SEBI Proposes Sweeping Reforms to InvIT and REIT Regulations for Greater Operational Flexibility
The Securities and Exchange Board of India has moved to overhaul the regulatory framework governing Infrastructure Investment Trusts and Real Estate Investment Trusts by proposing a series of amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014. The overarching objective is to reduce compliance friction, improve capital deployment efficiency, and create a more conducive environment for infrastructure financing in India — while keeping investor protection mechanisms firmly intact.
Background and Context
SEBI notified both the InvIT Regulations and the REIT Regulations on September 26, 2014. As of February 28, 2026, the Indian market hosts 5 REITs and 24 InvITs listed on stock exchanges. The combined value of assets under management across these vehicles stands at approximately Rs. 9.5 lakh crore, reflecting the significant scale these instruments have attained within the Indian financial ecosystem.
The SEBI Hybrid Securities Advisory Committee (HySAC) plays a central advisory role in shaping the development and regulatory oversight of these instruments. Acting on representations from two key industry bodies — the Indian REIT Association (IRA) and the Bharat InvIT Association (BIA), collectively referred to as Industry Associations — along with other market participants, SEBI initiated a structured consultation process. A total of 70 responses were received spanning eight distinct proposals from diverse stakeholders including stock exchanges, law firms, mutual funds, InvITs, and investors.
The proposals that emerged from this process span four critical reform areas, each discussed in detail below.
Reform 1: Permitting InvITs to Retain Holdings in SPVs After Concession Agreement Expiry
Current Regulatory Position
Under Regulation 2(1)(zy) of the SEBI (Infrastructure Investment Trusts) Regulations, 2014, a Special Purpose Vehicle (SPV) is defined as any company or LLP:
- In which the InvIT or holdco holds controlling interest and not less than 51% of equity share capital;
- Which holds not less than 90% of its assets directly in infrastructure projects and does not invest in other SPVs; and
- Which is not engaged in any activity beyond those pertaining to or incidental to the underlying infrastructure projects.
The Problem This Reform Addresses
When a concession agreement concludes or is terminated, the underlying infrastructure project within the SPV effectively ceases to exist. As a result, the SPV may no longer satisfy the 90% asset-in-infrastructure-projects threshold required to maintain its SPV status under the regulations.
However, exiting such an SPV immediately is often commercially and practically impossible for the following reasons:
- Commercial constraints: The InvIT may not be able to divest its stake right at the point of concession expiry or termination.
- Ongoing obligations: The SPV may still be required to fulfil statutory and contractual duties such as pending income tax assessments, GST assessments, defending active litigation, and obligations under defect liability periods as per the relevant concession agreement. Winding up or restructuring under such circumstances may simply not be feasible.
Proposed Amendment
SEBI proposes inserting a new proviso under sub-clause (b) of Regulation 2(1)(zy) of the InvIT Regulations:
"Provided that, in respect of an SPV holding an infrastructure project, the conclusion or termination of the concession agreement or such other agreement of a similar nature shall not affect its status as an SPV and such an SPV shall continue to be classified as an SPV subject to the fulfillment of such conditions as may be specified by the Board"
Additionally, a new sub-clause (ix) is proposed under Regulation 18(5)(b) of the InvIT Regulations to classify such SPVs within the permissible 20% other investments category rather than the core 80% category.
Conditions to Be Specified via Circular
The Investment Manager will be required to:
Exit the investment in the post-concession SPV — through sale, liquidation, winding-up, or merger — or acquire a new infrastructure project within the SPV, within one year from the latest of:
- Completion or termination of the concession agreement or similar agreement;
- Conclusion of all pending claims, litigations, tax assessments, and related appeals; or
- Completion of the defect liability period.
The time consumed in obtaining statutory or regulatory approvals for such exit shall be excluded from the one-year timeline.