Franklin Templeton case: Karnataka HC says consent of unit holders needed for winding up schemes

The Karnataka High Court restrained Franklin Templeton trustees from winding up it debt schemes till consent of unit holders is obtained. The court told FT on Saturday that the trustees should have taken the consent of unit holders before approving the winding down of six debt schemes.

"We hold that no interference is called for in the decision of trustees to winding up of the said schemes. We hold and declare that the decision of the trustee to winding up the six schemes cannot be implemented until consent from the unit holders is obtained in accordance with Sub Clause C of Regulation 15," read the 330 page judgement. The division bench of Chief Justice AS Oka and Justice Askhok S Kinagi stated that in their judgement that no steps would be taken till consent of unit holders are obtained.

The court observed that if the trustees violate SEBI Act or the MF Regulations, then a High Court would issue "Writ of Mandamus under Article 226 to the Trustees". The court added that the trustees had an obligation to provide the minutes of the meetings dated April 20 and April 23 to the unit holders.

The Karnataka High Court acknowledged that the SEBI had no jurisdiction under Section 11-B of the SEBI Act to interfere with the winding-up decision but emphasised that it should have played a more active role.

Meanwhile, a FT spokesperson said that they are studying the order and will consult legal experts. "We are studying the order issued by the Hon'ble Karnataka High Court and will take appropriate steps in consultation with legal experts in the best interest of unit holders," said a Franklin Templeton spokesperson.

In April, FT decided to wind up six of its debt schemes -- Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund -- with total assets under management of over Rs 25,000 crore.

Also read: Franklin Templeton MF's six shut schemes generate Rs 8,302 cr since closure

Also read: Franklin Templeton's six shut schemes receive Rs 8,262 crore till September 30