The Supreme Court of India, on April 12, directed SBI Mutual Fund to temporarily pause the next tranche of payment to investors of six Franklin Templeton Debt Mutual Funds after the Foundation of Independent Financial Advisors (FIIA), a non-profit organization, filed an application in court seeking payment of distributor commissions.
A special bench gave the direction while hearing the application filed by the legal team representing FIIA.
In April 2020, when the first lockdown started, Franklin Templeton India had decided to close six of its debt mutual fund schemes. The reasons given were liquidity drying up in the bond market and higher redemption pressure from investors. The six schemes in question were Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.
While the schemes were being shut down, the mutual fund distributors and others who had sold these schemes to clients were eligible for commission but which they did not receive. They approached the court to recover the money that they said Franklin Templeton India owed them. The Supreme Court had given SBI Funds Management the charge of winding up these schemes and returning money to investors.
Amount Accrued To Distributors
The Supreme Court observed that the distribution commission of the six schemes of Franklin Templeton Mutual Fund was accrued in favour of its members before the winding-up process had started. The commission amount was transferred to SBI Funds Management.
SBI Funds Management, however, had stated that no specific amount was earmarked for distribution commission. According to FIIA, a total of Rs 77 crore is accrued in this regard, and of this, Rs 19 crore is due and payable to about 1,400 of its members.
The apex court has issued a notice and directed the Securities and Exchange Board of India (Sebi) to file its response in this regard. It also observed that since the exact amount of distribution commission is yet to be decided, no further disbursement of funds regarding the same shall take place without prior permission of the Court.