Thread by @GSLChambers

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

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

The bench will today hear the writ petition transferred from Chennai.

@LiveLawIndia @barandbench @BloombergQuint @livemint @EconomicTimes @bsindia #gslupdates #franklintempleton #franklinupdate

Adv. Nithyaesh Natraj is advancing arguments on behalf of the Petitioner.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: Without any challenge to the decision of the winding up can we grant your prayer under regulation 41 of SEBI rules.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: In absence of challenge to winding up what can SEBI do?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Mr Natraj: The entire winding up is non-est in law.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Mr Natraj: Regulation 44(2) is abundantly clear that MF shall not borrow more than 20%, to only clear the redemption requests due to any temporary liquidity difficulties.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

On 20.04.2020 FT was clear that any further borrowings in addition to the 20% limit wil be detrimental to the interest of the unit holders.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

On 22.04.2020 FT made a request for enhanced borrowing and the same was also accepted by SEBI.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

For interest of the high level investors, the same borrowings were used and on the very next day winding up order was passed.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Reg 44(2) does not let SEBI give exemptions to only certain mutual fund house.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

An administrative order by SEBI cannot override subordinate legislature.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

2 of out the 6 debt schemes have become cash positive- FT.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

On one hand it is claimed by FT that they cant make payments to unit holders because of the Gujarat High Court stay order.

On the other hand they are making payments to the lenders under regulation 41.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Redemptions made by FT on 24.04.2020 after the winding up notice.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

FT: Provisions of regulation 18(15)is only applicable in case of winding up of mutual fund house and not of a particular scheme.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

It is evident from reading of regulation 18(15)A & 18(15) (C) the consent of unit holders is necessary.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: How is 18(15)(A) applicable to winding up scheme?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: In case of winding up, there is no question of change in fundamental attributes.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: Before recourse is taken under reg 39, shall the trustees comply with regulation 18(15)(A)?

Mr Natraj: Yes, as it changes the fundamental attribute.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

There is no concept of post-facto consent of the unit holders.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

There is a forensic audit going on by SEBI against FT, in that scenario can they be allowed to wound up?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Under section 7, 9 & 10 of IBC, 2016 there are safeguards if investigation is going on against the company then the same should not go under liquidation.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

However in the present case, SEBI is acting like a post office.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

MF house cannot act as a venture capitalist fund.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

MF is an intermediary between the company and the unit holder and the same entrusts some trust upon the MF to invest prudently.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Regulation 23: consent of the unit holder is of paramount importance. However it seems that Reg 22 & 23 seems to be contrary to one another.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Is #covid19 really a reason so as to attract the doctrine of frustration.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Could #covid19 be a ground for winding up?

No, as it has to be a change in capital markets, fiscal or legal system, etc.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Unit holder is the principal, MF and trustees are agents of the unit holders.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: Is there any particular sebi regulation to support this claim?

Yes, as the MF invests the money of the unit holders in the capital market.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

SEBI- has used term Forensic audit in its counter affidavit before the Delhi High Court and Gujarat High Court.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Whereas in the present Counter affidavit, different terminology has been user such as Audit Inspection or Comprehensive inspection or inspection or forensic audit in different paras.

They have taken 6 different stands, they must come clean.

#gslupdates #franklintempleton

Nothing on record to state whether SEBI has undertaken forensic audit or not? Which isn't in the nature of benefit of the unit holders.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Selective implementation of regulations of SEBI by MF/ Trustees of FT.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

What are the steps taken by FT to comply with circular dated 1.10.2019 of SEBI?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

If winding up is allowed in the present matter it will also encourage rest of the MF houses to make inprudent investments and then go for winding up.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

As FT was unable to comply with circular dated 01.10.19 of SEBI and they would have been flagged as defaulter, they brought on this action of winding up.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

And FT is declared defaulter in India, then FT ought to be declared a defaulter all over the world.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Hence, the present action of winding up by FT.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Small unit holders having invested 40,000-50,000 rupees would be unable to approach the Courts, hence, the present PIL.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

All six schemes are debts schemes and not equity schemes, hence, are supposed to be more secure.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Unit holders are also facing problem due to #covid19, however, now they have nowhere to go as MF is making hue and cry due to #covid19.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Unit holders will be left with nothing if this Hon’ble Court does not come to help them.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Huge amount of withdrawals and borrowings between 22.04.20 and 24.04.2020, hence, small units are suffering the most.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

SEBI has given clean chit to AMC and hence, this court is only the saving grace for the unit holders.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: #Covid19 is not the ground for winding up of scheme.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: As Mr. Shrivastava (@sradvravindra, Senior Advocate) put it that large number of requests were not due to #covid19.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: There were redemption request prior of #covid19 as well.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Criminal Petition

Bench: Whether the EOW has power to register complaint under the Tamil Nadu protection of interest of depositors act?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench: Have provisions of section 154(3) of Cr.P.C. been complied with?

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

Bench to further hear the arguments on the maintainability of the criminal petition tomorrow at 2:30 PM.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate