Gujarat HC stays winding up of Franklin MF debt schemes

Suresh P Iyengar Mumbai | Updated on June 05, 2020 Published on June 03, 2020

In a development that is expected to further delay repayment of money to investors, the Gujarat High Court has stayed the winding up of six schemes by Franklin Templeton Mutual Fund.

Hearing a petition filed by a group of investors on Wednesday, Justice Gita Gopi said SEBI has ordered the forensic auditing of the accounts of Franklin Templeton Asset Management Company and to submit the report thereof.

Considering the facts of the case and by way of ad-interim relief, the court said the operation and implementation of the notice regarding e-voting and unit-holder’s meeting sent through e-mail shall remain stayed.

Next hearing

The next hearing in the case is posted for June 12. A Franklin Templeton spokesperson said: “We are examining the matter and will take appropriate steps as may be required. We continue to follow due process, both in making investment decisions and in the winding up of these schemes. We have acted in the best interest of our investors, and in accordance with all regulations.”

Mihir Thakore, Senior Counsel, and Paritosh Gupta, advocate for the petitioners, said the two petitioners in the case are aged, about 83 and 75 years, while the third petitioner is a private trust constituted by both the aged persons and they are the sole beneficiaries of the said Trust.

The petitioners have invested ₹6.55-crore in the schemes of Franklin Templeton. It was also pointed out that when the majority of the trustees decide to wind up or prematurely redeem the units, the trustees have to obtain the consent of the unit-holders. However, in this case, no such consent has been obtained, said the order. It was also submitted that a scheme of a mutual fund may be wound up only after repayment of the amount due to the unit-holders, which has also not been followed in this case, said the court order.

The court will further delay the entire process of selling the scheme’s investments and repaying the investors.

Investors’ approval

The fund house recently started the process of seeking investors’ approval for liquidation of investment made by six schemes that has run into trouble due to unprecedented redemption.

Late last month, Franklin Templeton Trustee Services appointed Kotak Mahindra Bank as an independent advisor to monetise the assets held by the six debt schemes – Franklin India Low Duration Fund, Dynamic Accrual, Credit Risk, Short Term Income, Ultra Short Bond and Income Opportunities Fund – that are being wound up abruptly.

The fund house had earlier clarified that the decision to close the six debt funds will not be reversed even if investors vote against the proposal.

In a letter to investors, Sanjay Sapre, President, Franklin Templeton Asset Management (India), said some investors believe that by voting in the negative, the winding up will be reversed and that the six schemes will recommence the redemption and subscription process.

“This is not true. The purpose of the vote is to authorise the trustees to take the next steps for disposal of the assets of the scheme and distribution of the proceeds to the unitholders in accordance with regulations,” he said.

Published on June 03, 2020
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