Franklin Templeton Case: Decision To Wind Up Was A Camouflage By Trustees Using COVID-19 As An Excuse: Unit Holder Submits Before Supreme Court

"The winding up of Franklin Templeton which was a camouflage by the trustees using Covid as an excuse."The submission was made before the Supreme Court on Wednesday, on behalf of one of the Unit Holders in Franklin Templeton's case. A division Bench of Justices Abdul Nazeer and Sanjeev Khanna, today was hearing the plea by Franklin Templeton challenging a Karnataka High Court's order which restrained winding up of six of its debt schemes without obtaining the consent of its investors by a simple majority. After deciding on the validity of the e-voting process, the top Court will now hear arguments on various other issues involved in the matter including malfeasance, validity of the regulation, question of vires, etc. During the hearing Senior Advocate Ravindra Shrivastava appearing for one of the unitholders Amruta Garg submitted that he has challenged validity of the regulations. There are serious questions regarding the winding up of Franklin Templeton which was a camouflage by the trustees using Covid as an excuse. This is an unprecedented situation for the Court to interpret SEBI and the Mutual Fund regulations. This is the first instance of winding up of a Mutual Fund house, and despite all problems of Covid19, none of the other Mutual Fund houses took the drastic measure of winding up. Talking about the history of mutual funds in India, Senior Counsel submitted that in 1963 the Mutual funds entered Indian Market for the first time at the Government of India and RBI's initiative. The Indian Government through a resolution established SEBI in 1988 to promote and orderly growth of securities market for investors protection. The SEBI Mutual Fund Regulations were framed in 1996 by SEBI and under the framework all aspects of Mutual Funds schemes are regulated, the prime and fundamental object being protection of the investors. He added that, an Investment Management Agreement executed between Trustee and Franklin Templeton Asset management India to act as Investment Manager to the schemes of Franklin Templeton Mutual Funds. In May 2016 SEBI issued circular regarding restriction in mutual funds, and laid down that philosophy, restriction or redemption would apply during excess redemption request that could apply in overall market crisis situation rather than exceptional circumstances of entity-specific situations. Mr. Shrivastava stated that in 2017, SEBI issued circular classifying mutual funds schemes into 5 heads including Equity scheme, Debt scheme, Hybrid Scheme, Solution-oriented scheme and other schemes. The unit holder had invested 5,00,000 in FISTIP in 2018, and the IL&FS scan broke out in the capital market. SEBI issued master circular 3 for effective regulation of mutual fund industry & which is compilation of all circulars applicable to Mutual funds. In March 2020 Covid19 pandemic was declared. Franklin Templeton requested SEBI for enhancement of Borrowing limit given in MFR from 20% to 30% for Franklin India Opportunities Fund, and SEBI acceded to its request. Franklin Templeton India's President sent a mail to SEBI on subject of Liquidity Management suggestions in wake of Covid and suggested measures to assuage investor fears and improve liquidity of mutual funds. A proposal was sent by Franklin Templeton to SEBI to wind up certain fixed income schemes under the Franklin Templeton Mutual Fund in wake of the economic scenario, and SEBI's views were asked while making out a case for winding up of 6 mutual funds schemes. SEBI conveyed that their request for enhancement of borrowing limit has been acceded subject to condition that increased limit will only be utilised for redemption of units. The Trustee(respondent) abruptly issued notice under Regulation 39(2)(a) of Mutual Fund Regulations. In April 2020 RBI announced 50,000 crore Special Liquidity Facility for Mutual Fund in view of volatility in capital markets. SEBI issued a press release in May 2020 stating that in the current scenario FT should focus on returning money of investors as soon as possible. FT Mutual Fund then requested SEBI for grant of extension in time for enhanced borrowing limit. Circular was issued by SEBI for all mutual funds for listing of MF schemes that are in process of winding up, that they shall be listed on recognised stock exchange subject to compliance listing formalities. Srivastava added that SEBI didn't respond to Franklin Templeton's question on winding up. Winding up should not be the first recourse but the last resort. It has huge after effect. Even the High Court had come down heavily on SEBI and made remarks on how the thing was dealth with in a wrong way. Regarding the issue of vires, Senior Counsel stated that under Regulation 39(2)(a) the sole power is given to trustee, and is absolutely riddled and unparalleled power with no checks and balances or protection. This amounts to excessive deliberation of ...

Franklin Templeton Case: Decision To Wind Up Was A Camouflage By Trustees Using COVID-19 As An Excuse: Unit Holder Submits Before Supreme Court

Srishti Ojha

“The winding up of Franklin Templeton which was a camouflage by the trustees using Covid as an excuse.”

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