Franklin Templeton did not seek approal from SEBI prior to shutting down six of its Mutual Funds

Franklin Templeton India shut down six of its debt schemes on 23 April this year citing severe illiquidity and redemption pressures amid the coronavirus pandemic.

According to the SEBI’s response to a recent right to information (RTI) application, Franklin Templeton India did not seek approval from the markets regulator Securities and Exchange Board of India (SEBI) before shutting down six of its struggling debt schemes.

However, Franklin Templeton’s public statements state that the regulator was informed about the winding up of schemes at every step.

The RTI query was filed by the Khambatta family, an investor in the Franklin Templeton funds. They filed a petition in the Gujarat high court case contending that the asset manager’s decision to wind up the schemes required the consent of investors. The petition led to a stay on the winding-up process on 8 June. The Karnataka High Court is hearing on daily basis this petition, along with three others, for quicker resolution of investor grievances against the asset manager.

In the RTI query, the Khambatta family said Franklin Templeton had claimed before the Gujarat high court and in a special leave petition in the Supreme Court that the company wound up the schemes after taking appropriate permissions from SEBI.

The Khambattas sought information pertaining to the date on which the permission for winding up of the schemes was applied for, the date on which it was granted and documentary evidence of any deliberation on the permission.

However, in response to the RTI, the markets regulator stated that, “SEBI has not granted any such permission to Franklin to wind up the said schemes”.

According to a Franklin Templeton spokesperson, Franklin Templeton had not made any statement before the High Court of Gujarat or the Supreme Court about SEBI granting them prior permission to wind up these six schemes. “As clearly stated in all our communications, the decision to wind up these schemes was taken in accordance with regulation 39(2)(a) of SEBI (Mutual Funds) Regulations, 1996. We continue to follow due process, both in making investment decisions and with regard to the winding up of the funds and remain committed to following the regulations in all respects,” he said.

Franklin Templeton had initiated winding up of the six schemes based on Section 39 of SEBI (Mutual Funds) Regulations, 1996, which empowers trustees of the asset management company to take such a decision to protect the interest of unitholders.