While Franklin Templeton Mutual Fund (FTMF) has been rejoicing with unit-holders voting in favour of winding-up of the six debt schemes, the observer appointed to oversee the e-voting process has expressed several concerns about the entire process. The observer, Taruvai Subayya (TS) Krishnamurthy, former chief election commissioner, points to the grey areas he spotted during the e-voting process, pertaining to voting rights, voting period, and voting rules. The report also mentions that 115,000 of the total unitholders, or about 38%, have participated on an overall basis in the e-voting.

"...there were many grey areas in the procedure adopted, which raised doubts and apprehensions in the minds of investors. Even FTMF did not seem to have had a clear idea about the procedure to be followed. This seems to be mainly because an exercise of this type was done for the first time and there were no clear-cut guidelines in certain areas to be followed," the report says.

Talking about voting rights, Mr Krishnamurthy points out that the one-unit-holder-one-vote adopted (by FTMF) seems to have been conceived in a scenario of physical meetings, where voting is normally only by show of hands. "In case of e-voting and that too on a very important matter like winding up, the provisions of the Companies Act in regard to listed companies seem to be more appropriate and democratic and accordingly, one vote be given per unit held by the unitholder in mutual funds," he says in his recommendations.

The observer says, "...the FTMF e-voting was decided to be conducted by FTMF based on one permanent account number (PAN) one vote (for those who had PAN) and one unitholder one vote for those whose PAN details were not available. No such percentage requirement has been specified in the instant case and the approval has been intended to be based on simple majority."

"The Companies Act specifies one vote per fully paid-up share of the concerned company. If this rule had been strictly applied, the unitholders would have been entitled to exercise one vote per unit held on the cut-off date. However, in this case, each unitholder has been given only one vote irrespective of the number of units held as on the cut-off date," the report points out.

There are 315,000 unitholders for all the six schemes put together as on 3 December 2020, after consolidation of the folios on PAN basis. Out of these, 309,000 unit-holders of these six schemes had either email ID or mobile number, which amounted to about 98% of the total. Notices were sent by FTMF only to 286,000 unit-holders in respect of whom email ID was available, based on the circular issued by the ministry of corporate affairs (MCA) permitting companies to do so due to the prevailing pandemic.

The observer also pointed out the deviation in the cut-off date by FTMF. He says, " As per the Companies Act, the cut-off date cannot be earlier than seven days before the date of the meeting. If this rule had been applied, since the meeting was on 29th December, the cut-off date could not have been earlier than 22 December 2020. However the voting rights provided by FTMF had cut off dates as 23 April 2020 (the date on which the trustee took the decision to wind up the six funds) and unit-holders who have purchased units through off-market deals after 23rd April up to 3 December 2020. The rationale behind this deviation from the MCA guidelines is not quite clear."

As per the report, the six notices that went to unit-holders of FTMF are dated 6 December 2020 and issued by Alok Sethi, director of FTSS. "The said director has, however, digitally signed the said notices only on 28 December 2020. The reasons for these deviations have not been explained," the report says.

With reference to the six schemes being wound up, the trustee of FTMF in India, with the permission of the Supreme Court, had sought consent of all unit-holders under regulation 18 (15) (c) to wind-up the schemes. The unit-holders consent vote took place from 26th December to 28 December 2020.

According to the observer, for postal ballots of companies, the voting period is 30 days. However, for unit-holders of FTMF the voting period was just three days. "Considering the number of complaints received regarding the challenges posed using technology involved in the e-voting, a 30-day period would be in the interest of the unitholders. Further it may be worth considering whether in such cases, the unitholders' meeting could precede the e-voting period. This would enable the unit-holders to get their doubts clarified and take a more informed decision for exercising their voting rights,"  the observer's report says.

The SC is scheduled to hear the matter on 25 January 2021 and would decide on how funds can be returned to the unit-holders of the six debt funds of FTMF.

Meanwhile in an email to unitholders, Sanjay Sapre, president of Franklin Templeton Asset Management (India) Pvt Ltd says, "Out of the total number of unit-holders who cast their votes, over 96% of unit-holders have voted in favour of the winding up of the six schemes. We are thankful to our unit-holders for voting overwhelmingly in favour of the orderly winding up in all six schemes."

According to FTMF, from 1st January to 15 January 2021, these schemes received Rs669 crore, of which Rs617 crore was as pre-payments. Since winding up in April last year till 15 January 2021, these six debt schemes have received Rs13,789 crore, it says.

Individually, Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Dynamic Accrual Fund, Credit Risk Fund and Short Term Income Plan have 63%, 50%, 41%, 26% and 9% of their respective assets under the management in cash, FTMF said in a statement.

Earlier, on 23 April 2020, FTMF had announced shutting down six debt fund schemes due to 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.