SANJIV KHANNA,J. - (1.) Leave is granted in the above captioned Special Leave Petitions which emanate from the judgment dated 24th October, 2020 by a Division Bench of the Karnataka High Court, deciding three writ petitions and a writ appeal, wherein the challenge in substance was to the winding up, as well as the procedure for winding up, of six schemes of the Franklin Templeton Mutual Fund, namely: (i) Franklin India Low Duration Fund (Number of Segregated portfolios - 2), (ii) Franklin India Ultra Short Bond Fund (Number of Segregated portfolios -1), (iii) Franklin India Short Term Income Plan (Number of Segregated portfolios - 3), (iv) Franklin India Credit Risk Fund (Number of Segregated portfolios - 3), (v) Franklin India Dynamic Accrual Fund (Number of Segregated portfolios - 3), and (vi) Franklin India Income Opportunities Fund (Number of Segregated portfolios - 2).
(2.) The judgment under challenge inter alia interprets the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 ('Mutual Fund Regulations/ Regulations') framed by the Securities and Exchange Board of India ('SEBI') to hold that clause (c) to sub-regulation (15) of Regulation 18[1] mandates consent of the unit holders for winding up of mutual fund schemes even when the trustees form an opinion that the scheme is required to be wound up in terms of clause (a) to sub-regulation (2) of Regulation 39[2] of the Mutual Fund Regulations. To this extent, the judgment under challenge substantially agrees with the unitholders, albeit SEBI in its appeal before this Court contests this interpretation as erroneous. In other words, SEBI propounds that clause (a) of sub-regulation (2) to Regulation 39 is a standalone provision and the unitholders' consent is not required when the trustees upon happening of an event form an opinion that the mutual fund scheme is to be wound up. [1] Regulation 18: Rights and obligations of the trustees (15) The trustees shall obtain the consent of the unitholders - (a) whenever required to do so by the Board in the interest of the unitholders; or (b) whenever required to do so on the requisition made by three-fourths of the unit-holders of any scheme; or (c) when the majority of the trustees decide to wind up or prematurely redeem the units. [2] Regulation 39: Winding up (1) A close-ended scheme shall be wound up on the expiry of duration fixed in thescheme on the redemption of the units unless it is rolled over for a further period under sub-regulation (4) of regulation 33. (2) A scheme of a mutual fund may be wound up, after repaying the amount due to the unit holders, (d) on the happening of any event which, in the opinion of the trustees, requires the scheme to be wound up; or (e) if seventy-five per cent of the unit holders of a scheme pass a resolution that the scheme be wound up; or (f) if the Board so directs in the interest of the unitholders. (3) Where a scheme is to be wound up under sub-regulation (2), the trustees shall give notice disclosing the circumstances leading to the winding up of the scheme: (g) to the Board; and (h) in two daily newspapers having circulation all over India, a vernacular newspaper circulating at the place where the mutual fund is formed.
(3.) The objecting unitholders'[3] (also referred to as objectors) primary grievance relates to allegations of gross mismanagement, failure and dereliction of duty by the Asset Management Company ('AMC') and Franklin Templeton Trustee Services Private Limited ('trustees' or 'board of trustees'); violation of the Securities and Exchange Board of India Act, 1992 ('SEBI Act'); Mutual Fund Regulations; SEBI harmonization norms; investment horizon profiles; manipulation of Net Asset Value (NAV); disgorgement of wrongful payments etc. In particular, it is alleged that more than Rs. 15,000 crores were withdrawn from the six schemes two weeks prior to the decision for winding up. Objecting unitholders submit that a finding of fraud, on the part of the trustees and AMC, would entitle them to restitution etc. Other issues raised include the question of privilege regarding the forensic audit report. [3] The term 'objecting unitholders' does not refer to all unitholders but only 15 unitholders, namely, Ms. Amruta Garg, Mr. Areez Khambatta, Mr. Persis Khambatta, Khambatta Family Trust, Ms. Sanyam Jain, M/s. KAJ Associates, Ms. Sarika Mittal, M/s. Ultra Walls and Floors, Ms. Aakansha Maheshwari, Ms. Priya Menghnani, Ms. Varnika Menghnani, Mr. Sriram Gantasala, Mr. Ratnajit Bhattacharjee, Ms. Aarti Jain and Ms. Kiran Rama, who had filed writ petitions and are present before this Court and will also include Chennai Financial Markets and Accountability, an association which is not a unitholder. ;