Representational Image
Representational Image

The Supreme Court on Thursday said the Franklin Templeton issue is big, as it asked the mutual fund company to initiate steps, within one week for a meeting of unit holders to seek their consent for closure of six mutual fund scheme.

The top court also directed that there will be no redemption of units by investors till further orders.

A bench of Justices S. Abdul Nazeer and Sanjiv Khanna said: "The issue is big, people wanted refund...let SEBI answer."

The top court also queried the market regulator, that "if they knew people will withdraw money like anything during Covid, why didn't SEBI do something like RBI?"

Advocate Pratap Venugopal, representing the SEBI, said the regulator has no powers in the winding up process, but it had written to the RBI.

"In the meanwhile, without prejudice to the rights and contentions of all parties, the trustees are permitted to call meeting of unit holders to seek their consent/approval. Steps in this regard be taken within a period of one week from today. For the time being, there will be stay of redemption payment to the unit holders," said the court in its order.

The bench has posted the matter for further hearing next week.

The observation of the top court came as it agreed to hear an appeal filed by Franklin Templeton against the Karnataka High Court order, which restrained it from winding up its debt fund schemes without prior consent of the investors.

The High Court on October 24, had said that the decision of the Franklin Templeton Trustee Services Private Limited to wind up six schemes cannot be implemented in the absence of consent of the unit holders.

On April 23, Franklin Templeton had closed these six debt mutual fund schemes citing redemption pressure and lack of liquidity in the bond market.

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.

The Chennai Financial Markets and Accountability (CFMA), an investor protection body fighting for the cause of the unit-holders, strongly pointed out that the unit-holders have to keep in mind while voting that there could be a write off of Rs 13,000 to up to 20,000 crore out of an AUM of Rs 28,000 crore, if the winding-up is allowed to be proceeded "due to the fraudulent practices" of the FTMF.

"The FTMF is fooling unit-holders and misguiding them by convenient English. But it is still not giving any assurance whether the unit-holders will get 100 per cent of their money back or not," it argued.

The FTMF is willing to repay borrowings from creditors but not the legitimate hard-earned money of the investors, the CFMA said, noting as per the FTMF itself, four out of its six debt schemes are cash positive.

"This has left investors asking why the FTMF proceeded to wind up the schemes. Either their press releases are false, or the unit-holders are being taken for a ride. The facts speak for themselves and it is, therefore, the unit-holders to decide whether they accept a haircut of Rs 14,000 crore on their investments or fight for the recovery of their entire investments," the CFMA stated.

If this (the closure) is allowed, this could set up a bad precedent for the mutual fund industry, the CFMA said, accusing Sanjay Sapre, President of Franklin Templeton Asset Management (India), of "spreading lies and misguiding the unit-holders".

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