SAT stays Sebi order; Franklin Templeton gets interim relief

The Securities Appellate Tribunal (SAT) has stayed the market regulator Sebi's order barring Franklin Templeton Asset Management (India) from launching any new debt scheme for two years, thus giving it an interim relief, the company said on Monday.

"With reference to the order issued by the Whole Time Member (WTM) of Sebi on June 7, 2021, Franklin Templeton Asset Management (India) Pvt Ltd filed an appeal and an application for stay before the Hon'ble  SAT. After hearing the parties, the Hon'ble SAT has stayed the operation of the order passed by the WTM," a Franklin Templeton spokesperson said in a statement.

Sebi will now file its reply on the SAT order in four weeks and then FT will file a rejoinder in the next three weeks. The matter has been listed on August 30, 2021 for further directions, the company said.

The Securities and Exchange Board of India order had found Franklin Templeton "committed serious lapses/violations with regard to a scheme categorization (by replicating high-risk strategy across several schemes) and calculation of Macaulay duration (to push long term papers into short duration schemes)."

The company was found to be in violations of "non-exercise of exit options" amid the emerging liquidity crisis, "securities valuation practices, risk management practices and investment related due diligence".

"As a result of the irregularities in the running of the debt schemes inspected, loss has been caused to the investors. The noticee (Franklin Templeton AMC) was under a statutory obligation to abide by the provisions of the Mutual Regulations and Circulars issued thereunder, which it failed to do," the Sebi order said.

The market regular also found "serious lapses and violations" that led to the fallout of the Franklin Templeton AMC's obsession to "run high yield strategies without due regard from the concomitant risk dimensions".

The company had shut six debt mutual fund schemes on April 23, 2020, citing redemption pressures and lack of liquidity in the bond market. These 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 -- had an estimated Rs 25,000 crore as assets under management.

Sebi then ordered a forensic audit and appointed Chokshi and Chokshi LLP, Chartered Accountants, to conduct a forensic audit of Franklin Templeton MF, Franklin Templeton AMC, and trustees, on these six debt schemes.

In addition, the regulator had asked Franklin Templeton to refund investment management and advisory fees to the tune of Rs 512 crore, including interest, collected with respect to its six debt schemes which are now shut.

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