Franklin Templeton investors send legal notice to Sebi

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MUMBAI :
A clutch of high net worth investors (HNI) of Franklin Templeton India on Thursday issued a legal notice to the market regulator seeking that it appoints an administrator to oversee the management of the fund house and evolve a mechanism for timely payouts to unit holders.

They have also sought that Securities and Exchange Board of India (Sebi) directs Franklin Templeton to withdraw the winding up process and undertake it only if unit holders vote in favour of the winding up exercise. They also sought that investors in the interim should be paid upto 2 lakh.

Mint has reviewed a copy of the legal notice. The notice has been sent by Franklin Templeton unitholders Kaj Associates LLP, Ultra Walls and Floors LLP and Satyam Jain. Last week these investors had sent a notice to Franklin Templeton demanding refund of their entire investment, and withdrawal of notice announcing the winding of 6 dent schemes.

On 23 April Franklin Templeton had announced that it is winding down its 6 debt schemes due to severe illiquidity and redemption pressures. This left 300,00 lakh investors in a lurch. These schemes have a combined asset under management of 25,856 crore.

These investors in the legal notices alleged that the winding up was not reasons mentioned by the AMC but due to violations of Sebi prescribed norms.

While an email sent to Sebi did not result in a response immediately, Franklin Templeton in a response to Mint said

“We deny all allegations and wish to clarify that there has been no illegality, wrongdoing or misrepresentation. We continue to follow due process, both in making investment decisions and in the winding up of these schemes. We have acted in the best interest of our investors and in accordance with all regulations,” said a spokesperson for Franklin Templeton.

In the complaint these investors said Franklin Templeton has violated all regulations, norms and safeguards and thereby defrauded investors of their funds. According to them the asset managers violation include investment in securities contrary to stated investment objectives.

The investors raised a grouch against Sebi norms which list out circumstances under which mutual fund schemes can be wound up. They said that regulation does not provide the mechanism through which an open ended scheme can be wound up. As per the Sebi norms schemes can be wound up if trustees decide, if 75% of unitholders vote in favour of winding up exercise or if Sebi directs winding up.

However, it does not define the mechanism for seeking unit holder nod for winding up.

Sebi on 20 May had issued a circular stating that schemes under the process of being wound up need to be listed on stock exchanges.

“The schemes were to be listed within 7 days. The said period is also over and none of the schemes have been listed,” said the investors in the legal notice.

They said that Sebi should have put in place a ‘regulatory mechanism for refunding investors’.

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