The Supreme Court (SC) on March 4, decided to postpone hearing on Franklin Templeton matter till July.
Although the SC did not clearly say so, the lawyers attending the hearings concur that the SC has decided to wait till after the Securities and Exchange Board of India (SEBI) conclude its own investigation on allegations of wrongdoing against Franklin Templeton MF and its officials.
“It appears that the Supreme Court would prefer an expert regulatory body like SEBI to first investigate and adjudicate the various allegations against Franklin Templeton and its officials, before hearing the case further,” said Paritosh Gupta of Gupta Law Associates, counsel for Areez and Persis Khambatta – who were among the earliest unitholders to have petitioned before a court.
“When SEBI passes an adjudication order, there will be much more clarity and SC can then pass appropriate orders in the matter,” he added.
Order on winding-up norms likely to be passed soon
Sources said, the SC is expected to pass an order in the next 7-10 days on the matter of how the winding-up regulations should be interpreted -- whether trustees’ approval is enough or unitholders’ approval is a must before winding-up of mutual fund schemes.
In November, 2020, Karnataka High Court had ruled that unitholders' approval was a must before winding-up a mutual fund scheme. After this, Franklin Templeton Mutual Fund moved Supreme Court against HC's order, but also took permission from SC to proceed with unitholders' voting.
SC allowed this, while still weighing in appropriateness of Franklin Templeton's move to wind-up schemes after just taking trustees' approval.
SBI Mutual Fund to file its SOP next week
According to sources, SBI Mutual Fund will be filing its standard operating procedure (SOP) in SC next week, outlining how it intends to sell the debt securities held in Franklin Templeton’s schemes.
The SC in February directed SBI Mutual Fund to take charge of selling the debt securities held in the six schemes of Franklin Templeton Mutual Fund, and asked the fund house to try its best to complete the process in shortest possible time, while protecting the investment value.
Also read: SC asks SBI mutual fund to oversee winding up of Franklin Templeton’s debt schemes
Unitholders have already received part of their investments from the five cash-positive schemes. As and when Franklin Templeton’s schemes will receive pre-payments, coupons and maturity payments on the debt securities and cash-levels go up, SBI Mutual Fund can transfer funds to the unitholders in tranches.
The selling of debt securities in these schemes will speed-up the process of repaying unitholders.
Status of FT MF schemes
Since the winding-up decision in April, 2020, the six schemes have received Rs 15,048 crore (as of February 26, 2021) from maturities, coupons and prepayments.
After the first tranche, cash was paid out from the five schemes, Rs 1,180 crore cash is available for distribution to unitholders.
“While the five cash positive schemes have distributed cash of Rs 9,122 crore… the balance amount will be distributed by SBI in tranches without waiting for liquidation of all securities in the portfolio,” Franklin Templeton Mutual Fund said in a recent statement.