Unitholders' nod to wind up MF schemes: Franklin Templeton moves SC against Karnataka High Court order

Supreme Court of India

Franklin Templeton Mutual Fund (MF) has moved the Supreme Court (SC) against the Karnataka High Court (HC) order that upheld the view that unitholders’ consent is a must before wind-up of any mutual fund (MF) scheme.

Sanjay Sapre, President, Franklin Templetong MF said that post the judgement of the Karnataka HC, FT MF considered all possible options over the last few weeks to start returning money to unitholders in the shortest possible time in an orderly manner. This included the option of seeking unitholder consent according to the judgment of the Hon’ble High Court.

"...after detailed deliberations, we have determined that it will be necessary to seek judicial intervention from the Hon’ble Supreme Court to ensure an appropriate implementation of the law in the best interest of unitholders. This action took some time because these steps needed to be carefully and thoughtfully taken to ensure that we can return unitholder monies at the earliest in an equitable manner, without distress sale of securities (at steep discounts) that would occur if there is a rush of redemptions," Sapre added in a letter to unitholders.

Last month, the Karnataka HC held the view that unitholders’ consent was a must to wind up any MF schemes.

In the 333-page order, the HC examined various aspects of the matter including the role of the Securities and Exchange Board of India (SEBI) and trustees in Franklin Templeton’s decision to wind up six of its debt schemes. A large part of HC's order was related to the existing regulatory guidelines for winding up any mutual fund scheme.

As of November 13, 2020, the six schemes have received total cash flows of Rs 9,682 crore, since April 24, 2020.

The cash available stands at Rs 5,952 crore as for the four cash-positive schemes, subject to fund-running expenses.

Among individual schemes, Franklin India Ultra Short Bond Fund and Franklin India Low Duration Fund have 43 percent and 27 percent of their assets in cash. Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have 26 percent and 8 percent of their assets in cash.