Franklin Templeton: SC Asks SEBI To Appoint Observer for E-voting & Submit Forensic Audit Report of 6 Debt Schemes

Moneylife Digital Team 09 December 2020

The Supreme Court of India (SC) on Wednesday instructed the Securities and Exchange Board of India (SEBI) to submit the final copy of forensic audit report of Franklin Templeton Mutual Fund (FTMF) in a sealed envelop and also appoint an observer to oversee e-voting of the six closed debt schemes of the fund house. The voting will take place from 26th to 28th December and a meeting of unit-holders of these six debt schemes is scheduled for 29 December 2020. The stay given by the apex court on redemption would continue till further hearing.

In a tweet, the Chennai Financial Markets and Accountability (CFMA), an investor group, says, "The SC directed SEBI to appoint an observer to oversee the entire voting process and submit result of it in a sealed envelope. The SC also asked the market regulator to submit final copy of the forensic audit report of the six closed debt mutual fund (MF) schemes of FTMF."

CFMA Bulletin December 09

Supreme Court today directed SEBI to appoint Observer to oversee e-voting of 6 shut debt schemes of FTMF.@suchetadalal @MoneylifeIndia @Moneylifers pic.twitter.com/sWrFI1XKLR
— CFMA (@CFMA_1) December 9, 2020

During the hearing, CFMA contended that Franklin Templeton Asset Management (India) Pvt Ltd -FTAMPL, should state before the SC that it would protect monies of the unit-holders. The investor group also requested the apex court to direct FTMF to provide copy of forensic audit so that they can take informed decision on voting.

The Supreme Court asked all parties to complete pleadings and final arguments by third week of January 2021.

Last week, the SC, while granting a stay on redemption request from investors of FTMF, had directed the trustees to call a meeting of unit-holders to seek their consent within a week. On 24 October this year, the Karnataka High Court had asked FTAMPL to seek consent from unit-holders for winding up the six debt schemes.

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)

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