Franklin Templeton’s legal troubles rise as Madras HC issues notice

• The court sought a status report from Sebi on the refund process
• The matter would be next heard on 26 June

MUMBAI: The Madras High Court has issued a notice to Franklin Templeton India, key managerial personnel and Securities and Exchange Board of India (Sebi) in a plea by an investor association, which alleged that unwise investments had led to the winding up of the fund house's schemes and left investors in the lurch.

The court sought a status report from Sebi on the refund process. The matter would be next heard on 26 June.

This is the second legal action against the asset management company (AMC) in a span of 10 days.

Last week, a clutch of high net worth investors (HNI) of Franklin Templeton had issued a legal notice to the market regulator seeking appointment of an administrator to oversee the management of the fund house and evolve a mechanism for timely payouts to unit holders.

They also sought Sebi's direction to 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.

On 23 April, Franklin Templeton had shut down its six debt schemes owing to severe liquidity issues and redemption pressures. These funds have total assets under management of ₹25,856 crore and over 300,000 investors.

In its plea, Chennai Financial Markets Accountability (CFMA) claimed that the loss to the unit-holders was estimated to be around ₹22,400 crores.

“In their own admission have stated that the recovery of monies across the 6 schemes shall be in the range of 5% to 81% over a period of over 5 years. Given the fact that the six schemes had 28,000 crores worth assets under management, average loss to the unitholders taking 20% as average realisation, would be around ₹22,400 crores. This is the size of hole in the pocket of common man where the principal amount is wiped off," said CFMA in a press statement.

The AMC, in a statement, denied the allegations and claimed that there were no illegality, wrongdoing or misrepresentation.

“We are examining the matter and will take appropriate steps as may be required. 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.

These increasing legal battles come even as Franklin has issued e-voting notices for the six debt schemes. The e-voting would be conducted 9-11 June. A meeting of unit holders for each of the six schemes will be held on 12 June. Investors are being asked to vote as schemes can be wound up only after repaying the amount due to the unit holders, said Franklin in the notices.

"In the present difficult times, the unit-holders which otherwise have right to liquidate their holdings are handtied and have to wait for over period of 5 years. The mutual fund and the fund managers should be made to answer questions on their choice of investment, and compliance of regulatory and prudential norms," said Nithyaesh Natraj, counsel for CFMA.

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