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Franklin Templeton debt MF scheme: Investors haul SEBI officials, MF’s Trustees to court

Suresh P Iyengar Mumbai | Updated on November 23, 2020 Published on November 23, 2020

Investors who hold units in the six suspended debt schemes of Franklin Templeton have slapped a legal notice on capital market regulator SEBI, seeking action against officials who, they said, handled the issue with soft gloves and enhanced the borrowing limit of the debt schemes.

Just before the six debt schemes were suspended in April, the borrowing limit of Franklin India Low Duration and Short Term Income Plan was increased to 30 per cent from 20 per cent, while that of Franklin India Income Opportunities Fund and Credit Risk Fund was doubled to 40 per cent from 20 per cent.

In the notice sent through Advocate Puneet Jain, who was one of the intervening lawyers before the Karnataka High Court in the matter, investors have sought a vigilance enquiry and action against SEBI officials involved in the issue.

 

Addressed to SEBI officials, including Ajay Tyagi, Chairman; G Mahalingam and Madhabi Puri Buch, whole-time members; and Aarti C Srivastav, chief vigilance officer, the notice also blamed the Trustees of Franklin Templeton, who closed the scheme without the consent of investors, and urged them to reopen the scheme for all unitholders at the earliest.

Further, the legal notice wants SEBI to make good investors’ losses by making Franklin Templeton disgorge the amount or the Trustees of the fund by selling assets held by them.

“Franklin Templeton has committed egregious wholesale violations of the regulations, which have been enumerated in the complaints and notices issued by my clients which are with SEBI. It is therefore imperative that SEBI takes immediate action. Continued inaction by SEBI, despite observations by the Karnataka High Court, points to implicit complicity of SEBI and its officers with Franklin Templeton,” said the legal notice.

Investors in the six suspended debt funds want Franklin Templeton to redeem their investments with 15 per cent interest, as provided in Section 53 of the mutual fund regulations, on the declared net asset value as on April 23. The six schemes had asset under management of ₹25,000 crore,

Fund house to move SC

Meanwhile, Franklin Templeton has decided to move the Supreme Court against the Karnataka High Court order directing the fund house to seek investors’ approval before winding up the six debt schemes.

In a note to investors, Sanjay Sapre, President, Franklin Templeton Asset Management said, over the last few weeks, the fund house had deliberated on ways to return unitholders’ money in an orderly manner, including seeking their consent as per the Karnataka High Court judgment.

However, Sapre added that it will be necessary to seek judicial intervention from the Supreme Court to ensure appropriate implementation of the Law in the best interest of unitholders.

“The action took some time because the steps needed to be carefully and thoughtfully taken to ensure that we can return unitholder monies in an equitable manner, without distress sale of securities that would occur if there is a rush of redemptions,” he said.

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Published on November 23, 2020
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