Unlike a company, an Infrastructure Investment Trust (Trust/ INVIT) has a multilayered intricate structure involving multiple parties including, sponsors, trustees, Investment Managers (IM) and project managers etc. the roles of each of these parties and their legal relationship with each other lies at the core of successful functioning of an INVIT.

In this feature, we shall try to analyse, whether the relationship between the trustee and IM of an INVIT is that of principal and agent?

Back to basics – Structure of INVIT:

 INVIT is a trust registered under the Indian Trusts Act, hence is not incorporated but settled. The settler of this trust is called a sponsor. The sponsor, after settling the trust, hands over the trust assets to the trustee in accordance with the trust deed. Hereafter, the trustee is expected to hold the trust assets in the name of the INVIT, for benefit of the unit holders who are the ultimate beneficiaries of this trust[i]. The trust deed being the charter document of the trust, the trustee is expected to act in accordance with the trust deed.

Hence, as per the clauses of trust deed and the provision under regulation 9(2)[ii] of SEBI (Infrastructure Investment Trusts) Regulations, 2014  (INVIT Regulations), the trustee appoints an Investment Manager (IM) and assigns the rights and responsibilities with respect to management of the INVIT assets, investment of trust fund, conduct of day to day business of the INVIT and other such activities through an agreement called Investment Management Agreement (IMA).

Oversite of IM by trustee:

As mentioned above, the trustee appoints the IM and assigns the role of management of trust assets for the benefit of unit holders. But the role of the trustee does not end there. As per regulation 9(3)[iii] of INVIT regulations, the trustee is expected to constantly supervise the activities of the IM. In this regard, the regulation 9(3) requires the trustee to obtain from the IM, a compliance certificate ensuring that the IM has complied with regulation 10 (rights & duties of IM) of INVIT regulations.

The trustee is also expected to supervise activities like conduct of annual general meeting of INVIT by IM and voting thereat by the unit holders. Also, there are multiple activities which have to be undertaken by the IM in consultation with the trustee, for example, appointment of directors on the board of special purpose vehicles owned by INVITs, appointment of the intermediaries or service providers to the InvIT. Through all these processes, the trustee is expected and enabled to supervise the functioning of IM. Further, the recent amendment in the InvIT Regulations, has also highlighted on the supervisory role and responsibilities of the Trustee for the benefit of unitholders and investors.

Agent principal relationship between IM & trustee:

Looking at the provisions relating to appointment of IM, its functioning and its supervision by trustee, there arises a question that, does there exist an agent principal relationship between the IM and trustee. In order to analyse this better, we must first analyse the concept of agent principal relationship.

Concept of Agent principal relationship:

The concept of agent principal find its meaning in section 182[iv] of Indian Contract Act 1872. As per this section, agent is a person employed to act on behalf of, or represent, another person called principal, before third persons. In other words, agent is a person to whom, the principal delegates his own rights and duties. Further, as per section 226 of the Contract Act, the principal is responsible/liable for the acts of the agent.

In the context of INVIT structure, as discussed above, trustee appoints the IM and delegates its functions to the IM. Also the trustee is required by the virtue of INVIT regulations, to supervise the actions of IM. As per regulation 9(15)[v], the trustee also has right to remove/replace the IM (subject to unit holders’ approval) just like in case of principal and agent. Therefore, looking at the provisions of Contract Act and the INVIT regulations, it can be said that the investment manager appointed by the trustee, acts as the agent of the trustee.

Practical observations:

At the operational level, it is observed that there is a constant tension between the commercial judgment exercised by the IM and the fiduciary oversight exercised by the trustee. Issues such as acquisition, leverage, distribution, etc. frequently require careful balancing. While IMs may consider such matters as purely commercial decisions, while trustees may demand and receive adequate documentation, rationale, and proof of unitholder benefit in respect of such decisions. This dynamic reflects the classical principal–agent relationship, where the agent enjoys freedom in execution but is accountable to the principal.

Regulatory view:

Regulatory interactions also support this agent–principal dynamic. In inspections, queries, and supervisory communications, SEBI often seeks explanations from trustees on how they have supervised the functioning of the IM and how they have satisfied themselves of regulatory compliance. Trustees are expected to demonstrate active supervision, including escalation of non-compliances and corrective action taken. The obligation under Regulation 3(20) of the InvIT Regulations to report non-compliances to SEBI has, in practice, positioned trustees as the first line of regulatory accountability, even where the lapse may have originated at the IM level.

Agent principal relationship as per Indian Trust Act:

Since INVIT is a trust, we must also have a look at the provisions of the Indian Trust Act 1882 (Trust Act). The section 47[vi] of this Act prohibits a trustee from delegating his functions unless, the functions are in the regular course of business, or the trust deed provides for such delegation, or such delegation is necessary, or the beneficiary of the trust (unit holders) being competent to contract, approve the delegation.

As far as INVIT is concerned, the trust deed of INVIT allows appointment of IM and delegation of functions to it. The functions delegated to IM are also in normal course of business as they relate to day-to-day management of INVIT. Further, in case of removal or reappointment of IM, the approval of unit holders that is, the beneficiary of trust, is also obtained. Hence delegation of functions by trustee to IM falls within exceptions provided under section 47 of Trust Act and hence is allowed.

Conclusion: In light of the above, the relationship between the trustee and the investment manager in an InvIT broadly reflects an agent–principal arrangement. The trustee appoints the investment manager, delegates operational functions, and retains supervisory and fiduciary responsibility under the SEBI InvIT Regulations. Such delegation also fits in the framework provided under Section 47 of the Indian Trusts Act, 1882. Accordingly, while the investment manager manages the day-to-day affairs of the InvIT, the trustee continues to remain accountable to the unit holders.

[i] 9. (1) The trustee shall hold the InvIT assets in the name of the InvIT for the benefit of the unit holders in accordance with the trust deed and these regulations.

[ii] (2) The trustee shall enter into an investment management agreement with the investment manager on behalf of the InvIT.

[iii] (3) The trustee shall oversee activities of the investment manager in the interest of the unit holders, ensure that the investment manager complies with regulation 10 and shall obtain compliance certificate from the investment manager, in the form as may be specified, on a quarterly basis.

[iv] 182. “Agent” and “principal” defined.—An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.

[v] (15) In case of any change in investment manager due to removal or otherwise,–

a. prior to such change, the trustee shall obtain approval from unit holders in accordance with regulation 22 and from the Board;

b. the trustee shall appoint the new investment manager within three months from the date of termination of the earlier investment management agreement;

[vi] 47. Trustee cannot delegate.—A trustee cannot delegate his office or any of his duties either to a co-trustee or to a stranger, unless (a) the instrument of trust so provides, or (b) the delegation is in the regular course of business, or (c) the delegation is necessary, or (d) the beneficiary, being competent to contract, consents to the delegation.

The post The Trustee–Investment Manager Relationship in InvITs: An Agent Principal Perspective first appeared on MMJC.

Introduction.

Infrastructure Investment Trusts (InvITs) were introduced to provide funds and liquidity for large infrastructure projects that support the country’s economic growth. This purpose is achieved through the investors—called unit holders—who put in their money through the InvIT structure. Their investment allows the InvIT to acquire and operate infrastructure assets and is essential to its functioning. In this way, unit holders play a role similar to shareholders of a company, as both provide the capital needed for the business and share in its benefits.

In this article, we will try to understand the concept of unit holders and examine the role of unit holders in an InvIT by drawing parallels with the concept of shareholders in a company.

Concept of unit holders

As mentioned above, the concept of unit holders of INVIT is similar to that of shareholders of a company. just like the shareholders, the unit holders are the entities who provide funds to the INVIT as against the fractional ownership of the infrastructure assets held by the trust. The INVIT uses the funds received from the unit holders to acquire the infrastructure assets and in return issue units to the unit holders which indicate fractional ownership of the assets owned by the INVIT/trust.

However, there is one difference between the shareholders of company and unit holders of INVIT. This difference arises due to the very nature of the 2 entities. In case of shareholders, they are the owners of the company itself. However, an INVIT being a trust cannot have owners. The unit holders are the fractional beneficiaries of the trust property, that is the infrastructure assets held by the INVIT through SPVs.

Rights of unitholders.

Since the unit holders are the beneficiaries of the trust, they have right to know about all the details relating to trust’s assets and management thereof. The investment manager (IM)of the INVIT who manages the assets for the benefit of the unit holders, is required to inform unit holders about all the activities relating to trust through various quarterly, half yearly and annual reports, just like in case of shareholders of a company. also the IM is required to call annual general meeting of unit holders of trust ones in a year in order to give them updates about activities that took place during the year and to take their approval for upcoming activities in near future.

In case of company, approval of shareholders is required for carrying out certain transactions, similarly, the IM of the INVIT is required to obtain approval of unit holders before undertaking certain transactions like acquisition of new infrastructure assets, related party transactions, change in trustee/IM/project manager and appointment of directors, auditors, valuers etc. however, the percentage of voting required for approval of resolutions is slightly different as compared to the Companies Act.

Management participation

Just like the small shareholders  of a listed company have right to appoint a small shareholders director on the board of the listed company, the unit holders of INVIT holding 10% units, have right to appoint a director on the board of investment manager. If no single unit holder holds 10% units, then more then one unit holders collectively holding 10% units can come together and appoint a director on the board of IM. This right gives the unit holders direct access to the board room of the IM, as The director appointed by the unit holders takes care of the interest of unit holders during the decision making process.

Key differences between shareholders & unit holders.

Although the concepts of shareholders and unit holders are on similar grounds, there are some noteworthy differences between the two. As discussed above, the shareholders are owners of the company whereas, the unit holders are the beneficiaries of the INVIT’s assets. Further, with respect to types of units, there are no multiple kinds of unit holders like equity shareholders and preference shareholders in case of a company. also, unlike companies, INVITs cannot issue units with differential or superior rights. It can only issue subordinate units and that also only to the sponsors for the purpose of complying with minimum unit holding requirement for sponsors prescribed by INVIT regulations 2014.

Other than this, there is difference in percentage of votes required for approving specific transactions by unit holders. Under Companies Act, the certain transactions are approved by shareholders if 51% votes are in favor of transaction (ordinary resolution), and some transactions are approved if 75% votes are in favor of transaction (special resolution). In case of unit holders of INVIT, these percentages are different. regulation 22 of INVIT regulations prescribe the percentage of voting required for approval of transactions. Regulation 22(4) lists the transactions which require more than 50%votes for approval. Whereas, regulation 22(5) lists the transactions which require more than 60% votes for approval. Further, items listed     in regulation 22(5A & 5C) require votes of 75% of the unit holders by value for approval.

Conclusion Unit holders are central to the InvIT structure and play an important role in its governance, transparency and overall performance. Although their position is similar to that of shareholders, the trust-based structure of InvITs gives them a distinct set of rights and responsibilities. As InvITs continue to grow as a mode of infrastructure financing, the importance of unit holders and the regulations around their rights will only increase. Understanding their role clearly helps in ensuring better governance, informed decision-making and greater confidence in this asset class

The post Role of Unit Holders in InvITs: Learning from Shareholder Principles first appeared on MMJC.

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) were introduced to govern the inflow of equity and other non-debt capital instruments. However, these rules originally lacked clarity regarding the issuance of partly paid units to foreign investors by investment vehicles such as Alternative Investment Funds (AIFs).

Before March 14, 2024, there was no express provision under the NDI Rules allowing the issuance of partly paid units to non-residents. As a result, fund managers and legal practitioners operated within an area of regulatory uncertainity. Many investment vehicles cautiously avoided such issuances, while others proceeded based on legal interpretations, exposing themselves to the risk of non-compliance under FEMA. Moreover, the absence of a dedicated reporting mechanism within the RBI’s FIRMS portal added another layer of uncertainty.

• March 2024 Amendment:

Recognizing the pressing need for clarity, the Foreign Exchange Management (Non-Debt Instruments) (Second Amendment) Rules, 2024, were notified via notification S.O. 1361(E) on March 14, 2024. This amendment explicitly permitted investment vehicles to issue partly paid units to persons resident outside India, thus bringing long-awaited certainty to the sector. The change aligned India’s capital markets more closely with global norms, especially in how staged investments can be structured over time.

• Treatment of Prior Issuances: Compounding as a Remedy

To address the issuances made prior to March 14, 2024, the RBI issued A.P. (DIR Series) Circular No. 7, dated May 21, 2024 directing such transactions to be regularized through compounding under FEMA.

This required investment vehicles to first report the details of the partly paid units on the FIRMS portal, followed by submitting an application for compounding. Additionally, Authorized Dealer (AD) Banks were instructed to support this process by providing conditional acknowledgments and ensuring proper documentation.

The reporting and timelines for reporting partly paid unts in Form InVi still remained a question.

• Reporting Obligations:

The RBI vide A.P. (DIR Series) Circular No. 06 dated May 23, 2025 provided for reporting of Partly paid Units in Form InVi within 30 days of the issuance date in terms of Regulation 4(10) of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019

• One-Time Window for Delayed Reporting

180-Day Window for Regularizing Delayed Reporting for Issuance Prior to Notification

Understanding that many investment vehicles could not report earlier due to lack of clarity to both to the applicants and Authorised Dealer banks, the RBI’s May 2025 circular provided a one-time 180-day window (180 days shall be counted from the date of circular) for delayed filings without any late submission fees.

However, for issuances on or after the date of the circular, the standard 30-day reporting deadline continues to apply, and delays will attract penalties as per FEMA regulations.

• Compounding for any other contraventions

It is important to note that this amnesty window is limited to delays in filing Form InVI and does not cover other forms of non-compliance or contraventions under FEMA (including issue of partly paid units prior to March 14, 2024). Entities must ensure that all other regulatory obligations are met independently and, where necessary, addressed through appropriate compounding or late filing fees.

• Timely Compliance and Institutional Best Practices

With the updated regulatory and technical framework in place, timely reporting has become non-negotiable. Investment vehicles must implement internal compliance mechanisms to track and report issuances promptly. AD Banks now play a more active role in oversight, ensuring that submissions are in line with regulatory expectations.

The article is written by Ms. Ridhi Gada and is published at Taxguru. The link is

https://taxguru.in/rbi/issue-reporting-partly-paid-units-investment-vehicles.html

The post From Ambiguity to Certainty Issues and reporting of partly paid units by Investment vehicles first appeared on MMJC.

Infrastructure Investment Trust is a pooled investment vehicle registered and regulated by Infrastructure Investment Trust (regulations) 2014 (‘INVIT regulations’). Since this investment vehicle is a trust, it is created and governed by an instrument of trust (trust deed).

The trust deed has a clause which talks of the main purpose of the INVIT being investing in infrastructure projects. Other than that, the trust deed also contains various clauses which facilitate smooth functioning of the INVIT. Comparing the same with companies act 2013 [‘the act’] it is similar to object clause of the memorandum of association of a company. Also the master circular on INVITs issued by SEBI states that, while referring to ILNCS regulations memorandum of association should be read as trust deed. Therefore, just like MOA of the company, the trust deed can be considered as the charter document of the INVIT. In this article, we shall see if any activity/transaction is undertaken by Invit which is outside the scope of trust deed, will such an activity/transaction be considered as void ab initio?

Charter document of INVIT.

Multiple regulations under INVIT regulations requires the INVITs to consider the clauses of trust deed while undertaking compliance. regulation 4[i] of the INVIT regulations, which provides for pre-conditions for registration of trust as INVIT, says that the trust deed should have its main objective as investing in infrastructure projects and the registration remains valid only if this clause continues to be complied with. In addition, regulation 9(20)[ii] prescribes that it is the responsibility of the trustee to ensure that activities of INVIT are conducted as provided in trust deed and if any discrepancy in this regard is noticed, it should be informed to SEBI by trustee immediately.

Consequence of Transactions ultra vires to trust deed.

Even though INVIT regulations require the parties to INVIT to act as per the clauses of the trust deed, the INVIT regulations are silent about the consequence of violating the clauses of trust deed or undertaking activities which are ultra vires to the trust deed. Therefore, reference must be made to other applicable laws and judicial pronouncements.

Since INVIT is a trust, when we talk of other applicable laws, we must refer to laws governing the working of trusts in India. such laws mainly include the Indian Trust Act 1882, Which governs the formation and working of private trusts, and the Bombay Public Trusts Act 1950 which govern the working of public trusts. Both these Acts provide that, it is the responsibility of the trustee to adhere to the trust deed. The Acts also provide for the actions that may be taken against the trustee in case he undertakes any activity ultra vires to the trust deed. For example, section 41D[iii] of Bombay Public Trust Act provides for removal of trustee. Whereas, different sections of Indian Trust Act 1882 provide for monitory penalty on trustee.

Other than this, there are various judicial pronouncements which clearly state that, the activities ultra vires the trust deed are null and void. one such pronouncement was made by the honorable MADRAS HIGH COURT in the matter of A.R.Rengaraj @ A.R.R.Raju vs Aranamanai Raman Chettiar Chathiram through its judgment dated 15 March, 2018. In this case, a trustee of a public trust had delivered the possession of trust property to a third party through an exchange deed. which was not permissible as per the trust deed. in this regard, The Court held that,

“if any transaction contrary to the trust deed is executed, the same is to be declared as null and void and the properties should be handed over to the possession of the public trust. At no point of time the properties belonging to the trust can be dealt with in contravention to the deed. Any such act or any other act are to be done only by obtaining proper orders from the competent Court of law. Therefore, the exchange deed as stated by the respondents of the year 1970 has no sanctity in the eyes of law. The exchange deed cannot be treated as valid deed in the eye of law. Such execution between one of the trustees and his wife with the managing trustee cannot be considered as a valid transaction.”

This pronouncement makes it adequately clear that the transactions which are ultra vires to the trust deed, are void and cannot be given effect.

A practical example of such a situation in case of an INVIT can be seen when an INVIT is trying to diversify its investment in multiple infrastructure projects. An INVIT has to make investment as per the investment objectives prescribed in its trust deed and as discussed above, if investment is not in alignment with trust deed, it would be considered as void. now, if the investment objective as mentioned in trust deed says that the INVIT can invest in infrastructure projects relating to construction of roads and highways and the INVIT now proposes to invest in telecommunications related infrastructure project, then such investment will become ultra vires the trust deed as it allows investment only in highway/road construction projects which do not include telecommunications projects. However, if the investment objectives in the trust deed does not specify any particular type of project and simply states the objective as investment in all types of infrastructure projects, then the INVIT can invest in any type of project as long as it can be classified as infrastructure project as per INVIT regulations.

Conclusion

Looking at the judicial pronouncements and the other laws governing the INVITS and other trusts, it can be seen that trust deed is the foundation document of any trust and it cannot go beyond the same. Even if any activity is so undertaken, then it is treated as void and non-enforceable. Other than the activity being considered void, there are provisions under Trust Act, contract Act and other laws of the land under which action can be taken against the person (usually the trustee) violating the trust deed. Such actions can include, imposition of compensation, demanding specific performance or even removal of the concern person from his office.

[i] (b) the trust deed has its main objective as undertaking activity of InvIT in accordance with these regulations and includes responsibilities of the trustee in accordance with regulation 9;

[ii] (20) The trustee shall ensure that the activity of the InvIT is being operated in accordance with the provisions of the trust deed, these regulations and the offer document or placement memorandum and if any discrepancy is noticed, shall inform the same to the Board immediately in writing.

[iii] (1) The Charity Commissioner may, either on application of a trustee or any person interested in the trust, or on receipt of a report under section 4lB or suo motu suspend, remove or dismiss any trustee of a public trust, if he—

(a) makes persistent default in the submission of accounts, report or return

(b) wilfully disobeys any lawful orders issued by the Charity Commissioner, under the provisions of this Act or rules made there under by the State Government;

(c) continuously neglects his duty or commits any malfeasance or mis-feasance, or breach of trust in respect of the trust;

(d) misappropriates or deals improperly with the properties of the trust of which he is a trustee ; or

(e) accepts any position in relation to the trust which is inconsistent with his position as a trustee;

(f) is convicted of an offence involving moral turpitude.

This article is published on Taxmann.

The post Guardrails of Governance: Why INVITs Can’t Act Beyond Their Trust Deed Beyond the Trust Deed: Legal Validity of INVIT Transactions first appeared on MMJC.

Key Changes

A. Public Unitholders:

• Definition of Public (Reg. 2(1)(ze)) – Excludes related party of the REIT, sponsor, sponsor group and manager (M) from ‘public’. Related parties who qualify as QIBs will be treated as ‘public’.
• Minimum Public Unitholding (Reg. 14(2A)) – Deletion of clause excluding sponsor/M-related parties from public holding. REITs must reassess compliance with public unitholding norms.

B. Reporting & Disclosures:

• Quarterly Reports to Trustee (Regs. 10(18)(a)) – Timelines now aligned with quarterly financial results (45/60 days).

C. Valuation Reports:

• Trustee Submission (Reg. 10(18)(b)) – Valuation reports to be shared with trustee on the same day as exchange submissions.
• Annual (Reg. 21(4)) / Half-yearly (Reg. 21(5)) – Periodical valuation reports must now be submitted along with the financial results to the Stock Exchange.
• Other Valuation Reports (Reg. 21(6)) – The other valuation reports (such as full valuation reports taken at the time of issuance of units, acquisition of the properties, etc) as received by the REITs are to be submitted within 15 days of the receipt of the same to the stock exchange.
• Unitholder/ Investor submission (Reg 21(6))– The requirement of submission of the valuation report separately to the Unitholder/ Investor has been omitted.

D. Other Amendments:

• HoldCo Negative Cash Flows (Reg. 18(16)(aa)) – HoldCos may offset negative NDCF against SPV cash flows, with disclosures to unitholders.

Actionables:

• Update offer/placement documents to reflect revised “public” definition and investment thresholds.
• Compliance teams must align internal calendars with revised reporting and valuation submission timelines.
• Disclosures to be enhanced in case of HoldCo-level negative cash flow adjustments.

Source

The post SEBI (Real Estate Investment Trusts) (Second Amendment) Regulations, 2025 – Key Highlights first appeared on MMJC.

Key Changes

A. Public Unitholders:

• Definition of Public (Reg. 2(1)(zq)) – Excludes sponsor, sponsor group, investment manager (IM), and project manager from ‘public’. Related parties who qualify as QIBs will be treated as ‘public’.
• Minimum Public Unitholding (Reg. 14(1A)) – Deletion of clause excluding sponsor/IM/PM-related parties from public holding. InvITs must reassess compliance with public unitholding norms.

B. Reporting & Disclosures

• Quarterly/Board Reports (Regs. 10(18)(a), 10(24)) – Timelines now aligned with quarterly financial results (45/60 days).
• Half-yearly Report (Reg. 23(4)) – Now required only for publicly listed InvITs, to be submitted along with Q2 results.
• Quarterly Reports for Leveraged InvITs (Reg. 23(4A)) – To be filed with quarterly financial results if borrowings > 49%.

C. Valuation Reports:

• Trustee Submission (Reg. 10(18)(b)) – Valuation reports to be shared with trustee on the same day as exchange submissions.
• Annual (Reg. 21(4)) / Half-yearly- publicly placed InvIT (Reg. 21(5)) / Quarterly- _ > 49% Leveraged InvITs (Reg. 21(5A)) – All valuation reports must now be submitted along with the financial results.
• Other Valuation Reports (Reg. 21(6)) – The other valuation reports (such as full Valuation Reports at the time of issuance of units, acquisition of assets etc) as received by the InvITs are to be submitted within 15 days of the receipt of the same to the stock exchange.

D. Other Amendments:

• Minimum Investment for privately placed InvITs (Reg. 14) – Reduced to ₹25 lakhs (from ₹1 cr / ₹25 cr). Increases accessibility and market liquidity.
• HoldCo Negative Cash Flows (Reg. 18(6)(ba)) – HoldCos may offset negative NDCF against SPV cash flows, with disclosures to unitholders.

Actionables:

• Update offer/placement documents to reflect revised “public” definition and investment thresholds.
• Compliance teams must align internal calendars with revised reporting and valuation submission timelines.
• Disclosures to be enhanced in case of HoldCo-level negative cash flow adjustments.

Source

The post SEBI (Infrastructure Investment Trusts) (Third Amendment) Regulations, 2025 – Key Highlights first appeared on MMJC.