Franklin plea shows it’s willing to take unitholders’ approval2 min read . Updated: 27 Nov 2020, 05:50 AM IST
- The Franklin Templeton plea proposes an electronic vote to be held from 30 November to 2 December in its annexure
Franklin Templeton, which decided to abruptly shut six of its Indian funds citing illiquidity in April, has told the markets regulator that it will comply with a high court order to seek consent from its unitholders even as it challenged the ruling, according to its plea filed in the Supreme Court.
Franklin Templeton Trustee Services Pvt. Ltd, which initially argued that mutual funds are empowered to wind up schemes without unitholders’ consent, asked Sebi for permission to hold a vote on the issue on 8 November. However, the regulator on 10 November directed the asset manager to seek clarifications from the Karnataka high court on restrictions on redemptions and on whether the schemes would remain closed till the vote is completed.
The high court stayed its judgement till 5 December, allowing Franklin Templeton time for an appeal to the apex court. It also restricted redemptions till that date.
A liquidity crisis in sparsely traded high-yield bonds following the announcement of a nationwide lockdown in end-March forced Franklin to wind up the six schemes, locking ₹26,000 crore of investor funds.
The plea filed by Franklin Templeton Trustee Services in the apex court on 23 November outlines the request to the regulator and proposes an electronic vote to be held from 30 November to 2 December in its annexure.
A Mint email on 26 November to Franklin on whether the asset manager has approached the high court was not answered.
However, Sanjay Sapre, president of Franklin Templeton Mutual Fund, told investors in a 23 November letter that the asset manager considered all possible options to start returning money to unitholders in the shortest possible time, including seeking unitholders’ consent.
“However, after detailed deliberations, we have determined that it will be necessary to seek judicial intervention from the hon’ble Supreme Court to ensure an appropriate implementation of the law in the best interest of unitholders," Sapre wrote in the letter.
Franklin’s plea seeks a stay on redemptions till the Supreme Court decides on the merits of the case or until a unitholders’ meeting is held. It warned that a run on the schemes may force the fund manager to sell holdings at steep discounts, resulting in losses for unitholders. The petition also states that a handful of people holding less than 0.03% of the units in the schemes have challenged its decision to wind up the schemes. Out of the 300,000 unitholders in the six schemes, 190,000 have investments below ₹2 lakh, Franklin said.
“The communication between Franklin and Sebi is quite curious. The law does not envisage any permission from Sebi before seeking the vote from unitholders. If Franklin was serious about seeking the vote, then in the meantime, they should have issued the notice and held an appropriate meeting. Mere issuance of an email to Sebi and complete inaction thereafter shows they were never serious about it," said Paritosh R. Gupta of Gupta Law Associates, the advocate representing the members of the Khambatta family who are parties to the case.