Just 38 percent of Franklin Templeton’s unitholders voted: SEBI-appointed observer

The observer elaborated on a number of steps that the fund house could have taken to ensure a more robust exercise

January 21, 2021 / 03:14 PM IST

The observer’s report on the recently-concluded e-voting held by Franklin Templeton Mutual Fund (FT MF) was submitted to the Supreme Court (SC). It said that the e-voting exercise 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.

The observer elaborated on a number of steps that the fund house could have taken to ensure a more robust exercise. For starters, it said that unitholders of the six schemes that are sought to be wound up, should have got one vote for each unit they held. The fund house had, on the other hand, allowed investors only as many votes as the number of folios they had. Just 38 percent of the unitholders that had investments in the six debt schemes participated in the voting process, according to the Observer’s report.

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

Under the directions of the SC, the Securities and Exchange Board of India (SEBI) had appointed T.S. Krishnamurthy, former chief election commissioner as the observer for the voting process. Moneycontrol has a copy of the observer’s report.

Shortcomings in the process

Close

According to the Observer, FT MF had informed that the provisions of the Companies Act, 2013, read with the Companies (Management and Administration) Rules, 2014, will be followed for the e-voting exercise. This was because SEBI regulations did not have any specific rules regarding e-voting or conducting meetings of unitholders through video-conferencing. The Observer’s report said that Companies Act specifies one vote per fully paid-up share of the concerned company. “If this rule had been strictly applied, unitholders would have been entitled to exercise one vote per unit held on the cut-off date,” the report said.

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 Companies Act.” This, the Observer pointed out was contrary to the fund house’s claim that it had “broadly followed the provisions of the Companies Act, 2013, read with the Companies (Management and Administration) Rules, 2014… for conducting the e-voting.”

The observer also said that under the Act, directors, key managerial personnel and their relatives are required to provide a “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?

The report also pointed out that not all unitholders were provided the data to participate in the voting process. As many 6,754 unitholders – about 2 percent – were not provided the 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. Emails sent to Franklin Templeton mutual funds remained unanswered at the time of publishing.

"The three-day voting period, along with a voting window during video conferencing, was adequate given that the mode of voting was digital. Clients gave the feedback that the process was smooth. Close to 40 percent turnout is actually a reasonable number, given that it was such an unprecedented event," says Amol Joshi, founder of Plan Rupee Investment Services.

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. How practical this suggestion is, though, is another matter. If, as per the Observer’s note, this recommendation is followed for future winding up exercises, investors may rush for redemptions and cause fund houses to sell securities at throwaway prices, thereby negating an orderly winding-up.

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 also said that it is crucial for fund houses to have a trustees vote with unitholders before the e-voting takes place. Unitholders can get more clarity and take a well-informed decision, the report says. Given that such an event has happened for the first time, the observer 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 03:14 pm

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