CFMA to approach Hon’ble Supreme Court as ‘leaving the fate of 3 lakh Unit Holders at the mercy of Trustees without knowing
the content of Forensic Audit will set a bad precedent’ Hon’ble Karnataka High Court upholds rights of Unit Holders in Franklin Templeton
The Hon’ble Karnataka High Court today delivered its final judgement on the issue of abrupt winding up of 6 schemes of Franklin Mutual Fund.While we await the copy of Judgement of Hon’ble Karnataka High Court, following is our interpretation of the Judgement
• Decision of the Trustees of FT Mutual Fund cannot be implemented till
majority of the unitholders grant their consent under MF Regulation
18(15)(c). The majority shall be a simple majority
• Board Minutes of Trustees to be made available to Unit Holders.
• The decisions taken by trustees would be amenable to judicial review under
Article 226 of the Constitution since the trustees discharge public duty.
• Regulation 39 to 41 of SEBI Mutual Fund Regulations are legal and valid.
• SEBI has not been proactive and has failed in its duty – to protect the interest
of the investors.
The Counsel for CFMA, Mr. Nithyaesh Natraj commented that its half battle won wherein rights of unit holders are upheld by the Hon’ble Court. He further stated that there are few areas which the Hon’ble Court have not decided upon and which as per him may set a wrong precedent for the Mutual Fund Industry. He further stated that it has been rightly observed by Hon’ble Karnataka High Court that SEBI has failed to be proactive. Unit Holders have lost faith in SEBI whose birth is to protect the interest of Investors and therefore, Judiciary is the
only hope. He emphasized that CFMA is for sure challenging the order in Supreme Court so that interest of unit holders are protected further.
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 who are merely formed with 10 lakhs worth capital, no full time employees and annual outgo of few lakhs and who hereby lack independence cannot be made responsible and accountable to decide upon the fate of the unit holders. 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 3 lakh unit holders of Franklin Mutual Fund may face risk of upto 70 to 80% of capital erosion. If this is extrapolated, it would mean potential risk to unit holders across the industry who may end up risking Rs 20 lakh crores is high is
the total Industry exposure. The Operation of the Judgement has been stayed for the period of 6 weeks from today on the request made by the Counsel appearing for Trustees and AMC of Franklin Mutual Fund.