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 Karnataka High Court will hear the arguments on the Impleadment application which was filed before the Gujarat High Court.

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Regulation 39(3) does not envisage any notice being sent to the unit holders.

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Liquidity issue can never be a ground for winding up of a scheme.

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If regulation 39(2) is de-hors regulation 18(15), then the same is bad in law.

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If schemes of mutual fund houses are allowed to be wound up, then it will to the unit holders running from pillar to post.

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Every scheme is a separate trust which is evident from para 51 of the counter affidavit of FT.

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As per SEBI circular dated 02.02.2010, any MF house could not hold more than 5% of the total AUM in unlisted/untraded securities.

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If the schemes have become cash positive, then the same should be paid to the unit holders.

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Arguments closed by the counsel for intervener before the Gujarat High Court.

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Bench to hear arguments on behalf of the intervener before the Madras High Court.

Arguments to be addressed by Advocate Ashish S. Kamat.

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At every stage the right of the unit holders have been negated.

@LiveLawIndia @barandbench #gslupdates #franklintempleton #franklinupdate

After winding up order, further borrowings are being made, which is contrary to the interest of the unit holders.

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Bench: The Trustee originally proposed to wind up 7 schemes, however, ultimately only 6 schemes have been subjected to winding up.

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Arguments to be addressed on behalf of SEBI now by Mr. Arvind Datar, Senior Advocate.

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The bench before hearing the arguments by SEBI has raised the various questions for SEBI

1. What is the stage of forensic audit/ report being conducted by SEBI? And what is the order by which such audit was ordered?

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2. Whether SEBI has given any reply/ decision to the letter dated 20.04.2020 of FT?

3. As there are a number of complaints by various investors, what is the action taken by SEBI?

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4. Whether SEBI has verified that the trustees of FT have complied with the provision of regulation 39(3)?

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5. As per the statement of objective of FT & Trustees it is said that two schemes have become cash positive and certain liabilities have been discharged by FT

Then in that case whether the same could have been done in light of the stay order of the Gujarat High Court?

6. Is there any board resolution regarding the decision of the trustees as per requirements of regulation 39(2)(a)?

7. What is the interplay between regulation 18(15)(a) and regulation 39?

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Mr Datar, Senior advocate states that SEBI paramount concern is the intrest of the investors.

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It is not possible for SEBI to look into the affairs of all the schemes in the market as there are more than 1900 schemes in total.

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SEBI is not a drop box, however, SEBI roles only comes into the picture once something has gone wrong, and then SEBI taken necessary action.

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It is the decision of the Trustees and Trustees alone for taking the decision of winding up.

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As per regulation 39(2)(a) if trustees form an opinion that a particular scheme ought to be wound up, then the decision of trustees is final.

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If the reason is bad, then SEBI can pull up the trustee and give the necessary sanctions/ punishments.

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The decision of the trustees has to be a sound and reasoned decision and it cant be a whimsical decision.

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Bench: By the time SEBI decides that the decision of the trustees is bad, the entire scheme will be wound up? Then what can SEBI do?

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If the trustees justify the reason of the decision of going for winding up, then its okay, otherwise they will be pulled up by SEBI.

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In the present case, trustee of FT has to give its reasons by 02.09.2020. After that action will be taken by SEBI.

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The bench rises for the day. The bench to continue hearing the arguments by SEBI on Monday at 2:30 pm.

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