Franklin Templeton investors should expect more; SC suspends redemption of debt funds, questions SEBI

The wait for Franklin Templeton debt mutual fund investors has been lengthened with the Supreme Court today ordering a stay of redemption by investors of the six additional schemes. The Apex Court also questioned capital markets regulator SEBI for failing to intervene to protect investors’ interests. Hearing the matter, the court made up of Justices SA Nazeer and Sanjiv Khanna ordered Franklin Templeton to convene a meeting among the stakeholders to seek their approval for the closed schemes within a week.

The bench of two Supreme Court justices was listening to Franklin Templeton’s statement challenging the Karnataka High Court order that noted that all six debt mutual fund schemes required a simple majority consent of the participants before liquidating. Now, the fund house will have to convene a meeting of shareholders of the six debt mutual fund schemes within a week and seek their approval to close them. The court also added that the meeting would be held without prejudice to the rights and arguments of all parties.

Also read: Recovery of Franklin Templeton’s six liquidated debt schemes Rs 9,700 cr from Rs 26,000 crore lost

Franklin Templeton had terminated all six schemes in April this year, citing unprecedented bailout pressure and liquidity shortages in debt markets. All six schemes had an estimated asset under management (AUM) of Rs 26,000 crore in April.

The Supreme Court detained capital market regulator SEBI for failing to act quickly. The court noted that SEBI’s regulations are too sketchy and that the confusion was due to the language of its regulations, which the court said a layman cannot understand. Drawing parallels, the court questioned SEBI as to why it did not intervene earlier as the Reserve Bank of India did in the case of banks. SEBI informed the court that it has no powers over the scheme liquidation process.

Six closed schemes include, Franklin India Ultra Short Bond Fund, Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, and Franklin India Credit Risk Fund. These now have 43 percent, 27 percent, 26 percent and 8 percent of their respective assets under management (AUM) in cash. Earlier last month, the fund house said that through maturities, prepayments and coupon payments, the six schemes have so far received 9,682 million rupees.