In a consultation paper published on May 16, the market regulator offered unique rights to some unitholders of Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (Trusts). No unitholder of these trusts is now permitted to exercise superior voting rights. However, certain REITs and InvITs permit shareholders who hold a specific quota of units to propose candidates for the board of the management or investment manager of these trusts. Sponsors create and establish REITs and InvITs, investment managers oversee their management, and trustees make sure the interests of unitholders are protected. These trusts aim to reassure large institutional investors or investors with a sizeable minority interest, even if they are not intended to grant any group of unitholders special benefits. They do this using offer agreements or placement memorandum. The Securities and Exchange Board of India (Sebi) has proposed that these rights not only be available to large institutional investors but also to other investors in recognition of this practical necessity. They have therefore requested feedback on whether special rights, such as the right to suggest directors for the Board of Manager/Investment Manager of REIT/InvIT, should be permitted and, if so, what proportion of units investors should own to have a say in the makeup of the board or in the election of directors. For every ten percent of the units they own, investors should be able to propose a director to sit on the board of the manager or investment manager. Alternatively, investors should be able to nominate a member to the Unitholders Council. Investors who own a minimum of 10% of the company may band together to take advantage of these advantages, which include choosing a director for the board of directors or a council member. According to the report, the first choice can lead to the investment manager having too big boards. This is due to the requirement that at least half of the board consist of independent directors under the REITs and InvIT legislation. Therefore, if each unitholder with a 10% stake exercises their right, their candidates will add up to 10 directors, and another 10 independent directors must be added to that, making a total of 20 directors on the board. “A very large board may lead to an inability for directors to have their voices heard; the risk of lack of engagement by all the directors; difficulty in having good dialogues/discussions at a board meeting, and the risk of becoming ineffective and bureaucratic,” stated the Sebi paper. Consequently, a Unitholders Council has been suggested as the second option. Each council member will be given one vote for every ten percent of the holding they represent. A simple majority of the present council members will decide any issues. A subject will be determined on at least four votes, for instance, if there are three members present who each hold two (20 percent of the total), three (30 percent), and two (20 percent) votes. Any issue that needs to be decided by the investment manager's board will first be decided by the board; if approved, it will then be presented to the council; and, if the council does not approve it, it will be put to a vote at the unitholders' meeting alongside the board and council's recommendations. The board and council must approve any presentation before it may be made before the unitholders' meeting. The SEBI (Prohibition of Insider Trading) Regulation 2015 will treat the unitholder council as an insider. The council members will also be in charge of making sure that the council's decisions comply with REIT and InvIT requirements. See also: SEBI to regulate providers of fractional ownership in real estateIRB Infra becomes the first company to list privately-placed InvIT