SEBI Vs Franklin Templeton Trustees Services Pvt. Ltd (Karnataka High Court)
i) We hold that no interference is called for in the decision of the Trustees taken on 23rd April 2020 of winding up the said six Schemes;
ii) We hold and declare that the decision of the Trustees (the Franklin Templeton Trustee Services private Limited) to wind up six Schemes mentioned in paragraph-1 of the Judgment by taking recourse to sub-clause (a) of clause (2) of Regulation 39 of the Mutual Funds Regulations cannot be implemented unless the consent of the unit-holders is obtained in accordance with sub-clause (c) of clause (15) of Regulation 18. Hence, we restrain the Trustees from taking any further steps on the basis of the impugned notices dated 23rd April 2020 and 28th May 2020, till consent of the unit-holders by a simple majority to the decision of winding up is obtained by the Trustees in accordance with sub-clause (c) of Clause (15) of Regulation 18 of the Mutual Funds Regulations;
(iii) It will be open for the Trustees to obtain consent of the unit-holders as provided in sub-clause (c) of clause (15) of Regulation 18 and to take further steps in accordance with clause (3) of Regulation 39 of the Mutual Funds Regulations;
(iv) We hold that Regulations 39 to 41 of the Mutual Funds Regulations are legal and valid;
(v) We direct the Securities and Exchange Board of India to ensure that the Forensic Auditors submits their report in accordance with Regulation 64 at the
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
The event which lead to filing of this group of petitions is the notice dated 23rd April, 2020 issued by the Franklin Templeton Trustee Services private Limited (for short “the Trustees”) by taking recourse to the provision of sub-clause (a) of clause (2) of Regulation 39 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (for short ‘the Mutual Funds Regulations’). By the said notice, it was declared that the Trustees have decided to wind up the following six Schemes of the Franklin Templeton Mutual Fund:
i) Franklin India Low Duration Fund (Number of Segregated portfolios – 2)
ii) Franklin India Ultra Short Bond Fund (Number of Segregated portfolios – 1)
iii) Franklin India Short Term Income Plan (Number of Segregated portfolios – 3)
iv) Franklin India Credit Risk Fund (Number of Segregated portfolios – 3)
v) Franklin India Dynamic Accrual Fund (Number of Segregated portfolios – 3)
vi) Franklin India Income Opportunities Fund (Number of Segregated portfolios – 2)
2. There were three writ petitions filed in the High Courts of Delhi, Gujarat and Madras for challenging the action of winding up of the aforesaid six Schemes (for short “the said Schemes”). A criminal petition was filed in Madras High Court seeking a writ of mandamus against the respondents therein for setting criminal law in motion against those who were allegedly responsible for the winding up of the said Schemes.
3. On 19th June, 2020, the Apex Court passed an order in Special Leave Petition (civil) No.7553/2020 and Transfer Petition (civil) Nos.663-664/2020), transferring the aforesaid four cases to this High Court. The order of the Apex Court reads thus:
“After hearing the learned senior counsel appearing for the parties at length, we are not inclined to entertain the interim order dated 08.06.2020 passed by the High Court of Gujarat at Ahmadabad in Civil Application No. 1 of 2020 in Special Civil Application No. 7201 of 2020.
It is pointed out that several writ petitions are pending in the High Court of Gujarat, The High Court of Delhi as well as the High Court of Judicature at Madras. It is agreed that let the matters be transferred to the High Court of Karnataka, to be heard by a Division Bench. Thus, we request the Hon’ble Chief Justice of the High Court of Karnataka to take up matters himself in a Division Bench. Let the pending matters be transmitted to the High Court of Karnataka, including the appeal filed by SEBI before the High Court of Gujarat against the interim order.
Let the matters be transmitted to the High Court of Karnataka within 15 days by the concerned High Courts. Let the High Court of Karnataka hear and finally decide the matter, including SEBI appeal, within three months.
As per the list provided by the learned counsel, the following matters are to be transmitted to the High Court of Karnataka:-
