Gujarat HC stays Franklin Templeton MF’s voting process following plea

The Gujarat High Court (HC) has stayed unitholders’ voting process for winding-up of six debt schemes of Franklin Templeton MF (FT MF), following plea by Areez Phirozsha Khambatta and Persis Khambatta, who are part of the business family running the popular Rasna juice brand.

The senior counsel appearing for the two petitioners (aged 83 years and 75 years) along with Khambatta Trust contented that FT MF had not followed due regulations in the wind-up process.

“Attention of the court was invited to sub-clause 15(c) of regulation-18 of the SEBI (Mutual Funds) Regulations … to bring out the point that when majority of the trustees decide to wind up or prematurely redeem the units, the trustees have to obtain the consent of the unitholders,” the court order read, citing petitioners’ plea.

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The petitioners, who had investments of Rs 6.55 crore in FT MF schemes, pointed out that no such consent was obtained.

Apart from FT MF and FT Trustee, the plea has also made the Securities and Exchange Board of India (Sebi) and government as respondents.

Further, the petition stated that regulation 39 of the regulations, says that “scheme of a mutual fund may be wound up only after repayment of the amount due to the unit-holders, which has also not been followed in this case”.

In a response, FT MF spokesperson said, “We are examining the matter and will take appropriate steps as may be required.

We continue to follow due process, both in making investment decisions and in the winding up of these schemes. We have acted in the best interest of our investors and in accordance with all regulations.”

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The ad-interim relief of stay will be effective, subject to respondents’ reply that is sought by June 12.

The FT MF voting process was scheduled to be held between June 9 and June 12.

According to experts, this move could delay the wind-up process of monetising the scheme assets and distributing the payouts to investors.

“Now, the wind-up process would need intervention from Sebi and competent authorities to step in and say this is how the process should be taken forward,” said Amol Joshi, founder of Plan Rupee Investment Services.

Further, experts say as the petitioners have laid down their contentions on the basis of current regulatory framework, the regulator would need to clarify the stance.

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Recently, FT MF had sent notices to unitholders informing them about the voting process and the options they can choose from.

Unitholders had the option of either authorising the trustees to monetise the scheme assets, who will be advised by the debt capital (DCM) team of Kotak Bank and supported by the FT MF.

The other option was opting for audit and consulting firm Deloitte, where the latter will be assisted by the fund house, advised by Kotak Bank’s DCM.

Unitholders could also select ‘No’, but trustees had advised that a rejection of the authorisation may result in delay in monetising the scheme assets.