Franklin Templeton voting: Observer’s report says voting not as per Companies Act

Recommends one-unit-one-vote and 30-day period for such voting

January 21, 2021 / 02:27 PM IST

The observer’s report on the e-voting held by Franklin Templeton Mutual Fund (FT MF) on winding-up of schemes had some interesting findings. The report, which has been seen by Moneycontrol, pointed out that only 38 percent of the unitholders that had investments in the six debt schemes participated in the voting process.

Under the directions of the Supreme Court (SC), the Securities and Exchange Board of India (SEBI)  has appointed former chief election commissioner T.S. Krishnamurthy to oversee the voting process.

Also read: Franklin Templeton case: Unitholders vote in favour of winding up of six debt schemes

The report also said that were some “significant variations in the e-voting process followed by FT MF vis-à-vis that prescribed under the Act (Companies Act).”

The observer said FT MF had informed that the provisions of the Companies Act, 2013, read with the Companies (Management and Administration) Rules, 2014, were broadly followed for conducting the e-voting.  This was because SEBI regulations did not have any specific rules for conducting e-voting or for organising meetings of unitholders through video-conferencing.

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Differences with Companies Act

“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,” the report said.

However, in the case of FT MF e-voting, each unitholder was entitled to a single vote, regardless of the number of units held by them.

The observer also said that under the Act, directors, key managerial personnel and their relatives are required to provide “disclosure of interest.” However, no such disclosure was given in FT MF’s notice.

Also read: Franklin Templeton verdict: When will side-pocket unitholders get their money?

According to the observer, the Act also requires a separate window (separate period) to be given for inspection of documents connected with the matter, which unitholders are required to vote on.

“The reason for such deviations have not been explained,” the observer’s report read.

The report also noted that not all unitholders were provided the data to participate in the voting process. As many 6,754 unitholders – about two percent of the unitholders – were not sent data as FT MF didn’t have their e-mail IDs or mobile numbers. The observer said that in such cases, data could have been sent physically through post or courier.

Recommendation on the winding-up process

The observer suggests that if any fund house is considering winding-up of any scheme, advance intimation of the board meeting should be given to SEBI, unitholders and also advertised through newspapers and website.

Among other aspects, the observer says SEBI’s “in-principle” approval for winding-up can be a conditional precedent to the e-voting. Instead of a simple majority, not less than 75 percent of votes cast should be considered for winding-up a scheme.

Other pertinent suggestions

Observer advised that to address the fears of unitholders, clear guidelines should be framed for the winding-up of the six schemes, including setting-up of an advisory board. This board should also have some representation from the unitholders’ side.

The observer said that holding of unitholders’ meeting with trustees before the e-voting should be considered, as unitholders can get more clarity and take a well-informed decision.

The report said that the voting was generally conducted, according to the e-voting notices sent by FT MF. “However, there were many grey areas in the procedure adopted, which raised doubts and apprehensions in the minds of investors,” the report said.

Given that such an event has happened for the first time, the observed noted that there were no clear guidelines, and even FT MF did not seem to have had a “clear idea about the procedure to be followed.”

For similar cases that might arise in the future, the observer recommends that the unitholders be given thirty days to cast their votes, and not just three days. The longer period, according to the observer, will give more time to unitholders to study the financial implications and take a considered view.Also, as there have been several complaints on the use of technology in e-voting, a thirty-day period would be in the best interests of the unitholders, according to the observer.
Jash Kriplani
first published: Jan 21, 2021 02:27 pm

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