SC: Consent by majority sufficient to wind up Franklin Templeton’s 6 schemes

The Supreme Court on Friday rejected the objections to poll results and held that the unitholders of the six mutual funds schemes of Franklin Templeton have given their consent by majority to wind up the schemes which the mutual fund house had closed in April last year.

In a 54-page judgment, a bench comprising Justices S. Abdul Nazeer and Sanjiv Khanna said the underlying thrust behind 18(15)(c) of the SEBI (mutual funds) Regulation is to inform the unitholders of the reason and cause for the winding up of the scheme and to give them an opportunity to accept and give their consent or reject the proposal.

“It is not to frustrate and make winding up an impossibility,” the top court said, noting that the unitholders of the six schemes had given their consent by majority to wind up the schemes through e-voting in December last year.

The objecting unitholders had submitted that the trustees’ decision to wind up the six schemes is a smokescreen to conceal misfeasance and malfeasance, and the question of liability of the trustees/AMC (Asset Management Company) should be decided first or together.

However, the court noted that no unitholder has expressed or stated that they could not vote or their queries were not answered.

“We do not think, in the facts of the present case, that the notice for e-voting and the contents would justify annulling the consent given by the unitholders for the winding up of the six schemes,” said the top court.

The Karnataka High Court had on October 24 said that the decision of the Franklin Templeton Trustee Services Private Limited to wind up the six schemes cannot be implemented in the absence of consent of the unitholders.

On April 23, 2020, Franklin Templeton had closed the six debt mutual fund schemes citing redemption pressure and lack of liquidity in the bond market. The six schemes are Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Plan, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund.

Citing the objections to e-voting, the top court said these contentions are mere nitpicks and would hardly justify rejection of the consent to wind up the schemes, which has been expressed by more than 95 per cent of the unitholders who had voted.

On the aspect of objections raised in the appointment of KFin Technologies for providing e-voting platform services, the top court said: “Further on examination and analysis of the event logs of the two web servers, no abnormal events were witnessed, indicating normal functionality of the system. We are satisfied with the explanation given by the trustees/AMC and KFin Technologies with reference to the observations in the report of the forensic experts from CFSL.”

The report of the forensic expert had said that the analysis of the e-votes and instapoll votes cast on the basis of the IP addresses indicate that there are instances of casting multiple votes from the same IP address.

The top court has appointed SBI Funds Management Private Limited to undertake the exercise of winding up, which would include liquidation of the holdings/assets/portfolio and distribution/payment to the unitholders.

On February 2, the top court had directed for disbursal of Rs 9,122 crore within 20 days. After noting that Rs 17,000 crore are yet to be realised, the court said the trustees and SEBI were not at ad idem and have given different time frames within which they felt the securities can be liquidated.

“We have no hesitation in directing that distribution/disbursement of funds to the unitholders can be made in tranches without waiting for liquidation of all the securities/assets,” the top court had said.

“Winding up and disbursements would be in terms of our directions in earlier orders dated February 2, 2021 and February 9, 2021,” said the top court.

Former Election Commissioner T.S. Krishnamurthy was appointed as an observer by SEBI as per the directions of the top court to ensure fairness and transparency of e-voting of the unitholders.