Franklin Templeton Mutual Fund on Monday moved the Supreme Court challenging a part of the Karnataka High Court’s order that asked the fund house to obtain the consent of unitholders of the six debt mutual fund schemes that it proposed to wind up.
Franklin Templeton Mutual Fund on Monday moved the Supreme Court challenging a part of the Karnataka High Court’s order that asked the fund house to obtain the consent of unitholders of the six debt mutual fund schemes that it proposed to wind up. The HC also restricted the company and trustees from taking on any fresh borrowings in the six debt schemes. Prior to this development, Franklin MF in a letter to investors said it would seek judicial interventions from the Supreme Court to ensure an appropriate implementation of the law in the best interest of unit holders. The fund house also mentioned that the six shuttered schemes have approximately Rs 5,900 crore for distribution in four out of those six schemes.
While upholding Franklin’s decision to shut down six of its debt schemes on April 23 on grounds of difficult conditions in the bond market due to the Covid-19, the HC said “the decision of the trustees to wind up the six schemes is not interfered by the court subject to it obtaining consent from the unitholders”.
The HC also said Sebi should have played a more role active role and gave the markets regulator six weeks to make a decision on the forensic audit report.
Section 18-15(c) of Sebi mutual fund regulations says trustees need to take the consent of unitholders to wind up or prematurely redeem units through an e-voting process.
When Franklin was in the process of an e-voting to authorise trustees or Deloitte to take further steps for winding up of the schemes, some investors moved various courts and some managed to obtain a stay from the Gujarat HC on the e-voting process.
On June 19, the SC had refused to vacate the stay, which according to Franklin was necessary for “liquidation of the assets of the schemes and distribution of proceeds” to its 20 lakh unitholders.
Sanjay Sapre, president at Franklin Templeton Asset Management (India) in the letter said after the judgement of the Karnataka HC, the fund house considered various options so that it could start returning money to unitholders in the shortest possible time in an orderly manner. This included the option of seeking unitholders’ consent according to the judgment of the High Court.
“However, after detailed deliberations, we have determined that it will be necessary to seek judicial intervention from the Hon’ble Supreme Court to ensure an appropriate implementation of the law in the best interest of unitholders. This action took some time because these steps needed to be carefully and thoughtfully taken to ensure that we can return unitholder monies at the earliest in an equitable manner, without distress sale of securities (at steep discounts) that would occur if there is a rush of redemptions,” said Sapre.