'Public Should Not Be Cheated' : Supreme Court Records Franklin Templeton Will Not Launch Any New Debt Scheme Till Disposal Of Appeal Before SAT

The Supreme Court on Monday recorded that Franklin Templeton Asset Management India Pvt Ltd will not launch any new debt scheme till disposal of its appeal pending before the Securities Appellate Tribunal, Mumbai.

The appeal being referred to here has been filed before the SAT against the order dated June 7, 2021 passed by Whole Time Member of the Securities and Exchange Board of India holding that Franklin Templeton has violated certain provisions of the SEBI (Mutual Funds) Regulations, 1996 and circulars issued by SEBI in relation to the management of six debt schemes.

A Bench headed by Justice Abdul Nazeer was on Monday hearing an appeal filed by SEBI challenging SAT's interim order granting Franklin Templeton stay on a condition to deposit Rs.250 crores, which is roughly half the amount of penalty imposed by the market regulator.

The Bench recorded the statement made by Senior Advocates Harish Salve and Dr AM Singhvi who appeared on behalf of Franklin Templeton.

The Bench noted that "We've heard counsels appearing for the parties. Mr Harish Salve and Dr Singhvi, Senior Counsels, submit that Franklin Templeton Asset Management India Pvt Ltd will not launch any new debt scheme till disposal of appeal pending before SAT Mumbai. The Submission of Ld Senior Counsels has been placed on record."

The Bench however refused to interfere in other part of the impugned Order that directed Franklin Templeton to pay 250 crore against demand of 512 crores as directed by SEBI.

The Bench further added that "4 weeks further time is granted to petitioner to file their reply before the Tribunal. We request the Tribunal to dispose of the main matter as expeditiously as possible."

During the hearing, Solicitor General Tushar Mehta appearing for SEBI submitted that the amount of Rs 512 crores was calculated based upon the statutory rules . The amount of 512 crores is not an imaginary figure and had an exercise had undergone to calculate it.

The Bench asked Mr Salve as to how the amount of 512 crores reduced to 250 crores by the interim order of the SAT.

"It is half. It is deposit 50% . It is an interim order. It is going to be heard. Heavens are not going to fall. We are not running anywhere" Salve said.

"It is a first appeal, normally in a money decree normal thing is to pay 50 %. That has been done here Mr Mehta" the Bench told Solicitor Genreal Tushar Mehta, who was objecting to the SAT reducing the amount to be deposit as Rs 250 crores in its interim order.

"It is not just a money decree, the prohibition has also been lifted on payment of 50%" ,Mr Mehta argued.

The Bench then said " Mr Mehta, You seem to be more aggrieved by the para 11 of the impugned judgement regarding the restrain put on them." ( para 11 puts a stay on direction of SEBI restraining Franklin Templeton from launching any new debt schemes for a period of two years shall remain stayed during the pendency of the appeal)

"You know what has happened to your 6 schemes, and we are still struggling with those schemes." the Court then turned to Franklin's lawyers.

"Between today and 31st no scheme will be launched" Mr Salve then undertook.

"Can we record that? Because we are not worried about 250 or 500 crores. Public can't be cheated and public should not be cheated" the Bench stated.

After Senior Counsels AM Singhvi and Harish Salve agreed that their statements can be recorded that no new scheme will be launched until disposal of appeal, the Bench told Mr Mehta that "What we are proposing is 50% deposit is alright as an interim measure and quite fair, and we'll record their submission that they wont launch any scheme"

Details of the Appeal filed before the SAT:

The appeal filed before the SAT was filed by Franklin Templeton Asset Management (India) Private Limited against SEBI's order directing to refund investment management and advisory fees along with interest at the rate of 12% per annum amounting to Rs. 512,50,92,534 within a period of 21 days. The order also prohibited them from launching new debt schemes for a period of two years and has further imposed a penalty of Rs. 5 crore.

When Franklin Templeton decided to wind up six debt schemes with effect from April 23, 2020, it caused furore in the stock market and various complaints were made by the investors as a result of which, a forensic audit was ordered by SEBI in terms of Regulation 66 of the Mutual Fund Regulations to verify as to whether the appellant had complied with the provisions of the securities laws including the SEBI Act, Mutual Funds Regulations etc.