Franklin Templeton case: Supreme Court Permits Distribution Mechanism Of SBI Mutual Fund And SBI Funds Management

Franklin Templeton case: Supreme Court Permits Distribution Mechanism Of SBI Mutual Fund And SBI Funds Management

The Supreme Court of India (SC) approved the application filed by SBI Mutual Fund and SBI Funds Management Pvt. Ltd., for placing on record the distribution mechanism proposed to be followed while distributing Franklin Templeton's 9122 crore amongst its unit-holders, under the six mutual fund schemes.

A Division Bench consisting of Justices Abdul Nazeer and Sanjeev Khanna heard the plea by Franklin Templeton wherein it challenged the order of the Karnataka High Court (HC) that restrained winding up of six of its debt schemes without obtaining the consent of its investors by a simple majority.

The Top Court gave its approval to the application for impleadment filed by SBI Mutual Funds and SBI Funds Management Pvt. Ltd.

In the last order the SC had directed the SBI Mutual Funds to undertake the distribution, dividing the amount amongst unit-holders, in proportion to their respective interest in assets of the scheme, as agreed by both Franklin Templeton Trust and the Stock Exchange Board of India (SEBI).

It was submitted in the application that SBI Funds Management Pvt. Ltd. has been appointed as Asset Management Company of SBI Mutual Fund, and SBI MF being a Trusthence all its operations are being carried out by SBI Funds Management Pvt. Ltd.

The application further reads, "Accordingly, SBI Funds Management Pvt. Ltd. would take all steps to endeavor to distribute the Rs. 9122 crore to the unit-holders of the six mutual fund schemes of Franklin Templeton Mutual Fund in compliance with the order dated 02.02.2021 passed by this Hon'ble Court.SBI Mutual Fund and SBI Funds Management Pvt. Ltd. shall collectively be referred to as SBIMF in short".

In May 2020, Franklin had mentioned that the trustees had sought a vote by unit investors for validly undertaking an orderly sale of the debt securities held in the funds and return money to Unit investors. However, the process was halted.

The HC had heard the petitions wherein the winding up of six debt fund schemes of the Fund House was challenged. It had refused to intervene with the decision of winding up and stated that Franklin Templeton should take the consent of the unit-holders before taking further steps.

The HC stated in its order that "The decision of the trustees to wind up the six schemes is not interfered by the Court consent from the unit-holders."

In April last year, Franklin Templeton had announced its decision to wind up six debt funds citing low liquidity. There are approximately 3 lakh investors who are estimated to be affected by this decision. After the said decision some investors moved various High Courts (HCs). All the petitions were clubbed by the SC that was filed by the investors.

On 2 February 2021, the SC has approved that SBI Mutual Funds be replaced with SBI Funds Management Pvt. Ltd. The Top Court in its previous order had given directions that the amount available with Franklin Templeton of Rs. 9122 crore should be distributed amongst the unit-holders under the six mutual fund schemesas of 15 January 2021.

The SC was scrutinizing objections to the e-voting results for deciding whether disbursal or payment to the unit-holders should be made. It had asked the Franklin Templeton Trust services and the asset management company to cooperate with SBI Mutual Funds and furnish to them entire data and details.

The Court had also directed the process to be completed within 20 days from the date of such order. Liberty was given to the parties to move an application before the Court if they find any difficulty in the process.

In December 2020, the SC had permitted Franklin Templeton Trustees to call for a meeting of unit-holders to seek their consent. It had pulled up SEBI mentioning that the regulatory body had to answer as to why it did not intervene when unit-holders started seeking redemption, much like how RBI intervened in cases of banks, to protect depositors.

The matter is posted on 17 February 2021 for final arguments.