Franklin case: Consent of unitholders is must in winding-up of mutual fund schemes, says Supreme Court

The Supreme Court on Wednesday said that the consent of majority shareholders is required when trustees seek winding up of the debt schemes. However, the top court emphasized that the consent would be obtained post publication of notices.

The top court's judgment came on a plea by Franklin Templeton challenging Karnataka High Court order which restrained winding up of its six debt schemes without obtaining the consent of its investors by a simple majority.

The top court also upheld the validity of the mutual fund regulations and in case of violation and a wrong decision by the trustees to wind up, SEBI under section 11 B has the power to go into these matters, in exceptional cases.


A bench comprising Justices S. Abdul Nazeer and Sanjiv Khanna said the provisions of section 53B have not been examined and it is clarified that the withholding of the judgment was to prevent the proceedings before SEBI from being prejudiced in any matter.

The bench made it clear that the court has not gone into the facts, instead only examined the law in a theoretical exercise in interpretation. "So, we have not examined the facts at all. Those will be left open", noted the bench.

The Supreme Court took notice of the news reports that the SEBI has passed an order in the proceedings before it, and this order is now pending in a challenge before the SAT. The top court has posted the matter for further proceedings in October 2021, with liberty to the parties to move for early hearing in case of any urgency in the matter.