OVERVIEW
The Supreme Court on Friday rejected the objections to the result of e-voting process and held that unitholders have consented by majority to liquidate six mutual fund schemes of Franklin Templeton.
The apex court directed that disbursement can be made in tranches without the liquidation of all securities or assets and laid down the terms of directions passed stating to wind up and disburse of funds to unitholders.
BACKGROUND
The e-voting was with respect to winding up of Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Plan, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund.
The six schemes together had 3,15,600 unitholders until December 3, 2020, as per the observer's report, and had received total cash flows of Rs. 11,576 crores from maturities, pre-payments, and coupon payments from April 24, 2020 until November 27, 2020.
DETAILS
The court addressed the objections from certain other quarters regarding e-voting process and poll results as ‘mere nitpicks'. 95% of the unitholders had consented to disbursement of six schemes costing Rs. 9,122 crores among themselves.
One of the objections raised against the e-voting was by former Chief Election Commissioner T.S. Krishnamurthy as Observer. However, the objection was dismissed observing that Mr. Krishnamurthy was appointed by SEBI, to give due consideration to fairness and transparency.
The bench comprising of Justice S. Abdul Nazeer and Justice Sanjiv Khanna also insisted that ‘consent' has to be provided by the majority of the unitholders and voting according to the Mutual Fund Regulations framed by SEBI, clarifying on what would comprise as ‘consent' of a unitholder to the elimination of a mutual fund scheme.
“‘Consent' in clause (c) of the sub-regulation (15) to Regulation 18 refers to affirmative consent to winding up by ‘the majority of the unitholders'… That is, the majority of unitholders who exercise their right and vote in support or to reject the proposal to wind up the mutual fund scheme…Silence on the part of absentee unitholders can neither be taken as an acceptance nor rejection of the proposal.”
The allegations included gross mismanagement, failure and neglect of duty by the Asset Management Company and Franklin Templeton Trustee Services Private Ltd., SEBI law violations, manipulation of Net Asset Value, and disgorgement of wrongful payments.
The apex court had appointed SBI Funds Management Pvt. Ltd. to undertake the exercise of liquidation of the holdings, assets or portfolio and distribution or payment to unitholders.
CONCLUSION
The apex court is hearing Franklin Templeton appealing against Karnataka High Court's order that refused the fund house from liquidating its debt fund schemes without the prior consent of investors.
The cash available is Rs. 7,226 crores as of November 27, 2020 for four cash positive schemes, subject to fund running expenses.
WHAT IS YOUR OPINION ON THE COURT'S ORDER REGARDING THE LIQUIDATION OF SCHEMES?
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