Investors pick holes in Franklin voting process, move Apex Court

A group of investors of Franklin Templeton Mutual Fund (FTMF) has approached the Supreme Court with a plea to declare the recent e-voting conducted by the fund house ‘illegal’.

This comes after TS Krishnamurthy, the observer appointed by SEBI, pointed out discrepancies in the e-voting procedure that FTMF followed to seek investor approval for the winding-up of its six debt schemes worth ₹26,000 crore.

The petition was filed by Sanyam Jain along with Kaj Associates LLP, Ultra Walls & Floors and Sarika Mittal among others. The observer report is part of the petition.

The petitioners have argued that investors’ consent for winding-up can be obtained only “when the scheme is ‘open’ and the unit holders’ right for redemption is permitted.” FTMF closed the scheme for resumption in April on its own and came to seek investor consent in December. “Before approaching the unit-holders, FTMF changed the attributes of the scheme by closing it. How can they seek consent then?” asked Anil Jain, Partner, Kaj Associates.

The petitioners have argued that circumstances under which the schemes were closed have changed. “Admittedly, five out of the six schemes have become cash positive. The position of the bond market is not the same as in April 2020.”

Forensic report

The petitioners also claimed that FTMF was misleading unit holders by wrongly stating that the Karnataka HC had upheld its winding-up decision. Petitioners have claimed that as per SC order, KFin Tech was supposed to submit the voting results in a sealed cover to the court but it revealed the results before.

New documents related to the SEBI observer’s report, available with BusinessLine, show that a forensic report highlighted “instances of casting multiple votes from the same IP (internet protocol) address of the load balancing server of KFin Tech.”

An IP is nothing but the identity of the internet user via any network. It is unique to every user. KFin Tech was appointed by FTMF to provide the e-voting platform. In this case, the forensic auditor has traced the IP address of multiple voters to the servers of KFin Tech.

“The complete database activity monitoring logs could not be provided by KFin Tech,” said the Central Forensics and Science Laboratory that works under the Ministry of Home Affairs. It is now part of Krishnamurthy’s report.