{"id":243818,"date":"2021-02-12T18:30:08","date_gmt":"2021-02-12T13:00:08","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=243818"},"modified":"2021-02-19T10:39:12","modified_gmt":"2021-02-19T05:09:12","slug":"e-voting-for-winding-up-of-franklin-templetons-6-units-valid-consent-of-unitholders-is-consent-by-majority-of-unitholders-who-participated-in-the-poll-supreme-court","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/02\/12\/e-voting-for-winding-up-of-franklin-templetons-6-units-valid-consent-of-unitholders-is-consent-by-majority-of-unitholders-who-participated-in-the-poll-supreme-court\/","title":{"rendered":"E-voting for winding up of Franklin Templeton&#8217;s 6 units valid; Consent of unitholders is consent by majority of unitholders who participated in the poll: Supreme Court"},"content":{"rendered":"<p style=\"text-align: justify;\"><strong>Supreme Court<\/strong>: In the case relating to winding up of six schemes of the Franklin Templeton Mutual Fund, the bench of SA Nazeer and <strong>Sanjiv Khanna<\/strong>*, JJ has, rejecting the objections to poll results, held that the unitholders of the six schemes have given their consent by majority to windup the six schemes.<\/p>\n<p style=\"text-align: justify;\">It held that<span style=\"color: #800080;\"><strong> <em>for the purpose of clause (c) to Regulation 18(15) of the Mutual Fund Regulations, consent of the unitholders would mean consent by majority of the unitholders who have participated in the poll, and not consent of majority of all the unitholders of the scheme<\/em>.<\/strong><\/span><\/p>\n<hr \/>\n<h3 style=\"text-align: center;\"><span style=\"color: #008000;\"><strong>Key takeaways from the judgment<\/strong><\/span><\/h3>\n<hr \/>\n<ul style=\"text-align: justify;\">\n<li>Clause (c) to sub-regulation (15) of Regulation 18 per se does not prescribe any quorum or specify the criterion for computing majority or ratio of unitholders required for valid consent for winding up. Clause (b) of Regulation 39(2), on the other hand, specifies that seventy-five per cent of the unitholders of a scheme can pass a resolution that the scheme be wound up.<\/li>\n<li>When there is choice between two interpretations, we would avoid a \u2018construction\u2019 which would reduce the legislation to futility, and should rather accept the \u2018construction\u2019 based on the view that draftsmen would legislate only for the purpose of bringing about an effective result. We must strive as far as possible to give meaningful life to enactment or rule and avoid cadaveric consequences. We would neither hesitate in stating the obvious, that modern regulatory enactments bear heavily on commercial matters and, therefore, must be precisely and clearly legislated as to avoid inconvenience, friction and confusion, which may, in addition, have adverse economic consequences.<\/li>\n<li>Reading prescription of a quorum as majority of the unitholders or \u2018consent\u2019 as implying \u2018consent by the majority of all unitholders\u2019 in Regulation 18(15)(c) of the Mutual Fund Regulations will not only lead to an absurdity but also an impossibility given the fact that mutual funds have thousands or lakhs of unitholders. Many unitholders due to lack of expertise, commercial understanding, relatively small holding etc. may not like to participate. Consent of majority of all unitholders of the scheme with further prescription that \u2018fifty percent of all unitholders\u2019 shall constitute a quorum is clearly a practical impossibility and therefore would be a futile and foreclosed exercise.<\/li>\n<li>In the case of unitholders, the number is fluctuating and ever changing and, therefore, indefinite. Numbers of unitholders can increase, decrease and change with purchase or redemption. Therefore, in the context of clause (c) of Regulation 18(15), we would not, in the absence of any express stipulation, prescribe a minimum quorum and read the requirement of \u2018consent by the majority of the unitholders\u2019 as consent by majority of all the unitholders. On the other hand, it would mean majority of unitholders who exercise their right and vote in support or to reject the proposal to wind up the mutual fund scheme.<\/li>\n<li><strong><span style=\"color: #800080;\">The unitholders who did not exercise their choice\/option cannot be counted as either negative or positive votes as either denying or giving consent to the proposal for winding up.<\/span><\/strong><\/li>\n<li>Mutual funds managed by professional fund managers with advantages of pooling of funds and operational efficiency are the preferred mode of investment for ordinary and common persons. It would be wrong to expect that many amongst these unitholders would have definitive opinion required and necessary voting in a poll on winding up of a mutual fund scheme. Such unitholders, for varied reasons, like lack of understanding and expertise, small holding etc., would prefer to abstain, leaving it to others to decide. Such abstention or refusal to express opinion cannot be construed as either accepting or rejecting the proposals. Keeping in view the object and purpose of the Regulation with the language used therein, a \u2018construction\u2019 which would lead to commercial chaos and deadlock cannot be accepted. Therefore, silence on the part of absentee unitholders can neither be taken as an acceptance nor rejection of the proposal.<\/li>\n<li>The underlying thrust behind Regulation 18(15)(c) is to inform the unitholders of the reason and cause for the winding up of the scheme and to give them an opportunity to accept and give their consent or reject the proposal. It is not to frustrate and make winding up an impossibility.<\/li>\n<li><strong><span style=\"color: #800080;\">The words \u2018all\u2019 or \u2018entire\u2019 are not incorporated and found in the said Regulation. Thus, consent of the unitholders for the purpose of clause (c) to sub-regulation (15) of Regulation 18 would mean simple majority of the unitholders present and voting.<\/span><\/strong><\/li>\n<li>Regulation 18(15)(c) mandates and requires consent of the unitholders for winding up, but does not prescribe any mode or manner for taking consent. Therefore, by implication, the Regulation gives option of holding a physical meeting, postal poll or e-poll.<\/li>\n<li><span style=\"color: #800080;\"><strong>The objectors to the e-voting results are sixteen in number and, as per details, they hold 20,02,114.041 units in the six schemes of value of Rs. 8,69,28,507.62. In percentage terms, the share of objectors in the total units is merely 0.024% and their share in the total AUM is 0.033%.<\/strong><\/span><\/li>\n<li>The unitholders were given a chance and option to vote and about 38% of the unitholders in numerical terms and 54% in value terms had exercised their right to give or reject consent to the proposal for winding up. In the absence or need for minimum quorum, which is not provided or stipulated in the Regulations nor mandated under law, the e-voting result cannot be rejected on the ground that 38% of the unitholders in numerical terms and 54% in value terms, even if we do not account for the rejected votes, had participated. This cannot be a ground to reject and ignore the affirmative result consenting to the proposal for winding up of the six mutual fund schemes.<\/li>\n<li>It is but obvious that the trustees had already taken a decision to wind up the six schemes. Regulation 39(3) requires the trustees to disclose the circumstances leading to winding up of the schemes. The trustees accordingly, in the notice for e-voting and meeting of the unitholders, had furnished their explanation and reason for winding up of the six schemes.<\/li>\n<li>The unitholders were aware and conscious of the litigation against the winding up, including the procedure. At the same time, many in the general public may not be fully aware of the commercial considerations and niceties relating to mutual funds and debt securities market.<\/li>\n<li>The notice had also informed the investors that there would be suspension of subscription and redemption post the cut-off time from 23rd April, 2020. All Systematic Investment Plans, Systematic Transfer Plans and Systematic Withdrawal Plans into and from the abovementioned funds stood cancelled post the cut off time from 23rd April, 2020.<\/li>\n<li>The notice had also furnished information and clarification regarding distribution of monies from the Fund Assets, inter alia stating that following the decision to wind up the six schemes, the trustees would proceed for orderly realization and liquidation of the underlying assets with the objective of preserving value for unitholders. Their endeavour would be to liquidate the portfolio holdings at the earliest opportunity, to enable an equitable exit for all investors in the \u2018unprecedented circumstances\u2019. Hence, <strong><span style=\"color: #800080;\">the notice for e-voting and the contents would not justify annulling the consent given by the unitholders for the winding up of the six schemes.<\/span><\/strong><\/li>\n<\/ul>\n<p style=\"text-align: justify;\">[Franklin Templeton Trustee Services Private Limited v. Amruta Garg, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/iy9Bg37R\"><b>2021 SCC OnLine SC 88<\/b><\/a>, decided on 12.02.2021]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court: In the case relating to winding up of six schemes of the Franklin Templeton Mutual Fund, the bench of SA <\/p>\n","protected":false},"author":121,"featured_media":243203,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[19291,43942,15642,45166,7721],"class_list":["post-243818","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-e-voting","tag-franklin-templeton","tag-mutual-funds","tag-unitholders","tag-winding-up"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>E-voting for winding up of Franklin Templeton&#039;s 6 units valid; 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Custodial torture of petitioner was alleged before Division Bench of High Court which directed his medical examination. Both aforesaid orders were\u2026","rel":"","context":"In &quot;Cases Reported&quot;","block_context":{"text":"Cases Reported","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casesreported\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":260563,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/01\/25\/2021-scc-vol-9-part-2\/","url_meta":{"origin":243818,"position":1},"title":"2021 SCC Vol. 9 Part 2","author":"Bhumika Indulia","date":"January 25, 2022","format":false,"excerpt":"In this part read a very interesting decision expertly analysed by our editors. Supreme Court ruled that the trustees are required to seek consent by majority of the unit holders, when they by majority decide to wind up a \u00a0mutual fund scheme. Also, consent by majority of the unit holders\u2026","rel":"","context":"In &quot;Cases Reported&quot;","block_context":{"text":"Cases Reported","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casesreported\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/06\/SCC_Standard.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":251399,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/07\/16\/franklin-templeton-3\/","url_meta":{"origin":243818,"position":2},"title":"Consent by majority of unit holders necessary when trustees decide to wind up Mutual Fund Scheme; SEBI (Mutual Funds) Regulations not arbitrary; Reg. 53 is &#8216;grey area&#8217;: SC in sequel to Franklin Templeton matter","author":"Editor","date":"July 16, 2021","format":false,"excerpt":"Supreme Court: In a sequel to its earlier order directing winding up of six mutual fund schemes of Franklin Templeton Mutual Fund, a Division Bench of S. Abdul Nazeer and Sanjiv Khanna, JJ. ruled that the trustees are required to seek consent by majority of the unit holders, when they\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/07\/MicrosoftTeams-image-7-1.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/07\/MicrosoftTeams-image-7-1.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/07\/MicrosoftTeams-image-7-1.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/07\/MicrosoftTeams-image-7-1.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/07\/MicrosoftTeams-image-7-1.png?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":238357,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/11\/02\/kar-hc-franklin-templeton-and-the-provisionary-application-of-sebi-mutual-fund-regulations-petition-allowed-with-necessary-directions\/","url_meta":{"origin":243818,"position":3},"title":"Kar HC | Franklin Templeton and the provisionary application of SEBI Mutual Fund Regulations; Petition allowed with necessary directions","author":"Editor","date":"November 2, 2020","format":false,"excerpt":"Karnataka High Court: A Division Bench of Abhay S. Oka CJ. and Ashok S.Kinagi J., while allowing the present writ petition held, \u201cthe decision of the Trustees (the Franklin Templeton Trustee Services private Limited) to wind up six Schemes mentioned in paragraph-1 of the Judgment by taking recourse to sub-clause\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":244841,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/03\/01\/supreme-court-monthly-roundup-february-2021\/","url_meta":{"origin":243818,"position":4},"title":"Supreme Court Monthly Roundup &#8211; February 2021","author":"Prachi Bhardwaj","date":"March 1, 2021","format":false,"excerpt":"\"In order to enable persons with disabilities to lead a life of equal dignity and worth, it is not enough to mandate that discrimination against them is impermissible. That is necessary, but not sufficient. We must equally ensure, as a society, that we provide them the additional support and facilities\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/03\/sc-round-up-1-4.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/03\/sc-round-up-1-4.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/03\/sc-round-up-1-4.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/03\/sc-round-up-1-4.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/03\/sc-round-up-1-4.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":250416,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/06\/29\/franklin-templeton-2\/","url_meta":{"origin":243818,"position":5},"title":"SAT | Franklin Templeton gets interim relief | Gives due consideration to the 2 decades\u2019 reputation","author":"Editor","date":"June 29, 2021","format":false,"excerpt":"Securities Appellate Tribunal (SAT): A bench of Tarun Agarwala, J. (Presiding officer) and M.T. Joshi, J. (Judicial Member) stayed the impugned order restraining the appellant from launching any new debt schemes for a period of 2 years. In the instant appeal, the appellant contended that the impugned order was arbitrary\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/SAT-MUMBAI.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/SAT-MUMBAI.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/SAT-MUMBAI.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/SAT-MUMBAI.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/SAT-MUMBAI.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/243818","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/121"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=243818"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/243818\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/243203"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=243818"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=243818"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=243818"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}