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Gujarat HC stays Franklin’s e-voting process in plea filed by Rasna promoters

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MUMBAI: The Gujarat high court has stayed the e-voting process for winding up Franklin Templeton’s six debt schemes in a plea filed by promoter directors of soft drink brand Rasna Pvt Ltd.

The plea has alleged that the winding up of the debt schemes was illegal. The matter will be next heard on 12 June.

“By way of ad-interim relief, the operation and implementation of the notice dated 28.05.2020 regarding E-voting and Unit-holder’s meeting send through Email by respondent no.3 herein shall remain stayed,” the high court said in its order.

Franklin had issued e-voting notices seeking unit holders’ authorisation to monetise the underlying securities set aside on 28 May. E-voting notices were issued to 300,000 investors who invested in the six debt schemes. The e-voting to authorise either the trustees of Franklin or Deloitte Touche Tohmatsu India LLP to monetise the assets was scheduled for 9-12 June.

“We are examining the matter and will take appropriate steps as may be required. We continue to follow due process, both in making investment decisions and in the winding up of these schemes. We have acted in the best interest of our investors and in accordance with all regulations,” a Franklin spokesperson said.

83 year-old Arzeen Piruz Khambatta, his wife Persis Khambatta and Khambatta family trust filed the case against Franklin Templeton alleging that the winding up of six debt schemes is improper, arbitrary, taken in haste and illegal.

They also made Securities and Exchange Board of India (Sebi) and Ministry of Corporate Affairs (MCA) a party to the case.

The plea has sought the winding up decision to be set aside, redemption request honoured at the net asset value of 23 April (when the schemes were shut), an appropriate body to manage the funds till all redemptions are honoured, and to initiate action against the Asset Management Company (AMC).

It alleged that the bonafide and innocent unitholders are being arm-twisted to accept the decision of winding up which is detrimental to them and taken solely to hide the acts of mismanagement of funds by Franklin Templeton.

The total investment of these three entities in schemes of the fund house is to the tune of 6.55 crore.

Trustees of Franklin Templeton had decided to shut down six debt schemes due to severe redemption pressures and illiquidity on 23 April.

The plea has also alleged that the winding up exercise undertaken by Franklin is illegal, as the steps were taken unilaterally without the consent of unitholders.

Referring to Section 18 (15) of Sebi mutual fund regulations which says trustees need to take the consent of unitholders to wind up or prematurely redeem units, the plea said neither the act, Sebi rules nor the scheme documents envisage such a unilateral step.

Paritosh R Gupta, of Gupta Law Associates, counsel for Khambatta, argued that winding up action carries with it severe and grave consequences on investments made by investors and thus under no circumstance such step can be permitted to take without the consent of unitholders.

By allowing such a winding up Sebi and MCA are also abdicating their responsibility of protecting investor interest, the plea added.

It said the fund house has not been run to the ground due to covid-19 crisis but by conscious acts of mismanagement. These investments were neither prudent nor in-line with disclosures made in scheme related documents.

As per the scheme documents the funds were to invest in medium/ high investment grade instruments. However, the funds have invested in lower-rated papers.

“Public money has been misused for personal gains instead of making safe investments in tradable and investment grade securities,” the plea said.

The plea highlighted that the fall in asset managed by these schemes between the lockdown announcement till winding up decision was 5,200 crore or 17% of the AUM. However, for the rest of the industry fall in AUM for the same category of funds was 2,596 crore.

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