Finance

SC orders the fee of Rs 9,122 crore to traders in 6 Franklin MF methods

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The money distribution exercise needs to be completed quickly.

In a relief to more than 3 lakh shareholders, the Supreme Court on Tuesday allowed investors in the six closed Franklin Templeton Mutual Fund (FTMF) programs to pay out Rs.9.122 billion in proportion to their respective interest in the system's assets within 20 years days. The six debt securities were liquidated by FT on April 23, amid difficulties in the bond market due to the pandemic.

A bank made up of Justice S Abdul Nazeer and Sanjiv Khanna hired SBI Mutual Funds to handle the disbursement of the money as agreed by the lawyers who represent Franklin Templeton Trusts Services and Sebi. FT and the Asset Management Company would fully cooperate with SBI Mutual Funds in this regard and provide full details of the debt.

The funds distribution exercise must be completed swiftly, preferably within 20 days of Tuesday's order, the Apex court said, while allowing parties the freedom to turn to them if any difficulties arise from the process.

The bank also found that the lawyers who objected to the e-voting process did not object to the distribution of the funds to investors.

Sebi's attorney Pratap Venugopal told the Supreme Court that the money could be "distributed immediately" in proportion to the interests of the shareholders. He also said that the MF regulations made no distinction between large and small investors and that the payout should be completed in 12 to 18 months as the law did not specify the timing. Sebi's answer came after the judiciary asked Khanna about the modalities of the disbursement of funds and whether they should be distributed all at once or in stages and whether larger stakes should be given later.

The Apex Court allowed Franklin Templeton Trustee Services to meet with shareholders of six debt securities in December and had also suspended repayment from the systems pending further orders. An “overwhelming majority” of shareholders voted in December to move. Around 3 lakh investors were affected by the liquidation of these debt funds.

Some shareholders had raised questions about the fairness of the e-voting process carried out by KFintech (formerly Karvy), the registrar and transfer agent for mutual funds. They stated that there were irregularities in the e-voting process. "There are cases where multiple votes are cast from KFintech's IP address. This is none other than old Karvy who can't accept new customers," they argued.

The question of the interpretation of the Sebi regulations for the settlement still has to be examined. In its judgment of October 24th, Karnataka HC expressed its disappointment over the ambiguity in the rules of the market regulator.

The Franklin Templeton Mutual Fund has challenged the HC's order asking the fund house to obtain the approval of the shareholders of the six proposed debt mutual funds. The HC had also prevented the asset management company and trustees from taking out new loans in the six debt securities.

While upholding Franklin's decision to close the six schemes, the HC said, "The trustees' decision to wind down the six schemes will not be interfered by the court, provided it obtains shareholder consent."

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Steven Gregory