SC asks SBI mutual fund to oversee winding up of Franklin Templeton’s debt schemes

The Supreme Court (SC) on Friday quashed all objections to the e-voting results and gave the mandate to SBI Funds Management to oversee the winding-up of Franklin Templeton’s wound-up debt schemes.

The apex court brushed aside the request for another round of authorisation voting, as all the parties in the court had submitted that the winding-up should be overseen by a third-party.

This move will help in accelerating the process of repaying funds to unitholders of Franklin Templeton Mutual Fund (FT MF), after the schemes were shut in April last year.

“Franklin Templeton Mutual Fund will provide all assistance and co-operation to SBI Funds Management to monetise the assets. The decision of the Hon’ble Supreme Court to dispense with voting u/r 41 reduces any potential delay in commencing active monetisation of assets,” a spokesperson for FT MF said.

Giving the go ahead

After e-voting results were disclosed in January 2021, the SC was weighing if another authorisation vote (authorising FT MF or a third-party) can be done away with. The earlier results favoured winding up of the schemes.

In its 54-page order, which has been reviewed by Moneycontrol, the SC said that the trustees of FT MF had wanted the process of winding-up – selling the securities and distributing the proceeds to unitholders – to be handled by a third-party. The other parties had also made similar submissions, the court noted.

“Accordingly, with the consent of the parties, we have appointed SBI Funds Management to undertake the exercise of winding up,” the SC bench said.

Section 41 of the regulations of Securities and Exchange Board of India (SEBI) requires unitholders to vote on whether they should authorise the MF trustees to wind-up the schemes or any other third-party should.

Over Rs 17,000 crore worth of assets to be sold

The SC observed that as per the submissions made by FT MF and the trustees, more than Rs 17,000 crore of assets were yet to be realised in the six schemes.

The court noted that both the SEBI and trustees had wanted the process of liquidation to be handled with caution, as “offloading securities in haste could result in losses,” which would reduce the realisable value of the underlying debt securities.

SC said it did not want to give any specific directions on this to SBI Funds Management, but would expect the company to follow the “best effort        principle” to ensure the payment process is timely and that the best possible value is realised.

The court said the distribution to unitholders can be made in tranches. Payments relating to the six cash-positive schemes will start in next week.

Also read: Franklin Templeton's repayments to unitholders start next week: 5 key investor queries answered

Accepting the e-voting results

One of the objections raised to the e-voting was that only 38 percent of the unitholders had participated.

SC said that the need for a “minimum quorum” was not stipulated in regulations or law, so the e-voting results cannot be rejected on the grounds that only 38 percent of unitholders had participated, which amounted to 54 percent of investment value.

The court stated that “unitholders of the six schemes have given their consent by majority to wind-up the six schemes.”

Questions on regulations still to be settled

However, the court said that this order does not have any bearing on a separate issue on whether the unitholders approval is required after trustees decide to wind-up a MF scheme, or the objections regarding wrongdoing by FT MF.