Sebi seeks time to file counter in High Court on PIL against Franklin MF

The PIL had been filed by an investor protection society in response to the abrupt winding up six debt schemes worth Rs 28,000 crore of assets under management by the fund house

The Securities and Exchange Board of India (Sebi) has sought time from the Madras High Cout to file a counter affidavit or status report on a Public Interest Litigation (PIL) filed by Chennai Financial Markets Accountability (CFMA) against Franklin Templeton Mutual Fund. 

The PIL had been filed in response to the abrupt winding up six debt schemes worth Rs 28,000 crore of assets under management by the fund house.

CFMA, a society in Chennai to protect the interest of investors, alleged that the anticipated loss to unit-holders is estimated to be around Rs 22,400 crore as against the fee of around Rs 4,400 crore charged by the Mutual Fund for managing funds. 

It had approached the Madras High Court on May 22, representing the public interest of various stakeholders, especially, the depositors in six mutual funds floated by the Franklin Templeton Asset Management India Pvt Ltd (FTAMC) and the Trustees of the Mutual Fund Santosh Kamath, Sanjay Sapre and other key managerial persons.

The society informed the court that it has submitted a representation to Sebi with a wide range of allegations against the company and its management about the investments made by them in companies that did not have triple-A or double-A ratings. The society added that all of a sudden, the Schemes were wound up, leaving the investors in lurch. The matter involves several crores of rupees. Most of the investors had put their life savings and therefore, it was high time the market regulator took immediate, necessary and appropriate action, argued senior advocate Ar L Sundaresan, appearing for CFMA. 

An order issued by the division bench comprisiing Justcice M Sathyanarayanan and Justice Anita Sumanth, issuing notice of motion, said that Sivakumar, Standing counsel accepted notice on behalf of Sebi and sought time to file a counter affidavit or status report with supporting documents. The matter is posted for hearing on June 23, 2020 now.

A Franklin Templeton spokesperson responded, "We are examining the matter and will take appropriate steps as may be required."

In a statement issued, the spokesperson added, "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."

CFMA in a press release said, "FTMC in their own admission have stated that the recovery of monies across the 6 schemes shall be in the range of 5 per cent to 81 per cent over a period of over 5 years. Given the fact that the six schemes had 28,000 crores worth assets under management, average loss to the unitholders taking 20% as average realisation, would be around Rs 22,400 crore. This is the size of hole in the pocket of common man where the principal amount is wiped off". 

Nithyaesh Natraj, the counsel for CFMA alleged that there is no commitment either from FTMC or Sebi that at least the principal amount of all unit-holders is secure and shall be repaid. He said that the issue raises concerns not only on the six schemes of one company, but the scope is wide and deep. "If this can happen to the best mutual fund, one can imagine what happen to the rest," he opined.

In the present difficult times, the unit-holders which otherwise have right to liquidate their holdings are hand-tied and have to wait for over period of five years by then the FTMC would have left Indian shores, he alleged.

CFMA is planning to upload an online petition to showcase unity amongst unit-holders and investors which shall then be forwarded to Franklin Templeton Investments in US, the market regulator in US and the Prime Minister's Office.