Franklin Templeton: SEBI Appoints Observer On The Basis Of Supreme Court's December 9 Order

Securities & Exchange Board of India has appointed an Observer regarding e-voting of unit holders of six schemes of Franklin Templeton Mutual Fund.

This comes in light of an order passed by top court of December 9, 2020 whereby the top court had also directed that the result of the e-voting would not be announced and would be produced before the Hon'ble Supreme Court in a sealed cover along with the report of the Observer appointed by the SEBI.

The SEBI had been requested to appoint an observer for the purpose of the e-voting of unit holders, which is scheduled to take place between 26 and 28 December, in relation to the Franklin Templeton debt schemes that were wound up this year.

Accordingly, SEBI has appointed Shri Taruvai Subayya Krishnamurthy, the former Chief Election Commissioner of India as the "Observer" on December 18, 2020. 

On December 25, Chennai Financial Markets & Accountability (CFMA), one of the petitioners at the forefront for the cause of Unit Holders in the Franklin Templeton Mutual Fund (FTMF) case of winding up of six of its schemes had moved an urgent interim application before the Supreme Court in light of order of the court dated 9th December being rendered non-est.

It was contended by CFMA that though the aforesaid order was passed on the 9th of this month, there had been no "apparent" steps taken by SEBI to appoint an observer. 

"The voting is schedule to commence from tomorrow (26th December) and there is no update about who the Observer is, or his/her email id, contact information, etc.," it said.

The CFMA had stated that the conduct of SEBI in the FTMF case had remained "questionable" since the abrupt winding up of the six schemes in April 2020 by FTMF citing frivolous reason of COVID-19.

"Hon'ble Karnataka High Court also observed that SEBI being the market regulator did not do enough to sustain the confidence of investors and that the investors would be "justified in their criticism that SEBI was a silent spectator". Had it been any prudent regulator, it would have given the details of the observer well in advance for the unit holders to voice their grievances, if any. However, in the present case, SEBI has left the unit holders in lurch. FTMF choosing weekend for voting and SEBI remaining silent on the observer shows that the duo does not want to keep the voting process transparent and unbiased," the petitioner stated.

"What is the use to declare or put it in public domain today when the appointment was made on 18th Sept? The voting has already begun," Manoj K. Sethi, President of CFMA told Live Law.

Sethi also said that SEBI has been useless, vested, biased in the entire Franklin episode. "Everyday the point only becomes stronger," he added.

A bench of Justices Abdul Nazeer and Sanjiv Khanna is currently hearing the plea by Franklin Templeton Trustee Services Pvt Ltd challenging a Karnataka HC order which restrained winding up of six of its debt schemes without obtaining the consent of its investors by a simple majority. 

On December 3, the bench had allowed Franklin Templeton Trustees to call for a meeting of unit holders to seek their consent/approval.

The top court had also hauled up SEBI adding that it had a lot to answer for and why did it not intervene when unit holders started seeking redemption, much like how RBI intervened in cases of banks, to protect depositors.

The Karnataka High Court had also pulled up the Securities and Exchange Board of India (SEBI) for failing to act promptly to sustain the confidence of the investors.

A division bench of Chief Justice AS Oka and Justice Ashok S Kinagi held a special sitting on Saturday, October 24 in order to pronounce the verdict in petitions challenging the winding up of six debt fund schemes of the Fund House.

While the court said that it was not interfering with the decision to wind up the schemes, it said that FT has to take the consent of the unit holders before taking further steps on the basis of the decision.

"The decision of the trustees to wind up the six schemes is not interfered by the court subject to it obtaining consent from the unit holders", the court stated in the order.

It was in April that Franklin Templeton announced its decision to wind up six debt funds citing low liquidity. Nearly three lakh investors are estimated to be affected by this decision.