In a relief to over 3 lakh unitholders, the Supreme Court on Tuesday allowed disbursement of Rs 9,122 crore to investors of the six shut Franklin Templeton Mutual Fund (FTMF) schemes in “proportion to their respective interest in the assets of the scheme” within 20 days. The six debt schemes were wound up by FT on April 23, citing difficulties in the bond market conditions due to the pandemic.
A Bench comprising justice S Abdul Nazeer and Sanjiv Khanna entrusted SBI Mutual Funds to carry out the exercise for disbursement of the money as agreed by the lawyers appearing for Franklin Templeton Trusts Services and Sebi. It also said that FT and Asset Management Company would fully cooperate with SBI Mutual Funds in this regard and would furnish all the details pertaining to the debt schemes.
The exercise for distribution of money has to be completed expeditiously, preferably within 20 days from Tuesday’s order, the apex court said, while giving liberty to parties to approach it in case of any difficulty arising out of the process.
The Bench also recorded that the lawyers raising objections to the e-voting procedure did not have any objections to the distribution of funds to the investors.
Sebi counsel Pratap Venugopal told the top court that the money can be “immediately distributed” in proportion to the unitholders’ respective interests. Besides, he said MF regulations did not make any distinction between large and small investors and the distribution should be completed in 12-18 months as the laws were silent on the timeline issue. The Sebi’s response had come after Justice Khanna had posed the question on modalities of funds disbursement and whether that should be distributed in one go or in a staggered manner and if larger holdings should be given later.
The apex court had in December permitted Franklin Templeton Trustee Services to hold meeting with unitholders of six debt schemes and had also stayed redemption from the schemes till further orders. An “overwhelming majority” of unitholders had voted in favour of the move in December. Around 3 lakh investors were affected by the winding up of these debt mutual fund schemes.
Some unitholders had raised questions on the fairness of e-voting procedure conducted by KFintech (formerly Karvy), the mutual fund registrar and transfer agent. They alleged that there were irregularities in the e-voting process. “There are instances of casting multiple votes from the IP address of KFintech, which is nothing but old Karvy, which has been barred from taking up new clients,” they argued.
The issue with regard to interpretation of the Sebi regulations governing winding up is yet to be examined. The Karnataka HC, in its judgment on October 24, had expressed disappointment over ambiguities in the market regulator’s rules.
Franklin Templeton Mutual Fund has challenged the HC’s order that asked the fund house to obtain the consent of the unitholders of the six debt mutual fund schemes that it proposed to wind up. The HC had also restricted the asset management company and trustees from taking on any fresh borrowings in the six debt schemes.
While upholding Franklin’s decision to shut down the six schemes, 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.”