SAT allows Franklin Templeton to offer new debt schemes, cuts disgorgement amount

SEBI argued that FT had not complied with its rules and circulars.

The Securities Appellate Tribunal (SAT) has given partial relief to Franklin Templeton from the Securities and Exchange Board of India’s order asking the fund house to disgorge Rs 512 crore and restraining it from launching debt schemes.

In an interim order, the tribunal cut the amount to be disgorged to Rs 250 crore, saying Rs 512 crore was excessive. It asked FT to deposit Rs 250 crore in an escrow account.

SAT also stayed the order that restrained FT from offering new debt schemes and allowed the fund house to launch them. The tribunal will next hear the matter on August 30, when it is scheduled to pass its final order in the case after hearing both the parties.

SAT had reserved its interim order on June 25, after hearing arguments of both sides.

Franklin Templeton, which wound up six debt schemes last year, contended that SEBI’s order earlier this month banning it from launching any debt scheme for two years was against the principles of natural justice. The regulator had also imposed a penalty and asked the fund house to refund the investment management and advisory fees collected for the six schemes.

FT opposed the disgorgement, saying returns on the funds exceeded those of the indices and had benefited investors. It said half of the investors were institutions and they had not filed a single complaint against the fund house until the schemes were closed.

However, SEBI argued that FT had not complied with its rules and circulars. The market regulator said its directives were based on forensic reports and it had sought FT’s views.

SEBI said the amount involved – Rs 25,000 crore – was not small and only Rs 17,000 crore had been recovered. It said the matter had been taken up by various high courts and even the Supreme Court.

SEBI directed FT on June 8 to return fund management fees worth Rs 451.63 crore to the investors of the six debt funds. It also levied a 12 percent interest fee on this amount, taking the total amount to be disgorged to Rs 512.5 crore.

Additionally, the regulator imposed a penalty of Rs 5 crore on Franklin Templeton India Asset Management Company for violating various SEBI rules and circulars such as investment and borrowing norms, code of conduct, and principles of fair valuation.