Delhi HC notice in challenge to Franklin Templeton's move to wind up its debt funds; SEBI says it has initiated a forensic audit

The Delhi High court has issued notice in a petition challenging Franklin Templeton Trustee Services' move to wind up its debt funds. (Amruta Garg vs UOI & Ors).Notice to Franklin Templeton Trustee Services, Central Government, SEBI and other Respondents was issued by a Division Bench of Justices Siddharth Mridul and Talwant Singh in the petition preferred by one of the investors, Amruta Garg..The Petitioner has informed the Court that on April 23, when Franklin Templeton Trustee Services decided to wind up its six debt fund schemes under Regulation 39 of SEBI (Mutual Fund) Regulations, 1996, a total of approximately 26,000 crore of investors’ money was suddenly frozen..Subsequently, on May 28, Franklin Templeton Trustee Services issued notices for e-voting and unitholders meet to take further steps for winding up the Schemes under Regulation 41, it is added. .It is the Petitioner's case that Franklin Templeton Trustee Services did not act in accordance with various Regulations issued by SEBI from time to time and that its actions have been ex facie contrary to the prudent commercial practices and the interest of its investors..Contending that there was no occasion for Franklin Templeton Trustee Services to come to a unilateral decision to wind up the scheme when the same was not approved or supported by SEBI, the Petitioner has alleged that the winding up of the schemes on account of COVID-19 was a mere hogwash and an excuse to cover up its deliberate deficiencies, illegalities and irregularities..Apart from seeking to quash the closure of the six debt funds, the Petitioner has also challenged the validity of Regulations 39, 40 and 41 for being vague, arbitrary and contradictory..It is submitted that the Regulations violated fundamental rights of the investors as they granted unfettered power to the Trustees such as Franklin Templeton Trustee Services to wind up the schemes, thus leaving the investors in lurch..The Petitioners have also called for a thorough investigation and enquiry into the affairs of Franklin Templeton Asset Management and Franklin Templeton Trustee Services by SEBI in terms of Regulation 61. .Directions are also sought for the initiation of a probe by SFIO and prosecution of those responsible. .In response to the petition, SEBI stated that after the Petitioner made a complaint on May 25, it has initiated a forensic audit of accounts of Franklin Templeton Asset Management and Franklin Templeton Trustee Services..It was added that strict compliance with Regulations 39 to 41 of the SEBI (Mutual Funds) Regulations, 1996 qua the notice for winding up shall be ensured. .If the forensic audit indicates that further action is warranted, necessary action in terms of Regulation 61 shall be taken, SEBI stated..In view of the submissions made by SEBI, the Court ordered, .Directed accordingly..Needless to state that any action taken in the meantime, shall be subject to the outcome of the present petition.Delhi High Court.The Petition has been filed through Advocate Abhinav Shrivastava, Partner at GSL Chambers and Advocate Manish Yadav. .Senior Advocate Ravindra Shrivastava appeared on behalf of the Petitioner. .Solicitor General Tushar Mehta appeared for SEBI. .Franklin Templeton was represented by Senior Advocate C.A. Sundaram with Trilegal lawyers Ashish Bhan, Harsh Pais, Kunaal Shah, Mohit Rohatgi, Anirudh Kapoor, Rajendra Dangwal, Aayush Mitruka, Rohini Musa, Zafar Inayat..UOI was represented by Standing Counsel Asheesh Jain with Advocates Adarsh Kumar Gupta, Madhur Bajaj, Sonam Sharma..The matter would be heard next on July 14..Read the Order: