SAT STAYS SEBI ORDER AGAINST FRANKLIN MF
Stays Sebi order barring it from launching new debt schemes, asks to deposit ~250 crore
The Securities Appellate Tribunal on Monday provided interim relief to Franklin Templeton Mutual Fund. The tribunal stayed Sebi’s direction to the fund house against launching any new debt scheme for a period of two years. SAT also allowed Franklin MF to deposit ~250 crore instead of ~512 crore as directed by Sebi. In an order passed on June 7, Sebi had directed Franklin MF to disgorge ~512 crore it had collected as investment management and advisory fees between June 2018 and April 2020.
The Securities Appellate Tribunal (SAT) on Monday provided interim relief to Franklin Templeton Mutual Fund (Franklin MF) by partly staying an order passed by market regulator Sebi against the fund house.
The tribunal stayed Sebi’s direction to the fund house against launching any new debt scheme for a period of two years. Also, The SAT allowed the asset manager to deposit ~250 crore, instead of ~512 crore as directed by Sebi.
In an order passed on June 7, Sebi had directed Franklin MF to disgorge ~512 crore it had collected as investment management and advisory fees between June 2018 and April 2020. Sebi also levied a penalty of ~5 crore for “several irregularities” in the running of its six debt schemes that were wound up in April 2020.
“It was contended that the impugned order restraining the appellant from launching any debt scheme for two years was not only arbitrary but was putting a stop on the business activity of the appellant,” the SAT said.
“It was also contended that the direction to refund investment management and advisory fees was wholly unwarranted and, in any case, arbitrary as it directed the appellant to deposit within 21 days whereas the statutory period for filing the appeal is 45 days. It was, thus, contended that the respondent was not even giving enough time to the appellant to file an appeal which shows the arbitrariness on the part of the respondent,” the tribunal further said.
Franklin MT had moved the tribunal against the Sebi order on Friday. After hearing arguments from both sides, the tribunal had reserved its order.
In its order released on Monday, the SAT observed that Franklin MF “has been in this business for more than two decades and some of the schemes have been in existence for more than 10 years. No complaints whatsoever have come on record to indicate the poor management of the schemes by the appellant”.
It further said FT MF was running 48 equity and debt schemes, of which 28 were debt schemes and as of date six schemes have been wound up by the appellant and, therefore, 22 debt schemes are still running.
“We are of the opinion that since 21 debt schemes are still being managed by the appellant and no complaint of these schemes has come to the fore the mere fact that the appellant has chosen to wind up six schemes does not mean that it should be debarred from launching any new debt schemes,” the SAT said.
The tribunal termed Sebi’s directive to Franklin MF to disgorge ~512 crore as “excessive.”
“As the refund of investment management and advisory fees is concerned we find that the whole time member has taken the gross amount as unlawful gains. In our view, prima facie, this appears to be incorrect, in as much as,
at best, only profits could be directed to be refunded after deducting the necessary expenses actually incurred by the appellant in managing the schemes. This factor has not been taken into consideration. Consequently, the direction to deposit ~512 crore appears to be excessive at this stage,” it said.
The SAT has now posted the matter for final disposal on August 30. Franklin MF has been asked to file a reply within four weeks and Sebi can file a rejoinder within three weeks after that.
On April 23, 2020, Franklin MF announced that it had decided to wind its six debt schemes citing liquidity issues due to the Covid-19 pandemic. The move had hit over 300,000 investors and locked up over ~25,000 crore of investments.