SAT Stays SEBI Order Against Franklin Templeton

A motorcylist passes in front of the Franklin Templeton Investments building in Hyderabad. (Photographer: Adeel Halim/Bloomberg)

SAT Stays SEBI Order Against Franklin Templeton

In a partial relief for Franklin Templeton Asset Management Co., the Securities Appellate Tribunal has granted a stay on the market regulator’s order barring the mutual fund from launching new debt schemes till the disposal of the appeal.

SAT has thus permitted Franklin Templeton to launch new debt schemes. The order came in an appeal filed by Franklin Templeton against the June 7 order by which the Securities and Exchange Board of India had barred the AMC from launching new debt schemes for two years.

“We are of the opinion that since 21 debt schemes are still being managed by the appellant [Franklin Templeton] and no complaint of these schemes have come to the fore.”- SAT Order

The mere fact that Franklin Templeton chose to wound up six schemes does not mean that it should be debarred from launching any new debt schemes, the appellate tribunal said.

Besides the issue of new debt schemes, SAT has also found SEBI’s directions on refund to be “incorrect”.

In its June 7 order, SEBI had directed the AMC to refund investment management and advisory fees collected from June 4, 2018, till April 23, 2020, for six of its debt schemes. This amount of Rs 512.50 crore would be used to repay the unitholders, the regulator had said.

SAT has noted that prima facie, this appears to be incorrect. “At best, only profits could be directed to be refunded after deducting the necessary expenses actually incurred by the appellant in managing the schemes.”

It found SEBI’s direction excessive and has asked Franklin to deposit Rs 250 crore in an escrow account within three weeks.

Also read: SEBI Orders Franklin Templeton AMC To Refund Over Rs 500 Crore, Bars New Debt Schemes For Two Years

Franklin Templeton had contended that SEBI’s order is adversely impacting its business activity, The regulator’s order, it said, was “unreasonable” as it took into consideration a past event—winding up of the schemes.

The AMC had argued that the decision to wind up the schemes wasn’t an indicator of their portfolio quality. That’s because the combined net asset value of these schemes is currently higher as on date compared to when they were wound up.

In April 2020, Franklin Templeton Mutual Fund had wound up the six yield-oriented, managed credit funds citing “severe market dislocation and illiquidity” caused by the Covid-19 pandemic.

After receiving investor complaints, SEBI initiated a forensic audit and investigation against the mutual fund, its board of directors and trustees on how the six schemes were managed. The regulator had found serious lapses in the way the six debt schemes were managed.

The matter will come up for final hearing on Aug. 30.

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