SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 14th February, 2023
SECURITIES AND EXCHANGE BOARD OF INDIA (REAL ESTATE INVESTMENT TRUSTS) (AMENDMENT) REGULATIONS, 2023
No. SEBI/LAD-NRO/GN/2023/123.—In exercise of the powers conferred under section 30 read with sections 11 and 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014, namely: –
1. These regulations may be called the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2023.
2. They shall come into force on the date of their publication in the Official Gazette:
Provided that sub-regulation (1) and (6) of regulation 3 of these regulations shall come into force with effect from April 1, 2023.
3. In the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014,
(1) in regulation 2, in sub-regulation (1), –
(a) clause (g) shall be substituted with the following clause, namely – “(g) “change in control”, –
(i) in case of a body corporate, –
(A) if its shares are listed on any recognized stock exchange, shall be construed with reference to the definition of control in terms of regulations framed under clause (h) of sub-section (2) of section 11 of the Act;
(B) if its shares are not listed on any recognized stock exchange, shall be construed with reference to the definition of control as provided in sub-section (27) of section 2 of the Companies Act, 2013 (18 of 2013);
(ii) in a case other than a body corporate, shall be construed as any change in its legal formation or ownership or change in controlling interest.
Explanation- For the purpose of sub-clause (ii), the expression “controlling interest” means an interest, whether direct or indirect, to the extent of not less than fifty percent of voting rights or interest;”;
(b) after clause (qa), the following clause shall be inserted, namely –
“(qai) “Independent director” in case of a company means a director, other than a nominee director of the Manager: –
(i) who, in the opinion of the Board of Directors of the Manager, is a person of integrity and possesses relevant expertise and experience;
(ii) who is not or was not a sponsor of the REIT, a promoter of parties to the REIT, their holding, subsidiary or associate or a member of the sponsor group of the REIT;
(iii) who is not related to the REIT, its Holdco and/or SPV, parties to the REIT, its holding company or associate or their promoters or directors;
(iv) who, apart from receiving a director’s remuneration, does not have or has had any material pecuniary relationship with the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, the subsidiary or associate or their promoters or directors, during the three immediately preceding financial years or during the current financial year;
(v) none of whose relatives –
(A) is holding securities of or interest in the REIT, its Holdco and/or SPV, parties to the REIT, their holding Company, subsidiary or associate during the three immediately preceding financial years or during the current financial year of face value in excess of fifty lakh rupees or two percent of the unit capital of the REIT, two percent of the paid-up capital of the parties to the REIT, their holding Company, subsidiary or associate or Holdco and/or SPV respectively or such higher sum as may be specified;
(B) is indebted to the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate or their promoters or directors, during the three immediately preceding financial years or during the current financial year, in excess of such amount as may be specified;
(C) has given a guarantee or provided any security in connection with the indebtedness of any third person to the REIT, its Holdco or SPV, parties to the REIT, its holding company, subsidiary or associate or their promoters or directors, during the three immediately preceding financial years or during the current financial year, for such amount as may be specified; or
(D) has any other pecuniary transaction or relationship with the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate amounting to two percent or more of its gross turnover or total income:
Provided that the pecuniary relationship or transaction with the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate or their promoters or directors in relation to points (A) to (D) shall not exceed two percent of its gross turnover or total income or fifty lakh rupees or such higher amount as may be specified from time to time, whichever is lower.
(vi) who, neither himself or herself, nor whose relative(s) —
(A) holds or has held the position of a key managerial personnel or is or has been an employee of the Holdco and/or SPV, parties to the REIT or its holding, subsidiary or associate or any company belonging to parties to the REIT, in any of the three financial years immediately preceding the financial year in which he/she is proposed to be appointed:
Provided that in case of a relative who is an employee other than a key managerial personnel, the restriction under this clause shall not apply for his/her employment;
(B) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he/she is proposed to be appointed, of-
(1) a firm of auditors or company secretaries in practice or cost auditors of the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate; or
(2) any legal or a consulting firm that has or had any transaction with the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate amounting to ten per cent or more of the gross turnover of such firm;
(C) holds together with his relatives two per cent or more of the total voting power of the REIT, its Holdco and/or SPV, parties to the REIT;
(D) is a chief executive or director, by whatever name called, of any non- profit organisation that receives twenty-five per cent or more of its receipts or corpus from the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate, any of its promoters, directors or that holds two per cent or more of the total voting power of the REIT, its Holdco and/or SPV, parties to the REIT;
(E) is a material supplier, service provider or customer or a lessor or lessee of the REIT, its Holdco and/or SPV, parties to the REIT, its holding company, subsidiary or associate;
(vii) who is not less than 21 years of age; or
(viii) who possesses such other qualifications as may be specified by the Board.”;
(c) after clause (zr), the following clause shall be inserted, namely –
“(zra) “Senior Management” means officers or personnel of the Manager who are members of its core management team excluding the Board of Directors and shall also comprise all members of the management one level below the Chief Executive Officer or Managing Director, Whole Time Director, manager (including Chief Executive Officer or manager, in case they are not part of the Board of Directors) and shall specifically include the Compliance Officer and Chief Financial Officer;”;
(2) in regulation 10,
(a) sub-regulation (6) shall be substituted with the following, namely –
“(6) Subject to the provisions of this chapter, the manager of the REIT shall appoint an individual or a firm as the auditor, who shall hold office from the date of conclusion of the annual meeting in which the auditor has been appointed till the date of conclusion of the sixth annual meeting of the unitholders in accordance with the procedure for selection of auditors, as may be specified by the Board.”;
(b) after sub-regulation (6), the following sub-regulation shall be inserted, namely – “(6A) The manager of the REIT shall not appoint or re-appoint—
(a) an individual as the auditor for more than one term of five consecutive years; and
(b) an audit firm as the auditor for more than two terms of five consecutive years: Provided that—
(i) the individual auditor who has completed the term under clause (a) shall not be eligible for re-appointment as the auditor in the same REIT for a period of five years from the date of completion of the term;
(ii) the audit firm that has completed its term under clause (b), shall not be eligible for reappointment as the auditor in the same REIT for a period of five years from the date of completion of its term.”;
(3) in regulation 13, after sub-regulation (4), the following sub-regulation shall be inserted, namely –
“(5) The auditor shall undertake a limited review of the audit of all the entities or companies whose accounts are to be consolidated with the accounts of the REIT as per the applicable Indian Accounting Standards (Ind AS) and any addendum thereto as defined in Rule 2 (1) (a) of the Companies (Indian Accounting Standards) Rules, 2015, in such manner as may be specified by the Board.”;
(4) in regulation 18, in sub-regulation 16, after sub-clause (e), the following sub-clause shall be inserted, namely –
“(f) any amount remaining unclaimed or unpaid out of the distributions declared by a REIT in terms of sub-clause (c), shall be transferred to the ‘Investor Protection and Education Fund’ constituted by the Board in terms of section 11 of the Act, in such manner as may be specified by the Board.”;
(5) in regulation 20, under sub-regulation (2), the following explanations shall be inserted, namely –
“Explanation 1. – Investment by REITs in overnight mutual funds, characterized by their investments in overnight securities, having maturity of one day, shall be considered as cash and cash equivalent.
Explanation 2. – The amount of cash and cash equivalent shall be excluded from the value of the assets of the REIT.”
(6) after Chapter VI, the following Chapter shall be inserted, namely, –
“CHAPTER VIA
OBLIGATIONS OF THE MANAGER
Application of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
26A. Subject to other provisions of this Chapter, the provisions contained in 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 the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 shall be applicable, as in force from time to time, with necessary modifications as if the said provisions were the provisions of these regulations.
Explanation – For the purposes of this regulation, unless the context otherwise requires, the provisions under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, shall be interpreted as under, –
(i) the expression “promoters” wherever it occurs, shall be read as “parties to the REIT”;
(ii) the expression “listed entity” wherever it occurs, shall be read as “Manager”;
(iii) the expression “company secretary” wherever it occurs, shall be read as “compliance officer”;
(iv) the expression “executive director” wherever it occurs, shall be read as “non-independent director”;
(v) the expression “non-executive director” wherever it occurs, shall be read as “independent director”;
(vi) the expression “Board of Directors of the listed entity” wherever it occurs, shall be read as “Board of Directors of Manager”;
(vii) the expression “subsidiary of listed entity” wherever it occurs, shall be read as “HoldCo and/or SPV of REIT, as applicable”.
Additional Requirements.
26B. (1) The Board of Directors of the Manager shall comprise of not less than six directors and have not less than one woman independent director.
(2) The quorum for every meeting of the Board of Directors of the Manager shall be one-third of its total strength or three directors, whichever is higher, including at least one independent director.
Explanation – The participation of the directors by video conferencing or by other audio-visual means shall be counted for the purpose of quorum and shall be recorded by the Manager.
(3) The Board of Directors of the Manager shall review compliance reports every quarter pertaining to all laws applicable to the REIT as well as steps taken to rectify instances of non-compliances.
(4) The minimum information as specified in Part A of Schedule VIII shall be placed before the Board of Directors of the Manager.
(5) The Compliance Officer, Chief Executive Officer and the Chief Financial Officer shall provide the compliance certificate to the Board of Directors of the Manager as specified in in Part B of Schedule VIII along with supporting evidence thereof.
(6) The Board of Directors of the Manager shall set forth clearly the recommendation of the Manager in the notice to the unitholders for each item referred to in sub regulation (6) of regulation 22 of these regulations.
Vigil Mechanism
26C. (1) The Manager shall formulate a vigil mechanism, including a whistle blower policy for directors and employees to report genuine concerns.
(2) The vigil mechanism shall provide for adequate safeguards against victimization of Director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.
(3) An independent service provider may be engaged by the Manager for providing or operating the vigil mechanism who shall report to the audit committee.
(4) The audit committee shall review the functioning of the vigil mechanism.
Secretarial Compliance Report
26D. (1) The Manager shall submit a secretarial compliance report given by a practicing company secretary to the stock exchanges, in such form as specified, within sixty days from end of each financial year.
(2) The secretarial compliance report referred to in sub-regulation (1) of this regulation shall be annexed with the annual report of the REIT.
Quarterly Compliance Report on Corporate governance
26E. (1) The Manager shall submit a quarterly compliance report on governance in the format as may be specified by the Board, to the recognized stock exchange(s) within twenty-one days from the end of each quarter.
(2) The report referred in sub-regulation (1) of this regulation shall be signed either by the compliance officer or the chief executive officer of the Manager.”;
(7) after Schedule VII, the following schedule shall be inserted, namely, –
“SCHEDULE VIII: GOVERNANCE NORMS
PART A: MINIMUM INFORMATION TO BE PLACED BEFORE BOARD OF DIRECTORS OF THE MANAGER
[See Regulation 26B (4)]
The following minimum information to be placed before Board of Directors of the manager:
(a) annual operating plans and budgets and any updates.
(b) capital budgets and any updates.
(c) quarterly results for the REIT and its operating divisions or business segments.
(d) minutes of meetings of audit committee and other committees of the Board of Directors of Manager.
(e) the information on recruitment and remuneration of senior officers just below the level of Board of Directors, including appointment or removal of Chief Financial Officer and the Compliance Officer
(f) show cause, demand, prosecution notices and penalty notices, which are materially important.
(g) fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.
(h) any material default in financial obligations to and by the REIT, HoldCo. and/or SPV.
(i) any issue, which involves possible public or product liability claims of substantial nature, including any judgement or order which, may have passed strictures on the conduct of the REIT, holdco, SPV or taken an adverse view regarding another enterprise that may have negative implications on the REIT.
(j) details of any joint venture or collaboration agreement.
(k) significant labour problems and their proposed solutions, any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc.
(l) sale of investments, HoldCo. and/or SPV, assets which are material in nature and not in normal course of business.
(m) quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.
(n) non-compliance of any regulatory, statutory or listing requirements and unitholders service such as non-payment of distributions.
(o) reports of tabletop exercises or workshops for identifying risks and vulnerabilities, and specifying risk mitigations and processes for addressing vulnerabilities.
PART B: COMPLIANCE CERTIFICATE
[See Regulation 26B (5)]
The compliance certificate to be furnished by compliance officer, chief executive officer and chief financial officer shall state that:
(a) they have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief:
(i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;
(ii) these statements together present a true and fair view of the affairs of the REIT and are in compliance with existing accounting standards, applicable laws and regulations;
(b) there are, to the best of their knowledge and belief, no transactions entered into by the manager on behalf of REIT during the year which are fraudulent, illegal or violative of the entity’s code of conduct;
(c) they accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the manager pertaining to financial reporting and they have disclosed to the auditors and the audit committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies;
(d) they have indicated to the auditors and the Audit committee:
(i) significant changes in internal control over financial reporting during the year;
(ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and
(iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the manager’s internal control system over financial reporting of REIT.”
BABITHA RAYUDU, Executive Director
[ADVT.-III/4/Exty./611/2022-23]
Footnotes:
1. The Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 was published in the Gazette of India on September 26, 2014 vide No. LAD-NRO/GN/2014/15/11/1576.
2. The Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 was subsequently amended by the –
a. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2016, vide No. SEBI/LAD/NRO/GN/2016-17/022, with effect from November 30, 2016;
b. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2017, vide No. SEBI/LAD-NRO/GN/2017-18/022, with effect from December 15, 2017.
c. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, vide No. SEBI/LAD-NRO/GN/2018/06, with effect from April 10, 2018.
d. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2019, vide No. SEBI/LAD-NRO/GN/2019/09, with effect from April 22, 2019.
e. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/06, with effect from March 02, 2020.
f. Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/10, with effect from April 17, 2020.
g. Securities and Exchange Board of India (Real Estate Investment Trusts) (Second Amendment) Regulations, 2020, vide No. SEBI/LAD-NRO/GN/2020/16 with effect from June 16, 2020.
h. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/28 with effect from July 30, 2021.
i. SEBI (Regulatory Sandbox) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30 with effect from August 03, 2021.
j. Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2022 vide No. SEBI/LAD-NRO/GN/2022/100 with effect from November 9, 2022.
