The Supreme Court on Wednesday asked the Securities and Exchange Board of India (SEBI) to appoint an observer for overseeing the e-voting process, scheduled in the last week of December, with regard to winding up Franklin Templeton's six mutual fund schemes.
The apex court said that its December 3 order, in which it had said that "for the time being, there will be a stay of redemption payment to the unit holders", would continue till the next date of hearing.
A bench comprising Justices S Abdul Nazeer and Sanjiv Khanna posted the matter for hearing in the third week of January.
"SEBI shall appoint an observer regarding the e-voting of unit holders which is scheduled between December 26 to December 29, 2020. The result of the e-voting would not be announced and would be produced before us in a sealed cover along with the report of the observer appointed by the SEBI", the bench said in its order. It said that SEBI would also file a copy of the final Forensic Audit Report before the court in a sealed cover.
The top court said that it is making clear that the trustees are undertaking the exercise of e-voting and SEBI in terms of court's directions.
The top court further said, "We clarify that the order dated December 3, 2020 has been passed in the peculiar facts and circumstances of the case and to expedite the hearing and decision in the present special leave petitions. The same should not be treated as a precedent in any other matter".
The clarification by the bench came after apprehensions were expressed by SEBI that December 3, order recording that without prejudice to the rights and contentions of all parties, the trustees are permitted to call a meeting of unit holders to seek their consent/approval could be misread and treated as a precedent and would create difficulties.
The top court also took on record the appeal filed by SEBI against the Karnataka High Court order and issued notice to Franklin Templeton asking it to file a reply in seven days.
It asked the parties to interact with each other and Franklin Templeton would file a convenience compilation. The apex court is hearing an appeal filed by Franklin Templeton against the High Court's order which stopped the fund house from winding up its debt fund schemes without prior consent of the investors.
At the outset, Solicitor General Tushar Mehta, appearing for Sebi, told the bench that an appeal filed in the apex court by the market regulator in the matter has not been listed for hearing today.
When Mehta urged the court that Sebi's appeal be listed for hearing in a day or two, the bench said, "We can list the matter for hearing in January".
On December 7, Franklin Templeton Mutual Fund had said it has sought consent of the unit-holders for the orderly winding up of the six fixed income schemes.
On December 3, the apex court had asked Franklin Templeton Mutual Fund to initiate steps within one week for calling a meeting of unit-holders to seek their consent for closure of six mutual fund schemes. The bench had observed that the issue is big and people wanted a refund.
"In the meanwhile, without prejudice to the rights and contentions of all parties, the trustees are permitted to call a meeting of unit holders to seek their consent/approval. Steps in this regard be taken within a period of one week from today", the bench had said in its last week order.
Sebi had told the bench that the market regulator has no role in the winding up process but had written to the Reserve Bank of India in this regard.
On October 24, the Karnataka High Court had said that the decision of the Franklin Templeton Trustee Services Private Limited to wind up six schemes cannot be implemented unless the consent of the unit holders is obtained.
The six 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 Dynamic Accrual Fund and Franklin India Income Opportunities Fund.
Franklin Templeton MF closed these six debt mutual fund schemes on April 23, citing redemption pressure and lack of liquidity in the bond market.
Till November 27, the six schemes received total cash flows of Rs 11,576 crore from maturities, pre-payments and coupon payments since April 24, 2020.
The cash available stands at Rs 7,226 crore as of November 27 for the four cash positive schemes, subject to fund running expenses.