[Aditya Kashyap is an associate at Argus Partners and Arnika Dwivedi is a Management Trainee at Vedanta]
Infrastructure Investment Trusts (“InvITs”) stemmed as a prominent route to commercialise operational infrastructure assets, and attracting long term capital. They have a hybrid structure which combines trust-based ownerships, outright project level asset ownership, listed units with mandatory distribution and pass-through taxation. They serve as a mechanism of unlocking value from settled, income-generating infrastructure assets and channel those funds to be redeployed for new projects. InvITs were added as a part of India’s regulatory framework via the SEBI (Infrastructure Investment Trusts) Regulations, 2014. The governance model is structured centrally around parties to the transaction including sponsor, investment managers and trustee supported by local rules on declaration, valuation of assets, investment levels and cash flow distribution.
However, as InvITs evolve from institutional products into mainstream investment vehicles, it poses an important legal question: how do they fare in financial distress? SEBI has already created a complete governance, disclosure and investors protection framework. However, it is not clear whether InvITs come under the Insolvency ad Bankruptcy Code (“IBC”) which applaies to corporate persons, because InvITs are structured as trusts. While the SPVs may come under IBC, the underlying InvITs are not subject to IBC as InvIts themselves do not fall within IBC framework. The question this post will explore is, whether the laws are capable of addressing distress within the InvIT structure.
Distribution and Governance Requirements
The governing scheme seeks to preserve the income-focused nature of InvITs by necessitating the allocation of a significant share of their net cash flows to investors. Public InvITs are committed to make allocations on a semi-annual basis, while private InvITs must do so at least annually, with a minimum of 90% of net distributable cash flows being passed on to unitholders. The latest regulatory changes have now provided a strong surrounding framework by way of reinforcing trustees-related responsibility and thereby promoting transparency, accountability and sound governance practices.
Recent SEBI Amendments: Governance Without Resolution?
One of such examples here is SEBI’s amendments of the InvIT Regulations in 2025 attempting to reconcile the InvIT scheme with a newly evolving market dynamics at generally tighter institutional scrutiny. The amendments provide greater flexibility for transfer of locked-in sponsor units, expand permissible investments within the non-core bucket, and strengthen trustee obligations relating to due diligence, asset inspection and compliance monitoring.
Despite this a significant gap exists. The reforms, on one-hand ease the governance and operational bandwidths but on the other hand they hardly guide to manage an InvIT through distress. Although probing trustees may help close governance gaps, some relaxation will help sponsors and managers; the ordinance does not clarify creditor rights versus unitholders, custodians and asset managers on a distressed InvIT.
It is a significant improvement to the governance regime applicable for InvITs but do not actually solve the broader legal problem. However, it has offered neither extra explanation nor other regulation about how the SEBI will tackle instances of these under financial distress. This issue is likely to be an important output of this aspect in the next cycle of InvIT regulation in India.
Case Study: NHAI’s Raajmarg InvIT
The Raajmarg Infra Investment Trust (“RIIT”) recently set up by the National Highways Authority of India (“NHAI”) demonstrates the growing significance of InvITs in India’s infrastructure-financing framework. It shows how operational highway assets can be monetised through a regulated trust structure while also widening investor participation in infrastructure financing.
Its first public issue, listed on the BSE in March 2026, increased access to infrastructure investment beyond institutional investors and received a strong market response, with subscriptions substantially exceeding the units offered. The Government now plans to use the InvIT model to commercialise roughly 1,500 kilometres of highway assets over the next three years.
NHAI has emphasised compliance with the SEBI InvIT framework in structuring RIIT, including through independent trustees, audited financial statements, valuation standards and disclosure practices. These measures are intended to build investor confidence and support broader participation in infrastructure financing. RIIT therefore has the potential to move InvITs from a primarily institutional product towards a more mainstream capital-market instrument.
The initiative forms part of India’s broader asset recycling strategy under the National Monetisation Pipeline through which operational infrastructure assets are monetised to unlock capital for further infrastructure development. Road assets earlier have already raised Rs. 92,000 crores for the NHAI coffers and now the highway authority has focused an InvIT framework as a way to not only widen the investors base (by bringing in retail and domestic investors) but also enhance overall infra budget through incremental capital raised by way of debt issued by the trust.
Yet, RIIT is more than a monetisation strategy that works. It demonstrates that, as InvITs become larger and more widely held, the regulatory framework must address not only their ability to mobilise capital, but also the consequences of financial distress, including creditor remedies, unitholder protection, trustee obligations and restructuring outcomes.
The Insolvency Blind Spot
Although InvITs have come up as an important source of funding for infrastructure assets, a clear position has not emerged in the context of their treatment under the IBC. Unlike companies, InvITs are designed to exist as trusts under the SEBI (Infrastructure Investment Trusts) Regulations 2014 which causes a disconnect between their function for financing and their legal structure.
InvIT-linked distress is not always external to the extent of the IBC, as underlying SPV’s may be treated as corporate debtors. The main issue arises when distress occurs at the InvIT level, where the interests and rights of lenders, unitholders, sponsors, trustees and investment managers are not easily accommodated within the present insolvency scheme.
The precariousness is no longer purely theoretical. Recent reports of lenders seeking senior creditor status in NHAI-linked InvIT structures reflect that questions relating to creditor ranking and the treatment of defaults are already arising in practice.
The concern becomes more important as InvIT attract more retail participation. Without an articulate scheme for dealing with distress, issues investor safeguards, creditor enforcement, and market confidence become important. Even though SEBI has strengthened governance and supervision standards, these actions do not convey how an InvIT should be resolved when financial issues arise. As InvITs take bigger parts of infra monetisation, it is also important to clarify on the right resolution scheme whether it should be through IBC or underlying SPVs or a new regime for business trusts. The key regulatory question, therefore, is not only how InvITs should be governed in ordinary circumstances, but how they should be resolved in financial distress.
The Importance of Insolvency Framework in the InvIT?
The absence of a suitable InvIT insolvency framework has important real-world implications. InvITs were designed around a premise of enabling infrastructure developers to release capital from existing operational assets and reinvest the proceeds into building a new renewable energy project. Thus, evolution at longer time scales not only requires control in more normal states but also some confidence that distress will be managed. If enforcement rights and recovery mechanisms are unclear, investors perceive more risk and infrastructure financing may become more expensive.
In the case of infrastructure, where long concession periods, high levels of debt and binding regulatory commitments stretch well into the future, those worries are even more acute. Adding ambiguity regarding treatment of InvITs in financial distress further complicates the investment and financing decision making. The position is relatively clearer where creditors proceed against the underlying SPVs, since such entities may independently fall within the IBC framework. However, the same clarity is absent at the InvIT level. It remains unclear how trustees, sponsors, investment managers and unitholders should respond where the InvIT structure is affected by stress in one or more project entities, even if the trust may otherwise have been capable of meeting its obligations. This uncertainty is particularly relevant where the stress is temporary, linked to non-operation of specific assets, or attributable only to a portion of the InvIT’s overall portfolio or surplus cash flows.
Higher predictability of the interpretation of InvIT distress will further enhance investor confidence and bolster infrastructure financing. The IBC should clarify redressal mechanism and rights of stakeholders in the concerned entities requiring financial distress. Until the above gap is addressed, InvIT regulation will be more evolved to deal with stability as opposed to distressed situations.
Conclusion
InvITs have become important building block of the Indian infra financing stack enabling sponsors to monetise operational assets and recycle capital into new investments. It has a regulatory scheme to back this aim, which includes investment protection, allocation obligations and disclosure requirements requirement responsible governance. However, they are not entirely insulated from the risk of insolvency or have a well-defined resolution framework. As more retail investors participate and there is an increase in asset monetisation, the clarity on the resolution of financial distress needs to go beyond governance and encompass ensuring a predictable regime to tackle this pressing concern.
– Aditya Kashyap and Arnika Dwivedi
