The Securities Appellate Tribunal (SAT) has granted interim relief to Franklin Templeton (FT) with respect to the orders passed by market regulator Securities and Exchange Board of India (SEBI) earlier this month. In a major breather for FT, the Tribunal has stayed the SEBI order restraining FT from launching any new debt scheme for the next two years.
The Tribunal has also asked FT to deposit Rs250 crore within three weeks in an interest-bearing escrow account. With that, the penalty of Rs5 crore would be stayed, SAT said orally. SEBI has been asked to file its reply in four weeks and then a rejoinder by FT in three weeks.
During the hearing on Monday, FT is said to have pointed out that they run 22 other debt schemes and SEBI has been unable to find anything wrong with those schemes. The counsel for FT contended that just the fact that six debt schemes were closed does not mean that the fund house should not go ahead with any new debt schemes for next two years.
FT also informed the Tribunal that majority of the investors in these six debt schemes were institutions and they had not objected to FT or filed any complaints against it.
While SAT has not waived off the other two monetary penalties, it has granted interim relief by cutting down the penalty amount of Rs512 crore to less than half to be deposited within three weeks in an escrow. Till the time the hearing is on, it will remain in the escrow account. Thus, FT has secured complete relief in one SEBI order and a partial relief in two other SEBI orders.
The Tribunal is now scheduled to hear the matter on 30th August.
Earlier this month, SEBI had come out with three main orders issued by whole-time member (WTM) G Mahalingam in the FT case.
The first one was that FT would not be able to roll out any new debt scheme for the next two years. The second one said that FT would have to refund the investment advisory and management fee it had collected during 22 months between 4 June 2018 and 23 April 2020 for the six debt schemes, which were abruptly closed last year along with interest, total of around Rs512 crore, while the third order levied a penalty of Rs5 crore on FT. In a 100-page order, SEBI had rapped FT for ‘several irregularities’ in the running of its six debt schemes that were wound up in April 2020.
Franklin Templeton Asset Management had later filed an appeal against these orders and an application for stay before the SAT.
Franklin Templeton Trustees and eight employees, who have also been fined
, have also approached SAT against the order on penalty.
In a series of separate orders in the first week of June, SEBI had also debarred Franklin Templeton AMC Asia Pacific director Vivek Kudva and his wife, Roopa Kudva
, for one year from the securities market, following an investigation.
A penalty of Rs4 crore has been slapped on Vivek Kudva and Rs3 crore on his wife. They were also asked to return an amount of Rs22.64 crore in an escrow account to SEBI, which will be released to them along with the cash being disbursed to other investors. This is the amount they received on redemption before the six debt schemes of Franklin Templeton Mutual Fund were shut last year.
They had cumulatively redeemed units worth Rs30 crore in the six wound- up debt schemes while in possession of material non- public information.
The Kudvas have also moved the SAT to challenge the SEBI order and their petition is likely to come up for hearing in early July.
In April 2020, Franklin Templeton India announced that it was closing six of its credit schemes due to liquidity issues amid the coronavirus crisis.
The schemes which have been shut are Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, Income Opportunities Fund.
"There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the Covid-19 crisis and the resultant lock-down of the Indian economy which was necessary to address the same," FT had said.