholding and interest in such company;
- a REIT may, either directly or through its HoldCo(s) or SPV(s), invest in assets falling under the purview of infrastructure if such infrastructure asset is held to earn fixed rental income from leasing out of such asset without assumption of any risk or reward arising out of or related to the operation of such asset. A list of illustrative conditions in this regard have been specified in Schedule XI added through the REIT Amendment Regulations.
- Conditions for borrowing by InvITs: If the aggregate consolidated borrowings and deferred payments of the InvIT, HoldCo(s) and the SPV(s), net of cash and cash equivalents exceed 25% of the value of the InvIT assets, for any further borrowing above 49%, an InvIT shall have a track record of at least 6 distributions, in terms of Regulation 18(6) of the InvIT Regulations, on a continuous basis, post listing, as at the end of the quarter preceding the date on which the enhanced borrowings are proposed to be made. Provided that for computing 6 continuous distributions, maximum 1 distribution per quarter shall be considered and the distributions shall be consistent with the distribution policy disclosed to the unitholders.
- Conditions for initial offer by Small and Medium REIT ("SM REIT"): A scheme of SM REIT shall make an initial offer of its units by way of public issue only. The initial offer shall be made within a period of not more than 1 year from the date of issuance of observations by SEBI, failing which a fresh draft scheme offer document shall be filed. In this regard, SEBI has, in the REIT Amendment Regulations laid down regulations regarding the minimum subscription amount, scheme offer documents (including key information of trust and key information of scheme), pricing guidelines, investment conditions, and modes of fund raising.
To read the InvIT Amendment Regulations click here & to read the REIT Amendment Regulations click here
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