Franklin Templeton investors must wait more; SC stays debt funds redemption, questions SEBI

By: and |
Updated: December 03, 2020 1:07 PM

The Apex Court also questioned capital markets regulator SEBI for not intervening to protect investor’s interest.

Hence it is better to clarify, to save further hiccups, with the Supreme Court of India.Hence it is better to clarify, to save further hiccups, with the Supreme Court of India.

The wait for Franklin Templeton’s debt mutual fund investors has gotten longer with the Supreme Court today ordering a stay on redemption by investors of the six would up schemes. The Apex Court also questioned capital markets regulator SEBI for not intervening to protect investor’s interest. Hearing the matter, the bench comprising justices SA Nazeer and Sanjiv Khanna directed Franklin Templeton to call a meeting between unitholders to seek their approval for the closed schemes within a week. 

The two judge Supreme Court bench was hearing Franklin Templeton’s plea challenging Karnataka High Court order that observed that the six debt mutual fund schemes required a simple majority consent from unitholders before wounding-up. Now the fund house will have to call a meeting of unit holders of all its six debt mutual fund schemes within a week and seek their approval to close them down. The court also added that the meeting would be without any prejudice to the rights and contentions of all the parties.

Also Read: Franklin Templeton’s six wound up debt schemes recovery Rs 9,700 cr out of Rs 26,000 crore lost

Franklin Templeton had in April this year wound up the six schemes citing unprecedented redemption pressure and dearth of liquidity in the debt markets. The six schemes had an estimated Asset Under Management (AUM) of Rs 26,000 crore in April. 

The Supreme Court  pulled up capital market regulator SEBI for not acting swiftly. The bench observed that SEBI’s regulations are too sketchy and that the confusion had been owing to the language of their regulations, which the court said a layman can not understand. Drawing parallels, the court questioned SEBI on why it did not intervene earlier like the Reserve Bank of India did in case of banks. SEBI informed the court that it has no powers with respect to the winding up process of schemes.

Six shut schemes include, Franklin India Ultra Short Bond Fund, Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund. These now have 43 per cent, 27 per cent, 26 per cent and 8 per cent of their respective assets under management (AUM) in cash. Earlier last month the fund house said that through maturities, prepayments and coupon payments the six schemes have so far received Rs 9,682 crore.

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