Budget 2021 Implications of the Finance Bill on INVITS AND REITS [Cyril Amarchand Mangaldas]

The Finance Bill proposes to recognise units, debentures, and other instruments issued by an infrastructure investment trust or a real estate investment trust as “securities” under the Securities Contracts Regulation Act (SCRA). This may have further implications under various regulations issued by SEBI governing securities including under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. Such an amendment is proposed to be in effect from April 1, 2021.

The proposed amendment to the SCRA, enables InvITsThe proposed amendment to the SCRA, enables InvITsand REITs to borrow monies and issue debt securities, subject to the conditions issued by SEBI and applicable to InvITs and REITs. Further, InvITs and REITs have been permitted, subject to the provisions of the trust deed,to create a security interest in terms of the financing documents entered into by InvITs and REITs.In the event of default by an InvIT or a REIT in respect of payment of principal or interest or such other amount due to a lender, the proposed amendment to the SCRAempowers lenders to recover such amounts against the trust assets by initiating action against the trustee of InvITs or REITs (acting in such capacity). In such cases, the trustee shall not be personally liable and its assets shall not be utilized to recover such debt. The trust assets that remain after recovery of the defaulted amount, shall be remitted to the unitholders of the InvITor REIT on a proportionate basis.