Chennai, Oct 24 : Hailing the Karnataka High Court’s verdict that upheld the rights of unit-holders of the Franklin Templeton Mutual Fund (FTMF), the Chennai Financial Markets and Accountability (CFMA), an investor’s protection organisation, said it would approach the Supreme Court to safeguard the entire interests of investors.
The Karnataka High Court has directed Franklin Templeton Mutual Fund to not proceed with the winding-up of its debt schemes without obtaining the consent of its unit-holders. It clarified that the consent of unit-holders as per the regulations is to be obtained before going through the winding-up process.
Stating that the half-battle was won wherein rights of unit-holders are upheld by the Karnataka High Court, Nithyaesh Natraj, the counsel for the CFMA, noted: “There are few areas which the court has not decided upon (which) may set a wrong precedent for the Mutual Fund Industry.”
He pointed out that it has been rightly observed by the court that the SEBI has failed to be proactive in this case and reiterated that the CFMA would challenge the order in the apex court so that the entire interests of unit-holders are protected further.
“Leaving the fate of three lakh unit-holders at the mercy of trustees without knowing the content of forensic audit will set a bad precedent,” he added.
In a statement, the CFMA said the unit-holders would still be concerned that their fate is decided by the Trustees of Mutual Fund considering its lopsided structure. The Trustee Companies, which are merely formed with Rs 10 lakh capital, no full-time employees and annual outgo of few lakhs and which thereby lack independence, cannot be made responsible and accountable to decide upon the fate of the unit-holders, it said.
Further, the unit-holders would continue to be concerned as an industry issue, if the decision of Trustees is going to be considered as sacrosanct as it would risk investment of three lakh unit-holders of Franklin Mutual Fund may face risk of upto 70 to 80 per cent of capital erosion, Natraj said, adding that if this is extrapolated, it would mean potential risk to unit-holders across the industry who may end up risking Rs 20 lakh crore.
Meanwhile, the operation of the order has been stayed for the period of six weeks from the date of the verdict on the request made by the counsel appearing for Trustees and AMC of Franklin Mutual Fund.
The court also restricted the asset management company and trustees from taking on any fresh borrowings in the six debt schemes, which were shut in April. Notably, on April 23 amid severe redemption pressure and illiquidity, Franklin Templeton had decided to shut down its suite of six debt schemes, affecting 300,000 investors adversely and assets under management of Rs 26,000 crore.
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