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Home >News >India >Franklin agreed on unitholder consent for winding up schemes in letter to Sebi
Experts say the law does not envisage any permission from Sebi before seeking the vote from the unitholders. (Bloomberg)
Experts say the law does not envisage any permission from Sebi before seeking the vote from the unitholders. (Bloomberg)

Franklin agreed on unitholder consent for winding up schemes in letter to Sebi

  • Franklin Templeton Trustee Services Pvt. Ltd had asked Sebi for permission to hold a vote seeking unitholder consent for the winding up of the six debt schemes frozen on 23 April.

Even as Franklin Templeton raced to the Supreme Court to stay the Karnataka HC judgement which held that unit holders' consent is required for winding up of mutual fund schemes, it approached Securities and Exchange Board of India (Sebi) to comply with the same judgement on 8 November. Franklin Templeton Trustee Services Pvt. Ltd asked Sebi for permission to hold a vote seeking unitholder consent for the winding up of the six debt schemes frozen on 23 April. However the regulator directed the asset management company (AMC) to seek clarifications from the high court on restrictions on redemptions and on whether the schemes would remain closed till the vote is completed. The Karnataka high court stayed its own judgement till 5 December, allowing Franklin Templeton time for appeal to the Supreme Court. It also restricted redemptions till that date.

A Special Leave Petition (SLP) filed by Franklin Templeton Trustee Services Pvt. Ltd in the Supreme Court on 23 November outlines a request by Franklin Templeton to the regulator on 8 November for holding a unitholders’ vote on the winding of the six debt schemes of Franklin Templeton. Mint has seen a copy of the SLP. The letter from Franklin envisages an electronic vote to be held from 30 November to 2 December. Sebi responded to the request on 10 November asking Franklin to seek clarity on two aspects from the Karnataka high court. First, till when will restrictions on redemptions continue and second, whether the schemes will remain closed till the voting process is completed. A Mint email to Franklin on whether the AMC has approached the high court for such clarity has not been answered at the time of this writing.

"Post the judgement of the Hon’ble High Court of Karnataka, we considered all possible options over the last few weeks to start returning money to unitholders in the shortest possible time in an orderly manner. This included the option of seeking unitholder consent according to the judgment of the Hon’ble High Court. 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," Sanjay Sapre, president, Franklin Templeton Mutual Fund, told investors in a letter issued on 23 November.

The SLP goes on to argue for a stay on redemptions till the Supreme Court decides on the merits of the Franklin case or until a unit holders meeting is held. It contends that the alternative would be a run on the schemes as investors rush to redeem units and the mutual fund would be forced to sell its holdings at steep losses. It adds that out of the 300,000 odd unit holders, 190,000 have investments below 2 lakh rupees and that the litigation has been brought by a small handful of persons holding less than 0.03% of units in the schemes.

"The communication between Franklin and Sebi is quite curious. The law does not envisage any permission from Sebi before seeking the vote from the unitholders. If Franklin was serious about seeking the vote then in the meantime, they should have issued the notice and held the appropriate meeting for the said purpose. Mere issuance of an email to Sebi and complete inaction thereafter shows that they were never serious about taking the vote and the same is only to create an impression which is otherwise not correct," said Paritosh R. Gupta of Gupta Law Associates, the advocate representing the Khambatta family who are parties to the case.

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