Tag: debt schemes

Franklin Templeton MF: SC says SAT direction of ₹250-crore deposit is ‘fair’

Banking & Finance

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The Supreme Court has allowed Franklin Templeton Mutual Fund (FTMF) to deposit ₹250 crore into an escrow account instead of ₹512 crore as earlier directed by SEBI.

In June, the market regulator had asked FTMF to return nearly ₹512 crore it had collected as management and advisory fees since June 2018 on its six debt schemes that were shut down last year. Further, SEBI had banned the fund from launching any new debt schemes for two years.

Debt MFs: SEBI moots swing pricing

But the Securities Appellate Tribunal (SAT) stayed the SEBI penalty after Franklin Templeton challenged the market regulator’s order. SAT also found the SEBI penalty ‘excessive’ and directed FTMF to deposit ₹250 crore in an escrow account till the case is disposed of. SEBI had challenged this in the top court.

SEBI argued that reducing the penalty amount will set a precedent because its decision to ask the company to return ₹512 crore was based on facts and statistics.

However, the Bench of Justices Abdul Nazeer and Krishna Murari said that the court will not interfere with the SAT order. “Four weeks further time is given to SEBI before SAT, Mumbai. We direct SAT to dispose of the matter expeditiously as possible,” the Supreme Court said.

FTMF submitted that it would not launch any new debt schemes till the matter is disposed of by SAT.

Franklin Templeton: Suspended debt schemes to pay Rs 3,303 crore

‘A drop in the ocean’

“The SC feels that ₹250 crore is enough. But the real question is how will this help the investors. The amount is just a drop in the ocean against what FTMF owes its investors. Also, ₹250 crore is peanuts versus the adjustments that FTMF has done in its books,” said Anil Jain, a chartered accountant and investor litigating the case in the Supreme Court.

Jain says that ₹512 crore that SEBI had asked FTMF to deposit was based on the NAV adjustments done by the fund house and it was the clawback amount that would have come to the unitholders. “There is a huge difference in the NAV of the six debt schemes that FTMF had given in April 2020, when the schemes were shut, versus the NAV they gave out recently. Of the ₹512 crore, ₹452 crore was clawback amount and ₹60 crore the interest on it. After a scheme is shut, rules do not provide for daily NAV adjustments. Investors say FTMF on its own resorted to declaring NAV adjustments even after the schemes were shut and brought down the valuation and thereby influenced the clawback amount,” Jain says.

Franklin Templeton declined to comment on the Supreme Court order.

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Franklin Templeton to move SAT against SEBI order

Banking & Finance

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Franklin Templeton and its top executives have decided to move the Securities Appellate Tribunal against SEBI’s order that banned the company from launching any new debt schemes for two years in addition to imposing a fine of ₹5 crore on the fund house.

“We strongly disagree with the findings in the SEBI order and intend to file an appeal with the Securities Appellate Tribunal,” said Franklin Templeton spokesperson on Tuesday.

“We place great emphasis on compliance. The decision by the Trustee in April 2020 to wind up the funds was due to the severe market dislocation and illiquidity caused by the Covid pandemic and was taken with the sole objective of preserving value for unitholders,” said the spokesperson.

On Monday, SEBI asked FT AMC to return nearly ₹460 crore it had collected as management and advisory fees from the investors in the six debt schemes since June 2018 with 12 per cent interest. SEBI had found serious lapses in the way Franklin Templeton India mutual fund had managed the debt funds that were wound up suddenly last April. Additionally, SEBI imposed a penalty of ₹5 crore on Franklin Templeton India AMC for violating various SEBI rules. SEBI also levied a penalty of ₹7 crore.

Also read: SEBI bans Vivek Kudva, Roopa Kudva for one year from market in FT case

‘Trustee vindicated’

The company said the amount repaid to investors so far ranges between 40 per cent and 92 per cent of AUM across the six schemes. The current net asset value of each of the six schemes is higher than what it was on April 23 last year. “We believe this supports the decision made by the Trustee in consultation with the AMC and its investment management team to wind up the six schemes,” the spokesperson said.

These schemes provided an important source of funding to growing companies in India that to date have proven to be sound investments. Many of these holdings are now being liquidated by the schemes at fair value under normal market conditions, said the spokesperson.

Kudva mulls next move

Vivek Kudva, Head of Franklin Templeton Asia-Pacific, is also likely to move SAT against the SEBI order that found him and his family members guilty of violating the Prevention of Fraudulent and Unfair Trading Practices.

Kudva has claimed that he has already set aside the proceeds from the sale of units and will not enjoy more than what other investors in the scheme get after the closure of the schemes. “I am reviewing the order and considering appropriate next steps which may include filing an appeal before the SAT,” said Kudva.

“I have always acted in accordance with SEBI regulations, including in this instance. My personal transactions in the two schemes (under wind-up proceedings) have been conducted with no intent to gain an unfair benefit,” he added.

 

 

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