SEBI Penalises Axis Trustee ₹10 Lakh In Embassy REIT Case For Delay In Disclosing NFRA Action Against CEO

The Securities and Exchange Board of India (SEBI) on Wednesday imposed a penalty of Rs. 10 lakh on Axis Trustee Services Ltd for failing to ensure timely disclosure of a regulatory action against the CEO of the manager of Embassy Office Parks REIT and for not independently assessing his “fit and proper” status.

Adjudicating Officer Jai Sebastian held that the trustee failed to discharge its statutory duty to ensure timely disclosures and to exercise independent oversight over the manager, as mandated under the REIT Regulations.

The regulator conducted an examination following the National Financial Reporting Authority's (NFRA) order dated August 19, 2024 against Aravind Maiya.

At the time, Maiya was serving as the CEO of Embassy Office Parks Management Services Pvt Ltd (EOPMSPL), the manager of Embassy Office Parks Real Estate Investment Trust (Embassy REIT).

SEBI's examination looked at whether disclosures to unitholders were made in a timely manner and whether Axis Trustee Services Ltd, as trustee, fulfilled its oversight obligations under the REIT Regulations.

The regulator noted that the trustee is required to oversee the activities of the manager in the interest of unitholders, ensure compliance with the REIT Regulations and the trust deed; and address any delay or discrepancy in disclosures without delay.

The proceedings were triggered by NFRA's order, which found Maiya guilty of professional misconduct and imposed penalties along with a debarment. SEBI recorded that the trustee became aware of the order on August 20, 2024. However, disclosure to unitholders was made only on October 11, 2024, resulting in a delay of 53 days.

Accordingly, adjudication proceedings were initiated against Axis Trustee for alleged violations of the REIT Regulations.

Axis Trustee contended that the REIT Regulations do not empower the trustee to make disclosures if the manager fails to do so and that its role is limited to directing the manager to rectify the lapse and informing SEBI.

Clarifying that the issue was confined to delay in disclosure and the trustee's obligations under the applicable regulations, SEBI observed that subsequent amendments to the REIT Regulations had no bearing on the present case.

Referring to the regulatory framework, SEBI observed that the REIT Regulations cast a duty on the trustee to exercise continuous and independent oversight over the manager and to ensure timely and accurate disclosures by promptly addressing any delay or discrepancy.

It further held that the obligation is not a passive or reactive one, noting that Regulation 9(4), which uses the expression “shall ensure”, requires discrepancies to be addressed on an urgent basis.

SEBI held that even if the primary responsibility for making disclosures lay with the manager, the trustee's obligation was triggered once a delay or discrepancy occurred at the manager's end.

It emphasised, “Even if it is accepted for the sake of argument that the primary responsibility for making the disclosure was not on Noticee rather on the manager as per regulation 23(5) of the REIT Regulations, the operation of regulation 9(4) would still devolve the said obligation on the Noticee as the manager failed to make the disclosure in this regard. I note that the said regulation 9(4) would be triggered in the event of delay/discrepancy at the manager's end.”

Observing that the trustee had engaged with the manager following the NFRA order, SEBI held that its actions fell short of the urgency and independent assessment required under the REIT Regulations.