Supreme Court directs SEBI to appoint observer for Franklin Templeton voting

The Supreme Court said Securities and Exchange Board of India (SEBI) should appoint an observer to oversee the voting process that unitholders of Franklin Templeton Mutual Fund will participate in to decide whether the six debt schemes should be closed down. The voting for the six schemes is scheduled from December 26-28. This will be followed by the unitholders’ meeting through Video Conference on December 29, 2020.

The voting results and the report of the observer will be submitted to the Supreme Court in a sealed envelope. The redemptions will continue to be stayed till the date of the next hearing scheduled in the third week of January 2021.

“This will ensure that there is an external auditor who is monitoring everything and will give confidence to investors that the voting process takes place in a fair and transparent manner,”says Kirtan Shah, Chief Financial Planner, Sykes and Rays Equities.

In an email to unitholders, Franklin Templeton President Sanjay Sapre reiterated investors must give their consent for an orderly winding up of the six schemes.

If majority of the unitholders vote in favour of winding up the schemes, Franklin would be able to return the money with the least disruptions, said investment advisors.

In previous communications, Franklin said unitholders with investments in more than one out of the six schemes must vote separately. They must choose between two options–Yes and No– in the upcoming voting process. A ‘Yes’ vote will mean that the six schemes need not be required to make a distress sale of bonds to fund redemptions to unitholders, said the fund house. A ‘No’ vote will mean the funds may have to re-open for purchases and redemptions, which could lead to ‘significant’ losses due to the need to sell securities at distress prices to fund the redemption, it said.

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