The Hon’ble Supreme Court of India vide its order dated 09.12.2020 asked the Securities and Exchange Board of India (hereinafter referred as “SEBI”) to appoint an observer for overseeing the e-voting process, scheduled in the last week of December, for winding up of Franklin Templeton’s six mutual fund schemes.
The stay on redemptions by unit holders earlier ordered by the Court will continue.
Justices S Abdul Nazeer and Sanjiv Khanna in the present matter were hearing an appeal filed by Franklin Templeton against the Karnataka High Court order dated 24/10/2020 which stopped the fund house from winding up its debt fund schemes without prior consent of the investors.
Senior Advocate Meenakshi Arora argued that SEBI does not have a clear policy for the small investors to which the Apex Court held that the said issue was already addressed by the Karnataka High Court.
Senior Advocate Ravindra Shrivastava suggested that some independent authority must be appointed to oversee the voting at the unit holders meeting. He also pointed out that the High Court had said that a retired High Court judge can be appointed for this purpose.
Pointing out the issue with appointing a retired judge to oversee the e-voting, Justice Khanna stated as follows, “…persons who conduct voting may be located at different places and a judge may be located somewhere else. E-voting needs to be certified with record. Hence that’s a problem in appointing a retired judge.”
The Apex Court finally asked SEBI to appoint an observer to oversee the voting process.
On 24.10.2020, the Karnataka High Court had refused to interfere in the decision of the trustees to wind up the six debt schemes of Franklin Templeton. The High Court, however, clarified that the consent of unit holders as per the regulations were to be obtained before going through the winding-up process.
The High Court also deemed it appropriate to stay the operation of its judgment for a period of six weeks. It also restricted redemptions for this period. Franklin Templeton was further directed to refrain from taking any steps on the basis of the notices issued to wind up the debt schemes in April and May.
Franklin Templeton then asked SEBI for permission to hold a vote on the issue on 08.11.2020. However, on 10.11.2020, SEBI directed the asset manager to seek clarifications from the Karnataka High Court on restrictions on redemptions and whether the schemes would remain closed till the vote is completed.
Thereafter, a plea was filed in the Supreme Court challenging the Karnataka High Court order.
The plea outlines the request to the regulator and proposes an electronic vote to be held from 30.11.2020 to 02.12.2020.
Franklin Templeton, India’s ninth-largest fund house, had in April notified its investors that it was winding up the Franklin India low duration fund, the dynamic accrual fund, the credit risk fund, the short term income plan, the ultra-short bond fund and the income opportunities fund, cumulatively worth nearly Rs 28,000 Crore (Rupees Twenty Eight Thousand Crore Only).
Almost three lakh investors were affected by Franklin Templeton’s decision to wind up its debt mutual fund schemes. The company had cited lack of liquidity in the bond market due to COVID-19 as the reason for its decision.
The matter will be next heard in the third week of January.