Supreme Court Directs Distribution Of 9122 Crores To Unit Holders Under Franklin Templeton's Six Mutual Fund Schemes

The Supreme Court has on Tuesday directed that amount of 9122 crores that is cash ready with Franklin Templeton as on 15th January 2021 be distributed amongst the unit holders under the six mutual fund schemes. The Court has stated that the distribution is to be done in proportion to their respective interest in assets of scheme and will be undertaken by SBI Mutual funds as agreed by both Franklin Templeton Trust and SEBI. A division Bench of Justice Abdul Nazeer and Justice Sanjeev Khanna issued the directions while hearing plea by Franklin Templeton challenging a Karnataka HC order which restrained winding up of six of its debt schemes without obtaining the consent of its investors by a simple majority. The Bench was examining objections to the e-voting results to decide if disbursal or payment to the unit holders should be made. The Court has asked the Franklin Templeton Trust services and the asset management company to cooperate with SBI Mutual Funds in this regard and furnish to them entire data and details. The Bench has further directed the process to preferably be completed in period of 20 days from date of this order and has given liberty to the parties to can move an application and approach the Court in case of any difficulty in the process. During the hearing, Advocate Nithyaesh Natraj appearing for an intervenor submitted before the Court that it was incumbent on Franklin Templeton to go to SEBI and ask for the process to be followed, considering there was a vacuums on the process to be followed. However, they chose to take laws in their hand instead. In response to the Court's question if they wanted their money, Advocate Natraj responded and stated that as a unit holder, he definitely wants his money back, but the question that arises is the manner in which he wants it. While as a contractual owner, he had the right to redeem it, by virtue of the winding up decision an open ended scheme was converted to a close ended scheme, and violated another statutory obligation. "As far as modification and winding up are concerned, they're interconnected but partially. If you want to exercise your right to redemption, you will be paid, but if you don't, you will be taking a major risk then. That's why we posed the question" – the Bench observed.Natraj stated that he would prefer that the money is returned in exercise of his right of redemption. He added that presently, people believe that they will suffer a loss. Every unit holder wants their money back. If Franklin Templeton can give a commitment that principal of unit holder is safe and it will honour its commitment no unit holder will have a grievance Advocate Madhurima Bhattacharjee, appearing for an impleading party, submitted that the notice issued by Franklin Templeton for e voting only had assumptions and projections which cannot be done according to the advertisement rules. Notice was completely illegal because it had projections and assumptions, and is not allowed. Abhishek Manu Singhvi appearing for Franklin Templeton Asset Management submitted that the Court should not lose sight of the main focus of the case. The court has advanced public interest the maximum and it is not the destination or result that the Bench is here to second guess, its the Journey and the process. Dr. Singhvi added that there should not be rush in redemption, as that will have a negative impact on everyone. "Let them have a fair transparent choice. They have the right to have a choice. If you project that if they don't agree their investments will be wiped off, that's not right."- the Bench noted.Dr Singhvi also clarified that the votes that were cast did not emanate from a single source. OTPs were sent for voting and messages were sent after votes were cast. Therefore, no one IP address was used to cast multiple votes. The Bench told Dr Singhvi that they can wait till the end period when winding up period is passed, and then distribute the funds. However that will not be possible unless the Court says it is ordering winding up now, and will decide on legal questions later. Singhvi agreed, calling it 'the most virtuous path' and added that even if the court orders winding up, Franklin Templeton will follow the Court's timeline and will nog delay it. Senior Advocate Harish Salve submitted before the Court that there has to be a proper procedure that will have to be followed for equal distribution to all share holders. Its a debt portfolio, where money keeps accruing and going. He added that there are only a handful of people who have invested in this very high risk portfolio. There are different types of portfolio with different level of risks. The present portfolio is a high risk portfolio and id people have a risk appetite they go for these portfolios. "My submission is that winding up should be ordered. Whoever is nominated by SEBI, we will coordinate with...

Supreme Court Directs Distribution Of 9122 Crores To Unit Holders Under Franklin Templeton's Six Mutual Fund Schemes

Srishti Ojha

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