The Securities and Exchange Board of India (SEBI), the regulatory body for capital markets, has taken a significant step towards promoting transparency and accountability in emerging investment vehicles like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). SEBI recently introduced new disclosure formats for compliance reports on governance and annual secretarial reports, which will be implemented starting from the financial year 2024.
Objectives of the Introduction
The introduction of REITs and InvITs in India was aimed at providing investors with access to real estate and infrastructure projects, respectively, while enabling risk diversification through pooling arrangements. The new disclosure formats introduced by SEBI further enhance transparency and accountability within these investment vehicles. By mandating detailed reports on governance practices and secretarial compliance, investors can make more informed decisions and have increased confidence in the functioning of REITs and InvITs.
Compliance Report on Governance
SEBI’s new disclosure formats require InvITs and REITs to provide detailed information regarding their governance practices. This includes disclosing the names of investment managers, the composition of their boards of directors, and the composition of committees. Moreover, quarterly reports must include information about board meetings, committee meetings, and other relevant governance activities. Investment managers are required to submit these reports to the stock exchanges within 21 days from the end of each quarter.
Annual Secretarial Compliance Report
- SEBI mandates the appointment of a practicing company secretary by the investment manager of InvITs and REITs on an annual basis. The appointed company secretary is responsible for examining the compliance of all applicable rules and submitting a report to the investment managers.
- The annual secretarial compliance report format requires investment managers to disclose regulatory compliance, any deviations from the rules, and observations made by the practicing company secretary. Furthermore, it necessitates the disclosure of actions taken against the InvITs and REITs, their promoters, directors, as well as actions taken to address previous report observations. The annual secretarial compliance report must be submitted to the stock exchanges within 60 days from the end of each financial year.
Inclusion in Annual Reports
It is important to note that both the governance report and the annual secretarial compliance report will be incorporated into the annual reports of the InvITs and REITs. This integration ensures that these reports are readily accessible to investors and stakeholders, providing them with a comprehensive understanding of the governance practices and compliance measures undertaken by these investment vehicles.
Preparing for the Financial Year 2023-24
As the financial year 2023-24 approaches, investment managers, practicing company secretaries, and other stakeholders involved in REITs and InvITs should familiarize themselves with the new reporting formats. Adequate preparation and understanding of the requirements will ensure smooth compliance with SEBI’s regulations and contribute to enhancing investor confidence in these investment vehicles.
