“Invits either acquire a project directly or acquire the shares of project company. In the latter case, recourse to the IBC will be available where the lending is to the project company. However, in a situation where there is direct lending at the Invit for either acquisition funding, capital expenditure or promoter contribution, the lenders currently do not have recourse to IBC since the provisions on corporate Insolvency don’t apply to a trust. Under Indian law, a trust is not a separate legal entity and the assets of a trust vest in the trustee for the benefit of the trust beneficiaries. Any premature winding down or liquidation of a trust is usually subject to the provisions of the trust deed, and in case of regulated trusts, may also need consent of the regulator. It would certainly help lenders if IBC provisions are extended to Invits as that would provide them access to a faster and more effective debt restructuring and resolution option. However, infrastructure regulators and SEBI would need to work in tandem for a successful insolvency resolution of an INvit which may involve a change in the sponsor, investment manager and/ or trustee or transfer of an infrastructure asset”. Aashit Shah, Partner, J Sagar & Associates.
