SC Verdict in Franklin Templeton Case: On Wednesday, the Supreme Court has given a very important decision while hearing the case related to the closure of 6 mutual fund schemes of Franklin Templeton. The court has said that before winding up a debt scheme of a mutual fund, it is necessary to obtain the consent of the majority of its shareholders. Along with this, the court has also said that the market regulator Securities and Exchange Board of India (SEBI) has every right to intervene in the matter if the trustees of the fund break the rules.
The Supreme Court gave this important order while hearing the appeal of Franklin Templeton filed against the decision of the Karnataka High Court. The High Court in its order had stayed the closure of 6 debt mutual fund schemes by Franklin Templeton without taking the permission of the majority of its investors. Which the company has challenged in the Supreme Court.
Existing order limited to interpretation of rules: Supreme Court
Justice S Abdul Nazeer and Justice Sanjiv Khanna have said in their judgment that their present order is related to the interpretation of the relevant rules and regulations. It does not deal with the issue of facts relating to the closure of 6 debt fund schemes by Franklin Templeton. The court said that we have only explained the legal provisions. In this case, we agree with the view of the Karnataka High Court that the consent of the majority shareholders is necessary before winding up debt schemes. The court also said that this condition of seeking consent should be fulfilled after the publication of the notice.
SEBI has right to intervene if trustees violate rules: SC
Justice Khanna, while delivering the verdict on behalf of the bench, also said that if the trustees of the fund violate the rules, then SEBI has the right to investigate those allegations and intervene in the matter. He said that we have not yet looked into the facts of the case. They are yet to be considered. The court said that the appeal of the company and others regarding the facts will be heard in October. In the present order, the rules are being interpreted in principle. Many things have not been considered by the court yet.
Franklin Templeton announces closure of 6 debt funds
The Supreme Court had earlier on February 12, while stamping the validity of the e-voting process conducted for the closure of mutual fund schemes, said that the work of funding the unit holders of the funds will continue. Prior to that, on February 2, the Supreme Court had also ordered the company to distribute an amount of Rs 9,122 crore among the unit-holders.
Franklin Templeton Mutual Fund had announced the closure of its 6 debt mutual fund schemes on 23 April 2020 citing redemption pressure and lack of liquidity in the bond market. These 6 schemes are: Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Plan, Franklin India Credit Risk Fund (Franklin India Credit Risk Fund), Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund (Franklin India Income Opportunities Fund).