AMFI wants SEBI to act as sole authority to probe all issues related to conduct of mutual funds after FIR filed against Franklin Templeton

After the Economic Offences Wing (EOW) of the Chennai Police registered a First Information Report (FIR) against the beleaguered Franklin Templeton Asset Management India Pvt Ltd (FTAMIL) and Franklin Templeton Trustee Services Pvt Ltd (FTTSPL) at the behest of Chennai Financial Markets and Accountability (CFMA), the Association of Mutual Funds in India (AMFI) has made representations to the Securities and Exchange Board of India (SEBI) requesting the regulator's intervention to ensure that fund managers do not feel threatened over investment decisions.

"The fear factor and panic amongst fund managers could lead to an undesirable contagion effect on the entire MF industry, such as mass resignations, over-cautious and over-defensive approach towards investment decisions, resulting in lacklustre performance etc. and must be avoided at any cost," AMFI's letter to SEBI read.

The AMFI urged SEBI to intervene in the matter and stake claim as the "sole authority to adjudicate all issues pertaining to the conduct of the mutual funds."

"The aforesaid FIR is unprecedented in the history of mutual funds in India, and all AMCs are concerned that bona-fide decisions and actions of mutual funds, which may go awry due to various extraneous reasons, are translated into criminal action by non-expert bodies, even when an expert regulatory body has been established under an Act of Parliament, viz. SEBI Act…" the letter said.

It said this instance of FIR will not only have a "chillingly detrimental effect" on fund managers, who would worry over the  consequences of genuine investment decisions going wrong due to factors beyond their control, but also senior managements of the fund houses, board of directors and trustee companies. In the letter, AMFI has stated that the FIR against Franklin Templeton deserves to be quashed.

The letter said this could even impact performances of schemes, as fund managers may adopt an over-defensive or excessively cautious approach due to these fears.

Citing various provisions of the SEBI act, the industry body argued that SEBI has exclusive powers to criminally prosecute someone for a violation of the SEBI act, and that no one else has right to approach the special courts which have the jurisdiction to try criminal offences under the SEBI Act.

The letter highlighted section 26 of the SEBI Act, which says that no court shall take cognizance of any offence punishable under the SEBI Act or any rules and regulations within the act, except if a complaint is made by the board.