SEBI (Infrastructure Investment Trusts) Regulations, 2014

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Key terms in this chapter

Allotment, listing and refunds

The minimum number of unit holders in an InvIT, other than the sponsors, their related parties and associates, is twenty where units are listed through an initial public offer. Applications must be accompanied by an abridged version of the offer document containing the risk factors and a summary of the terms of the issue. The initial public offer and follow-on offer must be open for subscription for a minimum of three days and a maximum of thirty days; on oversubscription units are allotted on a proportionate basis rounded to the nearest integer subject to the minimum subscription amount per subscriber; units are allotted only in dematerialised form; and pricing is determined through the book building process or any method prescribed by SEBI. Units must mandatorily be listed on the stock exchange within six working days of the close of the issue for publicly offered units, and within thirty working days from the date of allotment for privately placed units. Subscription money must be refunded to all applicants if at least ninety per cent of the fresh issue size is not received, or if the number of subscribers forming part of the public is less than twenty. Money may be retained on oversubscription only up to a maximum of twenty-five per cent of the issue size, with disclosures in the offer document, the balance being refunded, and the retained amount may not be used for general corporate purposes. InvITs must pay interest at fifteen per cent per annum from the closure of the issue where units are not listed or money not refunded within the specified time. The amount earmarked for general purposes in the objects of the issue must not exceed ten per cent of the amount raised. Failure to make an initial public offer or private placement within three years of registration, extendable by another year by SEBI, entails surrender of the registration certificate.

Board composition and nomination rights

The InvIT board should have a minimum of six directors with one woman independent director. The quorum for a board meeting is one-third of its total strength or three directors, whichever is higher, including at least one independent director. The minimum information to be placed before the board is specified in Part A of Schedule VII; the board must review compliance reports every quarter pertaining to all laws applicable to the InvIT and the steps taken to rectify instances of non-compliance; and the chief executive officer, chief financial officer and compliance officer must provide the compliance certificate including the items specified in Part B of Schedule VII. The board of directors of the investment manager must specify its recommendation in the notice to unit holders for every item specified in the regulations. Unit holders holding ten per cent or more of the total outstanding units, individually or collectively, have a right but not an obligation to appoint a nominee director, being a non-independent director, on the board of the investment manager; where the unitholding of more than one unit holder is aggregated, the notice must identify up to two unit holders as authorised representatives of the group. A shareholder or lender of the investment manager or of the InvIT, its holdcos or SPVs, being an entity, does not have this right even if it holds more than ten per cent of the units.

Contents of the offer document and advertisements

The offer document must include all information specified in Schedule III, broadly comprising the basic details of the InvIT such as registered office and registration number; details of the sponsor, investment manager, project manager, trustee and other parties; the background of the InvIT including its structure, details of arrangements pertaining to underlying assets entered into with various parties prior to the issue and credit ratings; the terms of issue including number of units, price, distribution policy, listing of units and commitment from strategic investors; a description of the assets under the InvIT; business details including investment strategy and use of proceeds; leverage; related party transactions; valuation methodology; audited financial statements of the InvIT, investment manager and sponsor for the previous three years; sector or sub-sector specific information; the rights of unit holders; title and approval disclosures, litigation and regulatory actions; risk factors; and brief details on taxation and regulatory aspects. The offer document must not be misleading or contain untrue statements or mis-statements and must not provide for any guaranteed returns to investors. Advertisements must not be misleading or contain anything extraneous to the contents of the offer document, and any positive highlights must also contain risk factors with equal importance. The draft offer document and offer document or placement memorandum must be accompanied by declarations signed by the board of directors of the investment manager and sponsor, a full valuation report, the project implementation or management agreement, a due diligence certificate and in-principle approval from the exchanges.

Continual and event-based disclosures

The investment manager of every InvIT must submit an annual report to all unit holders, electronically or in physical copies, and to the designated stock exchanges within three months from the end of the financial year; and a quarterly report within thirty days from the end of the quarter where borrowings exceed forty-nine per cent of the value of the assets. The unit holding pattern for each class of unit holders must be disclosed one day prior to listing of units, within twenty-one days from the end of each quarter, and within ten days of any capital restructuring of the InvIT resulting in a change exceeding two per cent of the total outstanding units. Half yearly financial information, audited or unaudited, must be submitted within forty-five days from the end of the half year, and audited annual financial information within sixty days of the end of the financial year, to the stock exchanges. Event-based disclosures include the acquisition or disposal of any projects exceeding five per cent of the value of the InvIT; additional borrowing exceeding fifteen per cent of the value of the InvIT assets; any additional issue of units; details of any credit rating obtained and any change in it; any issue requiring approval of unit holders; any legal proceedings which may have a significant bearing on the functioning of the InvIT; notices and results of meetings of unit holders; any instance of non-compliance with the regulations; and any material issue which in the opinion of the investment manager or trustee needs to be disclosed.

Fast track rights issues

An InvIT meeting certain parameters may file an offer document for a rights issue under the fast track route with the stock exchanges, with a copy to SEBI. The parameters include that the units have been listed on a stock exchange for at least three years immediately preceding the record date; all units are held in dematerialised form on the record date; the average market capitalisation of public unitholding is at least Rs 250 crore; the InvIT is compliant with the listing and disclosure requirements of the regulations; it has redressed at least ninety-five per cent of the complaints received from investors till the end of the quarter immediately preceding the month of the record date; no show-cause notice issued by SEBI is pending against the InvIT, the parties to it or their promoters, partners or directors as on the record date; none of them has settled any alleged violation of securities laws with SEBI during the three years immediately preceding the record date; the units have not been suspended from trading as a disciplinary measure during the last three years; and there are no audit qualifications on the audited accounts for the financial years disclosed in the letter of offer.

Holdco and SPV

A holdco or holding company means a company or limited liability partnership in which the InvIT holds or proposes to hold a controlling interest and not less than fifty-one per cent of the equity share capital or interest, and which in turn has made investments in other SPVs which ultimately hold the infrastructure assets, and which is not engaged in any activity other than holding the underlying SPVs, holding infrastructure projects and activities pertaining and incidental to such holdings. An SPV or special purpose vehicle means any company or limited liability partnership in which either the InvIT or the holdco holds or proposes to hold a controlling interest and not less than fifty-one per cent of the equity share capital or interest; which holds not less than ninety per cent of its assets directly in infrastructure projects and does not invest in other SPVs; and which is not engaged in any activity other than activities pertaining and incidental to the underlying infrastructure projects.

Initial public offer requirements

InvITs may raise funds through an initial public offer or through private placement, and any subsequent issue after an initial public offer may be through a follow-on offer, preferential allotment, qualified institutional placement, rights issue, bonus issue, offer for sale or any other mechanism specified by SEBI. To make an initial offer of units the InvIT must be registered with SEBI, the value of the InvIT assets must not be less than Rs 500 crore, being the value of the specific portion of the holding of the InvIT in the underlying assets, holdco or SPVs, and the offer size must not be less than Rs 250 crore; the value requirement must be fulfilled before filing the offer document with SEBI, with an undertaking to that effect and adequate disclosures in the offer document or placement memorandum.

Inspection by SEBI

SEBI has powers to conduct inspection of the activities of an InvIT. The outcome or final decision of the inspection may require the InvIT to delist its units from the stock exchanges and surrender its certificate of registration; to wind up; to sell its assets; to take appropriate action against the parties to the InvIT; or may involve prohibiting the InvIT or the parties to it from operating in the capital market or from accessing the capital market for a specified period.

Investment conditions

Investment by an InvIT may only be in a holding company, SPVs, infrastructure projects or securities in India. Where the InvIT invests in infrastructure projects through SPVs, no other shareholder or partner of the SPV may exercise any rights that prevent the InvIT from complying with the regulations; where the SPV is a company or limited liability partnership, the investment manager, in consultation with the trustee, must appoint the majority of the board of directors or governing board of the SPV; and the investment manager must ensure that in every meeting, including the annual general meeting of the SPV, the voting of the InvIT is exercised. The shareholders' agreement or partnership agreement must provide an appropriate mechanism for the resolution of disputes between the InvIT and the other shareholders or partners in the holdco or SPV, and the provisions of the regulations prevail in case of inconsistency between such agreements and the obligations cast upon an InvIT.

InvIT, infrastructure and InvIT assets

An InvIT or infrastructure investment trust means the trust formed under the Indian Trusts Act, 1882 and registered under the InvIT Regulations; the trust is set up by the sponsor, the ownership of the property vests in the trustee, and the beneficiaries are the unit holders. In accordance with the Trusts Act a trust is an obligation attached to the ownership of property, created by the author of the trust, accepted by the owner of the property and owed to the beneficiaries identified in the trust deed. Infrastructure includes all infrastructure sub-sectors as defined by the notification of the Ministry of Finance dated 7 October 2013 and any amendments or additions, covering sectors such as transport, energy, water and sanitation, communication, and social and commercial infrastructure. An infrastructure project means any project in the infrastructure sector. InvIT assets means assets owned by the InvIT, whether directly or through a holdco or SPV, and includes all rights, interests and benefits arising from and incidental to ownership of such assets.

Issuance of debt securities and borrowings

InvITs follow the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 for the issue of debt securities, and the provisions of the Companies Act, 2013 do not apply to InvITs for such issuance. For the issuance of debt securities an InvIT must appoint one or more debenture trustees registered under the SEBI (Debenture Trustees) Regulations, 1993, but a trustee to the InvIT is not eligible to be appointed as debenture trustee to such an issue. Any secured debt securities issued must be secured by the creation of a charge on the assets of the InvIT, holdco or SPV having a value sufficient for the repayment of the amount of the debt securities and interest. The aggregate consolidated borrowings cannot exceed seventy per cent of the value of the InvIT assets. Where borrowings are between twenty-five and forty-nine per cent of that value, a credit rating and the approval of the unit holders are required. Where they are between forty-nine and up to seventy per cent, a credit rating of AAA is required, the funds must be utilised only for the acquisition or development of infrastructure projects, the approval of unit holders is required, and there must be a track record of six distributions. InvITs having a net worth of Rs 100 crore or higher are eligible to issue commercial paper in terms of the Reserve Bank Commercial Paper Directions, 2017.

Listing and delisting

It is mandatory for the units of all InvITs to be listed on a recognised stock exchange having nationwide trading terminals, whether publicly issued or privately placed. After listing, the InvIT may redeem units only by way of a buyback or at the time of delisting; the units must remain listed on the designated stock exchanges unless delisted; and the InvIT must maintain the minimum public holding limit, failing which the units may be delisted by SEBI. The investment manager must apply for delisting of units to SEBI and the stock exchanges where the public holding falls below the specified limit, where the number of unit holders falls below the limit of twenty, where no projects or assets remain under the InvIT for a period exceeding six months and it does not propose to invest in any project in future, or where the trustee and investment manager request delisting and that request has been approved by unit holders. The exchanges or SEBI may initiate delisting for violation of the listing agreement, the regulations or the Act, or if it is in the interest of unit holders. The procedure for delisting, including the provision of an exit option to unit holders, is in accordance with the listing agreement and the procedure specified by SEBI and the designated exchanges. On delisting the InvIT must surrender its certificate of registration to SEBI, must no longer undertake the activity of an InvIT, and the InvIT and the parties to it continue to be liable for all their acts of omission and commission with respect to its activities.

Maintenance of records and investor charter

The investment manager must maintain in electronic form records of all investments or divestments of the InvIT and supporting documents including the rationale for them; agreements entered into by or on behalf of the InvIT; documents relating to the appointment of the trustee, registrar and others; insurance policies for infrastructure assets; the investment management agreement; all documents relating to the issue and listing of units; distributions declared and made to unit holders; disclosures and periodical reporting to the trustee, SEBI, unit holders and the designated stock exchanges; valuation reports including the methodology of valuation; books of accounts and financial statements; audit reports; unit holders' grievances and actions taken including correspondence with the unit holder and SEBI; any other material documents; documents pertaining to registration; and notices and agenda sent to unit holders. All registered merchant bankers are advised to disclose on their websites the investor charter for public offer and private placement of units by InvITs, and investor complaints and their redressal, at the latest by the seventh of the succeeding month.

Meetings, vigil mechanism and compliance reports

An annual meeting of all unit holders must be held not less than once a year within one hundred and twenty days from the end of the financial year, and the time between two meetings must not exceed fifteen months; the meeting may be held through audio-visual means, and notice may be given through emails registered with the InvIT or with the depositories. The investment manager must formulate a vigil mechanism, including a whistle blower policy, for directors and employees to report genuine concerns. A secretarial compliance report given by a practising company secretary must be filed with the stock exchanges within sixty days from the end of each financial year and annexed to the annual report, and a quarterly compliance report on corporate governance must be filed with the exchanges within twenty-one days from the end of each quarter. The investment manager must also comply with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 after listing.

Minimum public unitholding and subscription

The minimum offer and allotment to the public through an offer document or placement memorandum must be at least twenty-five per cent of the total outstanding units of the InvIT where the post-issue capital calculated at offer price is less than Rs 1,600 crore; of the value of at least Rs 400 crore where the post-issue capital is equal to or more than Rs 1,600 crore and less than Rs 4,000 crore; and at least ten per cent of the total outstanding units where the post-issue capital is equal to or more than Rs 4,000 crore. Units offered to the sponsor, investment manager or project manager or their related parties or associates are not counted towards units offered to the public. A listed InvIT whose public holding is below twenty-five per cent must increase it to at least twenty-five per cent within three years from the date of listing pursuant to the initial offer. The minimum subscription amount from any investor in an initial and follow-on offer must be within the range of Rs 10,000 to Rs 15,000, and the maximum subscription from any investor, other than the sponsors, their related parties and associates, must not be more than twenty-five per cent of the total unit capital.

Obligations of the auditor

The auditor must conduct the audit of the accounts of the InvIT and draft the audit report; ensure that the accounts and financial statements give a true and fair view of the state of affairs of the InvIT; has a right of access at all times to the books of accounts and vouchers pertaining to the activities of the InvIT; has a right to require such information and explanation pertaining to those activities as he considers necessary for the performance of his duties; and must undertake a limited review of the audit of all entities or companies whose accounts are to be consolidated with the accounts of the InvIT as per the applicable Indian Accounting Standards.

Obligations of the valuer

The valuer must at all times ensure that the valuation of the InvIT assets is impartial, true and fair and in accordance with the regulations; have adequate and robust internal controls to ensure the integrity of its valuation reports; have sufficient key personnel with adequate experience and qualification to perform valuations; and have sufficient financial resources to conduct its business effectively and meet its liabilities. Neither the valuer nor any of its employees involved in valuing the assets may invest in units of the InvIT or in the assets being valued, or sell assets or units of InvITs held prior to appointment, until the person is designated as valuer and for not less than six months after ceasing to be valuer. The valuer must conduct valuation with transparency and fairness, render high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment, act with independence, objectivity and impartiality, and discharge its duties efficiently and competently. It must not accept remuneration in any form for valuing the InvIT assets from any person other than the InvIT or its authorised representative; must disclose to the InvIT, before accepting any assignment from a related party, any direct or indirect consideration it may have; must disclose any pending business transactions, contracts under negotiation and other arrangements with the investment manager or any other contracting party and any other factors that may interfere with its independence; must not make false, misleading or exaggerated claims to secure assignments; must not provide misleading valuation by giving incorrect information or withholding relevant information; and must not accept an assignment which interferes with its ability to do a fair valuation.

Offer process and strategic investors

The first step is the appointment of a merchant banker, who must file the offer document with the prescribed fees with the designated stock exchanges and SEBI not less than five working days before the issue opens. The draft offer document filed with SEBI must be made public for comments by hosting it on the websites of SEBI, the designated exchanges, the InvIT and the merchant bankers for not less than twenty-one days; SEBI's comments must be incorporated before filing with the exchanges; and both the draft offer document and the offer document must be accompanied by a due diligence certificate signed by the lead merchant banker. The InvIT may open the issue within a period of not more than one year from the date of issuance of observations by SEBI, and may invite subscriptions and allot units to any person, whether resident or foreign, foreign investment being subject to Reserve Bank and government guidelines. Strategic investors play a role similar to that of anchor investors in an equity IPO: they must, jointly or severally, invest not less than five per cent and not more than twenty-five per cent of the total offer size and enter into a binding unit subscription agreement with the investment manager; the price at which they agree to buy units must not be less than the issue price determined in the public issue; broad details of the agreement must be disclosed in the draft offer document or offer document; and their units are locked in for one hundred and eighty days from the date of listing in the public issue.

Policy, process and review of nominee directors

The board of the investment manager must formulate and adopt a policy for the selection of nominee directors containing the qualifications, criteria for appointment, evaluation parameters of individuals, remuneration and sitting fees, the process of removal or resignation of unitholder nominee directors and the role of the nomination and remuneration committee, and must make the policy available on the website of the InvIT. The eligibility of a unitholder nominee director is confirmed by the investment manager based on the evaluation done by the nomination and remuneration committee or the board in line with the policy, and the appointment must be made within thirty days of that confirmation. Unitholder nominee directors must recuse themselves from voting on any transaction where the director, the director's associates, the eligible unit holders who nominated him or an associate of theirs is a party. The investment manager must send written intimation to all unit holders at their registered email addresses within ten days from the end of each financial year requesting them to inform it if any eligible unit holders wish to exercise the nomination right; eligible unit holders wishing to exercise the right must inform the investment manager by written notice within ten days of receipt of the intimation; and eligibility is reckoned on the unitholding pattern of the InvIT as on 31 March of the financial year. Within ten days from the end of each calendar month the investment manager must review whether the eligible unit holders who exercised the right continue to hold the required number of units and submit a report to the trustee. The trust deed and the investment management agreement must provide for the nomination and appointment of unitholder nominee directors.

PPP projects, institutional investors, related parties and valuer

A PPP project means an infrastructure project undertaken on a public-private partnership basis between a public concessioning authority and a private SPV concessionaire selected on the basis of open competitive bidding or on the basis of a memorandum of understanding with the relevant authorities; a concession agreement is an agreement entered into by a person with a concessioning authority for implementation of the project, the concessioning authority being the public sector concessioning authority in PPP projects. An institutional investor means a qualified institutional buyer, a family trust, a systemically important non-banking financial company registered with the Reserve Bank of India, or an intermediary registered with SEBI, all with net worth of more than Rs 500 crore as per the last audited financial statements. Related parties carry the same meaning as under the Companies Act, 2013 or the applicable accounting standards, and also include the parties to the InvIT and the promoters, directors and partners of those parties. A valuer means a person who is a registered valuer under section 247 of the Companies Act, 2013 or as specified by SEBI, and the value of the InvIT assets means the value of the assets as assessed by the valuer based on the value of the infrastructure and other assets owned by the InvIT, whether directly or through a holdco or SPV.

Private placement and preferential offer

For a private placement the InvIT must file a draft placement memorandum with SEBI and the stock exchanges through a merchant banker not less than thirty days prior to the opening of the issue; the memorandum must contain all information specified in Schedule III to the extent applicable; the merchant banker must submit a due diligence certificate; SEBI issues observations, if any, within fifteen days of filing; the issue open date must not be later than three months from receipt of the in-principle approval for listing from the exchanges; units must be listed within six working days of the close of the issue; and the final placement memorandum must be filed with SEBI within ten working days from the date of listing. The minimum investment from any investor is Rs 1 crore, the minimum number of investors is five and the maximum one thousand, and no advertisement may be issued in relation to a private placement of units. A listed InvIT may make a preferential offer only to institutional investors as defined in the regulations. The trading lot is one unit of Rs 25 lakh, or one unit of Rs 2 crore where a minimum of eighty per cent of the value of the InvIT assets is invested in completed and revenue-generating projects.

Project classifications

A completed and revenue-generating project means an infrastructure project which, prior to its acquisition by or transfer to the InvIT, has achieved the commercial operations date as defined in the agreements, has received all the requisite approvals and certifications for commencing operations, and has been generating revenue from operations for a period of not less than one year. An under-construction project means an infrastructure project, whether PPP or non-PPP, which has either not achieved commercial operation date or has achieved it but does not have a track record of revenue from operations for not less than one year. A pre-COD project means an infrastructure project which has not achieved commercial operation date and which has either achieved completion of at least fifty per cent of the construction as certified by an independent engineer of the project, or expended not less than fifty per cent of the total capital cost set forth in the financial package of the relevant project agreement. An eligible infrastructure project means, for PPP projects, one which is a completed and revenue generating project, or which has achieved commercial operations date without a one-year revenue track record, or which is a pre-COD project; and for non-PPP projects, one which has received all the requisite approvals and certifications for commencing construction.

Purpose of the InvIT Regulations

Infrastructure needs long-term capital because of its long gestation period, and the bulk of India's infrastructure funding has been met by domestic commercial banks and financial institutions which find it difficult to provide such long-term funding, being constrained by asset-liability mismatches. The SEBI (Infrastructure Investment Trusts) Regulations, 2014 seek to alleviate the burden on the banking system by making fresh capital available for the infrastructure sector. The units issued by an InvIT give developers a window to unlock their invested capital in completed infrastructure projects by transferring the majority of their ownership to an InvIT at a price based on valuation by an independent valuer; the InvIT is a mechanism enabling infrastructure developers to monetise their assets by pooling multiple projects in a single trust, providing wider long-term refinancing avenues, creating headroom for banks to fund new projects and releasing developers' capital for redeployment, while giving investors risk-adjusted exposure to large infrastructure assets and high levels of liquidity. An InvIT is a collective investment scheme similar to a mutual fund which enables direct investment by individual and institutional investors in infrastructure projects to earn a portion of the income as return.

Registration and conditions of certificate

An application for a certificate of registration as an InvIT is made by the sponsor on behalf of the trust in the form specified in Schedule I, accompanied by a non-refundable application fee as specified in Schedule II. The instrument of trust must be in the form of a deed duly registered in India under the Registration Act, 1908, and the trust deed must have as its main objective the undertaking of the activity of an InvIT in accordance with the regulations and must include the responsibilities of the trustee. The proposed activities must be clearly described; the parties to the InvIT must be fit and proper persons based on the criteria in Schedule II of the SEBI (Intermediaries) Regulations, 2008; details of any previous application rejected by SEBI must be provided, or an undertaking to that effect; and details of any disciplinary action taken by SEBI or any other regulatory authority against the parties or their directors or governing board members must be provided, or an undertaking. Where SEBI is not satisfied with the details provided it may grant in-principle approval and grant final registration after all requirements are fulfilled. The certificate is subject to conditions that the InvIT abides by the SEBI Act and the InvIT Regulations; forthwith informs SEBI in writing if any information previously submitted is found false or misleading in any material particular or if there is any material change; that the InvIT and the parties to it satisfy the eligibility conditions at all times; and that they comply at all times with the code of conduct in Schedule VI. SEBI has introduced an online system for applications for registration, reporting and filings.

Related party transactions and dispute resolution

All related party transactions must be on an arm's-length basis in accordance with the relevant accounting standards and must be disclosed in the offer document or placement memorandum and to the designated stock exchanges and unit holders periodically. After listing, the prior approval of unit holders is necessary if the total value of all related party transactions in a financial year pertaining to the acquisition or sale of assets or investments into securities exceeds five per cent of the value of the InvIT assets, or if the value of funds borrowed from related parties in a financial year exceeds five per cent of the total consolidated borrowings of the InvIT, the holdco and the SPVs. Disputes between investors and the investment manager are subject to a resolution mechanism that includes mediation, conciliation or arbitration in accordance with the procedure specified by SEBI, and no loss, damage or expense incurred by the investment manager or its officers, including in relation to the resolution of claims or disputes of investors, may be met out of the trust property.

Reporting by the investment manager to the trustee

Within thirty days of the end of the quarter the investment manager must submit to the trustee quarterly reports on the activities of the InvIT, including receipts for all funds received and payments made, the position on compliance with the regulations, a performance report and the status of development of under-construction projects; valuation reports as required under the regulations within fifteen days of receipt of the valuation report from the valuer; decisions to acquire, sell, develop or bid for any asset or project or to expand existing completed assets or projects, along with the rationale; details of any action requiring approval from unit holders; and details of any other material fact including a change in its directors, a change in its shareholding, or any legal proceedings that may have a significant bearing on the activity of the InvIT, within seven working days of such action. The investment manager must also ensure that the computation and declaration of the net asset value based on the valuer's valuation is disclosed to the stock exchanges not later than fifteen days from the date of valuation; that the audit of the accounts of the InvIT by the auditor is done not less than once a year and the report submitted to the stock exchanges within sixty days of the end of the financial year ending 31 March; and must place before its board or governing board a report on the activity and performance of the InvIT at least once every quarter within thirty days of the end of every quarter.

Responsibilities of the investment manager

The investment manager makes the investment decisions with respect to the underlying assets or projects of the InvIT, including any further investment or divestment; oversees the project manager's compliance and obtains a quarterly compliance certificate from it; ensures that the infrastructure assets of the InvIT, holdco or SPV have proper legal titles; ensures that investments accord with the investment conditions and the investment strategy; in consultation with the trustee appoints the valuers, auditor, registrar and transfer agent, merchant banker, custodian and other intermediaries or service providers; appoints an individual or firm as auditor; arranges adequate insurance coverage for the InvIT assets; ensures it has adequate infrastructure and sufficient key personnel at all times; along with the merchant bankers is responsible for all activities pertaining to the issue and listing of units, including filing the placement memorandum and offer document, dealing with matters up to allotment, and obtaining in-principle and final listing and trading approvals; ensures with the merchant bankers that the disclosures in the offer document or placement memorandum are material, true, correct and adequate; declares distributions to unit holders; reviews transactions between the project manager and its associates; ensures adequate and timely redressal of unit holders' grievances; ensures that disclosures and reporting to unit holders, SEBI, trustees and the exchanges accord with the regulations; must not obtain any commission, rebate or other remuneration in connection with the issue of units; ensures the valuation of the InvIT assets is done by the valuers; appoints a custodian; designates an employee or director as compliance officer; convenes meetings of unit holders and maintains records of them; and ensures that the activities of all intermediaries, agents and service providers it appoints accord with the regulations.

Responsibilities of the project manager and the sponsor

The project manager undertakes the operations and management of the InvIT, and where the InvIT invests in under-construction projects must undertake the operations and management of the projects and oversee the progress of development, approval status and other aspects of the project up to its completion, including where agents are appointed for execution; and must discharge all obligations in respect of achieving timely completion of the project implementation agreement or infrastructure project. The sponsor sets up the InvIT and appoints its trustees; transfers or undertakes to transfer to the InvIT its entire shareholding, interest and rights in the holdco or SPV or ownership of the infrastructure projects; and the sponsors together must at all times collectively hold not less than fifteen per cent of the total outstanding units of the InvIT for a period of not less than three years from the date of listing of such units. In that case the sponsors are responsible for all acts, omissions, representations and covenants of the InvIT, the InvIT and its trustee have recourse against the sponsor for any breach, and the project manager must be the sponsor or an associate of the sponsor and must continue in that capacity for a minimum of three years from the date of listing of the units unless a suitable replacement is appointed by the unit holders through the trustee. The sponsor group includes the sponsors, entities or persons controlled by them, entities or persons who control the body corporate, and entities or persons controlled by those persons; and the responsibilities of the sponsor group are the same as those of the sponsor.

Responsibilities of the trustee

The trustee holds the InvIT assets in the name of the InvIT for the benefit of unit holders; enters into an investment management agreement with the investment manager on behalf of the InvIT; oversees the activities of the investment manager in the interest of unit holders and obtains a compliance certificate from it quarterly; oversees the activities of the project manager with respect to compliance with the regulations and the project implementation or management agreement and obtains a compliance certificate from it quarterly; ensures that the investment manager complies with reporting and disclosure requirements; reviews the transactions carried out between the investment manager and its associates; periodically reviews the status of unit holders' complaints and their redressal; makes distributions and ensures timely declaration of distributions; ensures that the subscription amount is kept in a separate bank account in the name of the InvIT and used only for adjustment against allotment of units or refund until listing; ensures that the remuneration of the valuer is not linked to or based on the value of the assets being valued; ensures that the investment manager convenes meetings of unit holders and oversees the voting; may require the investment manager to set up systems and procedures and submit reports for effective monitoring; and may take up with SEBI or the designated stock exchange any matter approved in a meeting of unit holders which requires such action.

The investment manager

The investment manager may be a company, limited liability partnership or body corporate which manages the assets and investments of the InvIT and undertakes its activities, playing the role that a fund manager plays in a mutual fund. It must have a net worth of not less than Rs 10 crore if it is a body corporate or company, or net tangible assets of not less than Rs 10 crore if it is a limited liability partnership; not less than five years of experience in fund management, advisory services or development in the infrastructure sector, or a combined experience of its directors, partners or employees in those fields of not less than thirty years; two or more key personnel with more than five years of experience in fund management, advisory services or development in the infrastructure sector; and one or more employees with at least five years of experience in the relevant sub-sector in which the InvIT proposes to invest. Not less than half of its directors, or members in the case of a limited liability partnership, must be independent and must not be directors or members of the investment manager of another InvIT. It must have an office in India from which operations pertaining to the InvIT are proposed to be conducted, and must enter into an investment management agreement with the trustee providing for its responsibilities.

The project manager and the trustee

The project manager may be a company, limited liability partnership or body corporate and is responsible for achieving execution and management of the project. The trustee is a person who holds the InvIT assets in trust for the benefit of the unit holders, is registered under the SEBI (Debenture Trustees) Regulations, 1993, is not an associate of the sponsors or the investment manager, and should have sufficient resources with respect to infrastructure, personnel and the like as specified by SEBI. The role of the trustee is supervisory in nature, overseeing the activities of the investment manager and the project manager and ensuring that the InvIT is operated in accordance with its constitutional documents.

The sponsor

A sponsor may be a company, limited liability partnership or body corporate which sets up the InvIT, and the application for registration is made by the sponsor on behalf of the trust. Each sponsor and sponsor group must be clearly identified in the application and in the offer document or placement memorandum, and for each sponsor group not less than one person must be identified as a sponsor. Only certain entities may be categorised as sponsor group: a person or entity directly or indirectly holding an interest or shareholding in any of the assets, SPVs or holdcos proposed to be transferred to the InvIT; a person or entity directly or indirectly holding units of the InvIT on a post-issue basis; and a person or entity whose experience is being utilised by the sponsor for meeting the eligibility conditions. Each sponsor must have a net worth of not less than Rs 100 crore if it is a body corporate or company, or net tangible assets of not less than Rs 100 crore if it is a limited liability partnership, and must have a sound track record in the development of infrastructure or fund management in the infrastructure sector, meaning experience of at least five years and, where the sponsor is a developer, the completion of at least two of its projects.

The two key agreements

An investment management agreement means an agreement between the trustee and the investment manager which lays down the roles and responsibilities of the investment manager towards the InvIT; because investment management is entrusted with the task of entering into certain types of projects, the agreement governs the relationship, the terms and conditions, the roles, responsibilities and the reporting mechanism of the investment manager to the trustee. A project implementation agreement or project management agreement means an agreement between the project manager, the SPV and the trustee which sets out the obligations of the project manager with respect to execution of the project or its management, ensuring that the chosen projects are implemented according to the objects for which money is collected from unit holders.

Trustee's duties on changes and prohibitions

On a change in the investment manager due to removal or otherwise, the trustee must obtain the approval of unit holders prior to the change and must appoint the new investment manager within three months from the date of termination of the earlier investment management agreement. On a change in the project manager, the trustee must appoint the new project manager within three months from the date of termination of the earlier project implementation or management agreement, and may, either of its own motion or on the advice of the concessioning authority, appoint an administrator in connection with an infrastructure project for such term and on such conditions as it deems fit. The trustee must obtain prior approval from unit holders in case of a change in control of the investment manager, and in the case of a change in control of the project manager in a PPP project must ensure that the written consent of the concessioning authority is obtained in terms of the concession agreement. The trustee must not invest in units of the InvIT in which it is designated as trustee, must ensure that the activity of the InvIT is operated in accordance with the trust deed, the regulations and the offer documents, and must immediately inform SEBI if any act detrimental to the interest of unit holders is noted.

Valuation of assets

The valuer must not be an associate of the sponsors, the investment manager or the trustee, and must have not less than five years of experience in valuation of infrastructure assets. A full valuation includes a detailed valuation of all assets of the InvIT by the valuer, including physical inspection of every infrastructure project, and the full valuation report must include the mandatory minimum disclosures specified in Schedule V. A full valuation must be conducted once in every financial year and completed within two months from the end of the financial year; for publicly listed units the valuation must be conducted every six months and completed within one month of the end of each half year. Valuation reports must be filed by the investment manager within fifteen days from receipt. No valuer may undertake valuation for the same project for more than four years consecutively. Where there is any material development having an impact on the valuation of assets, a full valuation of the infrastructure project concerned must be carried out within two months from the date of the event and the valuation report disclosed to the trustee and the designated stock exchanges within fifteen days of that valuation.