Franklin Templeton case: Karnataka HC says fund house needs consent of unitholders for winding up

The Karnataka High Court on Saturday asked Franklin Templeton India seek the consent of unitholders before proceeding with the process of winding up six of its debt mutual funds schemes. Further, the court has imposed a six week stay on operation of the judgement and has asked the fund house to refrain from taking further action, news portal Bar and Bench reported. Franklin Templeton India had shut six of its credit risk debt mutual funds in April this year. The fund house had blamed redemption pressure for its decision to wind up the six schemes.

A Division Bench of Chief Justice Abhay Shreeniwas Oka and Justice Ashok S Kinagi observed that no interference is called for in the decision of trustees to winding up of the said schemes. “We hold and declare that the decision of the trustee to winding up the six schemes cannot be implemented until consent from the unit holders is obtained in accordance with Sub Clause C of Regulation 15. Hence we restrain the trustee to take any further steps based on the notice 23 April 2020,and 28th may 2020 issued till the consent of the unit holders is obtained,” the bench observed. Upon seeking consent of unitholders the trustees can take further steps.

Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund, were the six debt funds that Franklin Templeton had shut down in April. The asset under management of the funds was close to Rs 26,000 crore. 

Earlier this month, various reports said that the forensic audit of the six shut mutual funds by SEBI, showed that some employees of Franklin Templeton had redeemed their positions in the six schemes just ahead of winding up. The reports were termed as ‘misleading’ by Franklin Templeton Asset Management’s President Sanjay Sapre. “Winding up of the six funds has had a significant impact on the trust you placed in us as investors and partners. However, I remain certain that this decision, no matter how difficult, was the right decision for our investors to prevent value erosion,” Sanjay Sapre had said in a letter to investors.