SEBI appeals against FT debt scheme winding up order

Suresh P Iyengar Mumbai | Updated on June 17, 2020

‘Erred in interpreting that the unit holders consent is needed before the winding up decision’

SEBI has filed a ‘patent appeal’ against the Gujarat High Court order staying the entire e-voting process of winding up of six debt schemes of Franklin Templeton.

The patent appeal means filing an appeal against an order of single judge to another bench of the same court.

SEBI in its petition said the court had erred in staying the crucial process of seeking investors approval to wind up six debt schemes as it would further delay in distribution of money to the investors.

The court has erred in interpreting that the unit holders consent is needed before the winding up decision. The impugned order passed by the single judge is illegal, arbitrary and suffers from excessive jurisdiction and is required to be quashed and set aside, said SEBI petition.

The Supreme Court will also take up the petition filed by the Franklin Templeton against the Gujarat High Court order.

Meanwhile, the Chennai Financial Markets and Accountability expects investors to lose ₹5,000 crore in the six debt funds being wound up by Franklin Templeton Mutual Fund and wants SEBI to safeguard the interest of the investors.

In April, Franklin Templeton Mutual Fund has abruptly closed down its six debt schemes with asset under management of ₹28,000 crore, putting investment of investors at risk.

Closure in limbo

Incidentally, the entire process of the fund house to close the debt scheme is now in limbo after the Gujarat High Court ordered a stay. Subsequently, Franklin Templeton has moved the Supreme Court and waiting for further direction.

CFMA said the fund house in their own admission have confirmed that the repayment of principal will be between 5 per cent and 81 per cent in various schemes over the period of five years and as a result, investors are set to have an anticipated loss of ₹5,000 crore.

Moreover, it said the interest receivable from the investment have not even been discussed.

By allowing Franklin Templeton to wind up its six debt schemes, SEBI has failed to protect small and retail investors’ interest making them to incur loss of ₹5,000 crore. The market regulator has failed in its duty to protect the interests of investors, it said.

If the regulator fails to protect investors, it could set a dangerous precedent for other mutual fund companies to follow and they might also head the Franklin Templeton way, it said.

God forbid if this happens, then all mutual funds investors with total investment of ₹25-lakh crore will be left with only ₹4.6-lakh crore. Even, this meagre amount will not get realised before five years, leaving many investors in dire straits, it added.

Published on June 17, 2020

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