Franklin Templeton MF likely to move Supreme Court over HC order

Franklin Templeton Mutual Fund may turn to the Supreme Court over certain aspects of the Karnataka High Court order related to winding down of six debt schemes.

“While we are still in the process of studying the order, basis our initial review, we believe it may be necessary to appeal aspects of the order in the Hon’ble Supreme Court,” said Franklin Templeton India President Sanjay Sapre on Saturday. “It will also be our endeavour to seek appropriate directions from the court regarding return of cash of over Rs 5,200 crore, currently accumulated in the four cash positive schemes, and with regard to any additional cash we may receive while the matter remains under the consideration of the court.”

While the court has upheld the decision taken by the trustees to wind up the schemes, the consent of the unitholders will be required under regulation 18(15)(c) to operationalise the decision. 

The High Court has stayed the operation of its judgment for six weeks, which means the six debt schemes remain subject to winding up at this time. No redemptions would be allowed and the trustees and the AMC cannot make any borrowings or clear any liabilities during this period.

The court stated that the investors would be entitled to receive the money from cash-rich schemes if the decision of the trustees to wind up the schemes is held to be valid. The investors will get the money only after sale of assets of the schemes, after making payment to the creditors and making a provision for expenses of liquidation. “The court has effectively said winding up is not valid without unitholders’ approval. If unitholders do not agree with winding up, it would lead to fire sales when the schemes are opened up for redemption. This could lead to sub-optimal realisation of sales price or caps on redemption,” said Joydeep Sen, a consultant with PhillipCapital fixed income desk.

Investors’ money is likely to get stuck for some more time if the SC also decides to grant a stay on the matter.