Thread by @GSLChambers

The Karnataka High Court will shortly resume hearing on plea challenging the validity of Regulation 39 to 41 of #SEBI (Mutual Fund) Scheme, 1996 pertaining to winding up of MF schemes.

@amrutanikam26 @sh_abhinav @LiveLawIndia @barandbench #gslupdates #franklintempleton

Yesterday, Sr. Adv. Mr. @sradvravindra pointed out to the court that the regulations do not allow #SEBI to enter into the arena of judging the correctness of the decision of winding up.

@amrutanikam26 @sh_abhinav @LiveLawIndia @barandbench #gslupdates #franklintempleton

Mr. @sradvravindra: Under regulation 41(2)(b) the investors have the lowest priority of receiving the money which is discriminatory.

@amrutanikam26 @sh_abhinav @LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

When the trustees decide to publish the notice of winding up in the newspaper it seriously curtails the right of the unit holders.

@amrutanikam26 @sh_abhinav @LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Since it is the money of the investor lying with the respondent company the investors are equivalent to the position of a financial creditor.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

If there is a justification for winding up, the correct procedure shall be to pay the investors first.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

In the #IBC the homebuyers were not initially recognised as financial creditors and only after amendment were they included as financial creditors.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

According to a judicial precedent homebuyers were held to be equivalent to the financial creditors and they have a right to be in the committee of creditors.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

There is no intrinsic difference between the financial creditors from whom money has been recieved through borrowing and the investors.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Creating a distinction for the purpose of preference in the payment is a hostile classification.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The effect of regulation 39(3) is that the right of the investors of redemption is clogged from the date of publication of notice in the newspaper.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Violation of Article 21 is also being done by these regulations.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The fundamental right to life guaranteed under the constitution is being violated.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The importance of value of money is very high as far as livelihood and standard of living is concerned.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

It is connected with the right to live with dignity. This winding up process is arbitrary and capricious. This is absolute loss of the money of the investors.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

These regulations are violative of the letter and spirit of Article 21.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

According to a judicial precedent the right to life and dignity of a person and status without means are cosmetic rights.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The right to economic empowerment to the poor is a fundamental right to make their right to life and dignity of person meaningful and worth living.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: How is investment in MF in parity with Life insurance?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Mr. @sradvravindra: both of them are analogous. Investments are made to secure money by way of savings to be used in emergencies. The purpose of Life insurance is similar.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: If a person does not get expected returns from a MF does it amount to violation of Article 21?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Mr. @sradvravindra: Not in the ordinary course. But under the special circumstances of this case where the power of winding up is given to a private entity Article 21 is being violated.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The regulation violates Article 21 because the power of winding up is given to a trustee which is an interested party.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The due process of law should be followed before depriving someone from right to life. The law should be just, fair and reasonable.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

This is a case of delegated legislation. They do not enjoy the same degree of immunity as the plenary legislation does.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

According to a judicial precedent a delegatee must exercise its powers within 4 corners of the statute. A delegatee cannot act on violation of the statute. It must conform to the provisions of the parliamentary Acts.

#gslupdates #franklintempleton #franklinupdate

Subordinate legislation can be struck down as arbitrary or contrary to a statute of it fails to take into account very vital facts which are required to be taken into consideration.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

There is a presumption in favour of validity of a subordinate legislation and the burden to show that it is invalid is upon him who attacks it.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

It can be challenged on the grounds of manifest arbitrariness and failure to conform to the statute under which it is made.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The validity of a subordinate legislation is open to question of it is ultra vires the Constitution or the governing Act.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The winding up provisions under various Acts have sufficient safeguards even when it is given to an adjudicating authority.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The power in 39(2)(a) should never have been given to a trustee who has a vested interest.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The key expressions such as "an event" and "amount due" are not defined in the regulation and thus they are utra vires.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The regulations regarding the winding up of the scheme cannot be severed from each other and therefore the entire procedure should be held as invalid.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

It is the basic principle of legal jurisprudence that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Where a statute confers a power on an authority to decide matters of moment without laying down any guidelines or norms the power has to be struck down as being violative of Article 14.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

There is no provision of appeal in the Regulations or the Act against the decision of winding up.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The impugned notices are in violation of the statutory regulation. There is a colorable exercise of power by the trustee. There is no material which can be seen for the formation of the opinion of the trustee.

#gslupdates #franklintempleton #franklinupdate

The opinion is based on non-existent and irrelevant grounds. The decision of winding up is grossly detrimental to the interest of the investors as also public interest.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

There is a violation of Regulation 18(15), Regulation 15 read with 3rd schedule and Regulation 43 and 44.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The trustees shall obtain consent of the unit holders when the majority of the trustees decide to wind up. The trustees shall also give notice and option to exit to the unit holders whenever there is a change in the fundamental attributes of the scheme.

#gslupdates

The same thing is contemplated in the responsibilities and duties of the trustee in the statement of additional information of the scheme information document.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Regulation 39 is about winding up of a scheme and not of the MF. Even the respondents have clarified that the winding up of the scheme is considered and not the MF.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The MF comprises of various schemes. The definition of the scheme is provided as scheme of a MF launched under Chapter V.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The trustee shall be accountable for the funds and property of the scheme and shall hold the same on trust for benefit of the unit holders in accordance with the provisions of #SEBI Regulations.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The short term income plan was shown to have a moderate risk which was changed by investing in high risk securities.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

A total of around 20 lakh investors across India have invested in schemes of FTMF which are not affected by the winding up.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

AMC submitted recommendations to trustee after careful analysis of which the decision to wind up the schemes was taken but these recommendations have not been placed on record.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The judge of the cause of the interest of the unit holders can only be #SEBI and no one else.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The respondents have claimed that there was a massive and sustained liquidity crisis on account of #Covid19. This contention is completely false according to their own data which shows the performance of the scheme was low as compared to the market even before #Covid19.

This liquidity crisis is totally disconnected from #Covid19. It only provided them with an opportunity to do what they could have otherwise not done.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Even if there was a temporary liquidity problem it can never be a ground for winding up the scheme.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Whenever there is a requirement of formation of an opinion for making a decision, the opinion shall be made on objective material. The judicial review of the opinion is permissible.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: How many investors are affected by these schemes?
Mr. @sradvravindra: Around 3 lakhs.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: Majority of the investors are not before the court which suggests that the decision was in the interest of the investors.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Mr. @sradvravindra: It cannot be expected for all the 3 lakh investors to approach the High Court. Many of them belong to the middle class.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

An illegality of an action is not cured by a self-serving submission of acting in the interest of the investors.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The opinion is based on incorrect grounds. How many percentage of investors are satisfied by the decision is not relevant when the decision is arrived at illegally.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

A mere economic crisis has never been recognised as a ground for winding up of a scheme.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

An expert is required to know whether such a decision of winding up is in the interest of investors or the interest of the trustees.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

The bench has risen. The hearing will continue tomorrow at 2:30.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate