The Supreme Court on Friday upheld the e-voting process, for the assent of three lakh unitholders, on the winding up of Franklin Templeton’s six mutual fund debt schemes.
An “overwhelming majority” of unitholders had voted in favour of the winding up of the schemes which were wound up by FT on April 23, citing difficulties in the bond market conditions following the pandemic.
A bench comprising justices SA Nazeer and Sanjiv Khanna, while rejecting the objections raised by some investors to the e-voting results, held that the majority of unitholders had favoured the move to wind up these schemes. It said the “consent of the unitholders would mean consent by majority of the unitholders who have participated in the poll, and not consent of majority of all the unitholders of the scheme… Winding up and disbursements would be in terms of our directions in earlier orders of February 2 and February 9”.
The apex court had on February 2 and February 9 entrusted SBI Funds Management, to carry out the exercise for disbursing Rs 9,122 crore to the investors of the six schemes in “proportion to their respective interest in the assets of the scheme” within 20 days. The SC had also approved the distribution plan submitted by the SBI Funds, which sought protection from any liability arising from such distribution exercise and wanted to rely solely on the data/amounts provided by FT for effecting the distribution.
However, the judges on Friday observed that SBI Funds “shall follow the best effort principle so as to ensure expeditious and timely payment to the unitholders and assure the best possible liquidation value of the assets/ securities to the unitholders.
While noting that securities of “substantial amount” equivalent to more than Rs 17,000 crore were yet to be realised, the top court said that the trustees and Sebi had given different time frames within which securities can be liquidated. However, both the trustees and Sebi, had stated that the liquidation/realisation had to be proceeded with caution, as an attempt to offload the securities in haste could result in losses which would be detrimental and cause reduction in realisable value, it said.
The issue with regard to interpretation of the Sebi regulations governing winding up is yet to be examined. The Karnataka High Court in its judgment on October 24 had expressed disappointment over ambiguities in the market regulator’s rules.
Franklin Templeton had appealed against the Karnataka HC’s order that asked the fund house to obtain the consent of the unitholders of the six debt mutual fund schemes that it proposed to wind up.
While upholding Franklin’s decision to shut down six of its debt schemes, the HC said that “the decision of the trustees to wind up the six schemes is not interfered by the court subject to it obtaining consent from the unitholders.”
The HC had also restricted the asset management company and trustees from taking on any fresh borrowings in the six debt schemes.