Franklin Templeton : Consent Of Majority Shareholders Needed For Winding Up Funds After Publication Of Notices, Says Supreme Court

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The Supreme Court on Wednesday delivered the judgment in a batch of special leave petitions filed by Franklin Templeton against a judgment of the Karnataka High Court which had restrained Franklin Templeton from winding up the debt funds without obtaining the consent of investors.

The Supreme Court has agreed with the views of the High Court. However, it said that the requirement for consent of majority of shareholders will be post the publication of notices.
The Court further stated that it has upheld the validity of the regulations, and while doing so, they have held that in case trustees wrongfully seek winding up, SEBI will have the power to intervene in the same.

It has also been clarified that one of the reasons that the judgement was withheld for short while was because the Supreme Court did not want to prejudice the proceedings. Therefore, the facts in the case have not been examined at all and have been left open.

A bench comprising Justices S Abdul Nazeer and Sanjiv Khanna pronounced the verdict. Justice Khanna, who authored the judgment, informed the Counsels present that the matter will now be taken up in October, and if required, the Counsels had the liberty to file an application for early hearing.

Before concluding, Justice Khanna said, “This is basically a theoretical exercise of interpretation. We have not touched upon the facts at all”.

After approaching the SC, Franklin Templeton had later held an e-voting of the unit holders with the permission of the Supreme Court. On February 12, 2021, the Supreme Court had upheld the validity of the e-voting process.

The Court had also 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 crores amongst its unit holders, under the six mutual fund schemes. The application has followed the top Court’s last order whereby it had directed SBI Mutual Funds to undertake the distribution, dividing the amount amongst unit holders, in proportion to their respective interest in assets of scheme, as agreed by both Franklin Templeton Trust and SEBI.

The assets in the schemes were worth around Rs 26,000 crore on the day they were frozen.

Last year, several writ petitions were filed in High Courts across the country against the winding up of the Franklin Templeton debt schemes. In July 2020, the Supreme Court clubbed all those petitions and transferred them to the Karnataka High Court. The High Court delivered the verdict on October 24, 2020.

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