The Supreme Court (SC) on Thursday granted a stay on redemption request from investors of Franklin Templeton Mutual Fund (FTML), while directing Franklin Templeton Trustee Services Pvt Ltd to call a meeting of unit-holders to seek their consent withing a week. During the hearing, the bench came down heavily on market regulator Securities and Exchange Board of India (SEBI) for not helping investors during a pandemic time.  The issue pertains to FTML shutting down six debt market schemes; the apex court was hearing an appeal to the Karnataka High Court judgement.

While listing the matter next week, the bench of Justice Sanjeev Khanna said, "Place on record cross SLPs by SEBI and others. In the meanwhile, without prejudice to rights of all parties, trustees are permitted to call a meeting of unit-holders to seek their consent (for closure of schemes). Steps in this regard will be taken within a period of one week. For the time being there will be stay on redemptions."

According to Bar & Bench, which was live tweeting the proceedings, the SC asked why SEBI did not initiate action like the Reserve Bank of India (RBI did, if it knew that people were withdrawing money from the schemes in a big way (we have paraphrased the tweet). Responding to this, Advocate Pratap Venugopal, counsel for SEBI stated that the market regulator does not have any powers in winding up process of a mutual fund scheme.

Justice Khanna told SEBI that its regulations are sketchy. "We interpret you very liberally by taking you into consideration and impose penalties. This needs to be understood by the layman. Are you satisfied by language of your regulations?" the bench says.
 

Last month, Franklin Templeton Trustee Services, which initially had argued that mutual funds are empowered to wind up schemes without unit-holders' consent, sought permission from SEBI to hold a vote on the issue on 8th November.

The Karnataka High Court, in its judgement in October 2020, had said the decision of Franklin Templeton to wind up the six schemes cannot be implemented unless the consent of the unit-holders is obtained.
 
Earlier, on 23 April 2020, Franklin Templeton had announced shutting down six debt fund schemes due poor and illiquid investments amid the coronavirus crisis, leaving lakhs of investors in a lurch. The total assets under management (AUM) of the six schemes were over Rs25,000 crore, spread across Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund. (Read: Rs30,000 Crore Stuck in Franklin India Proves Why Debt MF Scheme Categories Are Not Worth the Risk)