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2021 (2) TMI 598 - SC - SEBIWinding up of mutual fund scheme - Procedure and manner of winding up - Consent of the unitholders for winding up of mutual fund schemes - Rights and obligations of the trustees - objections to poll results - SEBI propounds that clause (a) of sub-regulation (2) to Regulation 39 is a standalone provision and the unitholders consent is not required when the trustees upon happening of an event form an opinion that the mutual fund scheme is to be wound up - SEBI (Mutual Funds) Regulations, 1996 framed by the Securities and Exchange Board of India ( SEBI ) to hold that clause (c) to subregulation (15) of Regulation 18 mandates consent of the unitholders for winding up of mutual fund schemes even when the trustees form an opinion that the scheme is required to be wound up in terms of clause (a) to sub-regulation (2) of Regulation 39 of the Mutual Fund Regulations - Primary objection raised relates to appointment of M/s. KFin Technologies Pvt. Ltd. ( KFin Technologies ) for providing e-voting platform services - objection to the e-voting results emanates from the notice to the unitholders HELD THAT - Though we have not been provided with scheme-wise break-up of the votes which should have been given, it does not matter in view of the overwhelming consent for winding up of the schemes. The trustees also state that a large number of corporate votes were rejected by the Scrutiniser on technical grounds of absence of corporate formalities for authorisation of the concerned representatives. The rejected votes represent 1,997 unitholders holding approximately 68.10 crore units valued at ₹ 2,464 crores. Further, an overwhelming majority of the rejected votes ₹ 2,420 crores by value, 98.6% by units and 97.5% by number of unitholders were in favour of the scheme. Accordingly, if these rejected votes are taken into consideration, the total votes being polled in proportionate terms would increase from approximately 54% to approximately 62%. We do not think we are required to go into the said aspect in great detail. As already held above, 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. Objection raised relates to appointment of M/s. KFin Technologies Pvt. Ltd. ( KFin Technologies ) for providing e-voting platform services - This argument does not impress us and cannot be a ground to reject the results. KFin Technologies, it has been pointed out, has been providing e-voting platform services to listed public limited companies ever since the Ministry of Corporate Affairs mandated them to secure approval of the resolutions by the shareholders through electronic voting. The e-voting platform of KFin Technologies is certified by the Ministry of Corporate Affairs approved certification agency, viz. STQC Website Quality Certification Services. KFin Technologies has conducted more than 4,500 e-voting events since 2013. To reject the voting results on this rather specious submission would cast doubts with serious repercussions on e-voting results of several reputed companies. The objectors are unable to point out even a single instance where KFin Technologies has been indicted. In the present case, the e-voting exercise was also supervised by a team of technical experts, including Mr. M. Krishna and Mr. Ch E. Sai Prasad, Assistant Directors, CFSL, Hyderabad. Contention of the trustees that they were required to justify and explain the reasons for winding up of the six schemes and hence the notice was worded in this manner - 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. 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 unprecedented circumstances . We do not think, in the facts of the present case, the notice for e-voting and the contents would justify annulling the consent given by the unitholders for the winding up of the six schemes. The present case, we do not think the procedure prescribed by Regulation 41 is required to be followed as the trustees themselves have stated that the process of winding up, which would include liquidation of the securities and distribution/payment to the unitholders, should be undertaken by a third party. The objectors had also made similar submissions. Accordingly, with the consent of the parties, we have appointed M/s. SBI Funds Management Private Limited to undertake the exercise of winding up, which would include liquidation of the holdings/assets/portfolio and distribution/payment to the unitholders. We hold that for the purpose of clause (c) to Regulation 18(15), 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. In view of the findings and reasons stated above, we reject the objections to poll results and hold that the unitholders of the six schemes have given their consent by majority to windup the six schemes. Winding up and disbursements would be in terms of our directions in earlier orders dated 2nd February, 2021 and 9th February, 2021.
Issues Involved:
1. Interpretation of SEBI (Mutual Funds) Regulations, 1996 regarding unitholders' consent for winding up mutual fund schemes. 2. Allegations of mismanagement and fraud against the Asset Management Company (AMC) and trustees. 3. Validity and fairness of the e-voting process for unitholders' consent. 4. Appointment of a third party for winding up the schemes and distribution of funds. Issue-wise Detailed Analysis: 1. Interpretation of SEBI (Mutual Funds) Regulations, 1996: The primary issue was the interpretation of clause (c) to sub-regulation (15) of Regulation 18, which mandates the consent of unitholders for winding up mutual fund schemes. The judgment under challenge interpreted this clause to mean that unitholders' consent is required even when trustees decide to wind up a scheme under Regulation 39(2)(a). SEBI contested this interpretation, arguing that trustees' decision under Regulation 39(2)(a) is standalone and does not require unitholders' consent. The court concluded that the term 'consent' refers to the majority of unitholders who participate in the poll, not the majority of all unitholders. 2. Allegations of Mismanagement and Fraud: Objecting unitholders alleged gross mismanagement, dereliction of duty, and violations of SEBI norms by the AMC and trustees. They claimed more than ?15,000 crores were withdrawn from the schemes two weeks before the winding-up decision. The court decided to segregate and examine these issues subsequently, noting that SEBI had issued a show cause notice based on a forensic audit report, which was pending adjudication. 3. Validity and Fairness of the E-voting Process: The court examined the procedure and fairness of the e-voting process used to obtain unitholders' consent for winding up the schemes. The e-voting was conducted under the supervision of Mr. T.S. Krishnamurthy, former Chief Election Commissioner of India, appointed by SEBI. The court addressed objections regarding the involvement of KFin Technologies, which provided the e-voting platform, and found no substantial irregularities. The court emphasized that the e-voting results, showing overwhelming consent for winding up, were valid and should not be lightly interfered with. 4. Appointment of a Third Party for Winding Up and Distribution of Funds: The court appointed M/s. SBI Funds Management Private Limited to undertake the winding-up process, including liquidation of assets and distribution of funds to unitholders. This decision was made to ensure transparency and efficiency, considering the substantial amount of securities yet to be realized. The court directed that distribution could be made in tranches without waiting for the complete liquidation of all assets. Conclusion: The court held that the consent of unitholders for winding up, as per Regulation 18(15)(c), means the majority of those who participate in the poll. The objections to the e-voting results were rejected, and the unitholders' consent for winding up the six schemes was upheld. The winding-up process and disbursements would proceed under the supervision of M/s. SBI Funds Management Pvt. Ltd., ensuring the best possible liquidation value for unitholders. The court clarified that this order does not address other issues related to misfeasance, malfeasance, or fraud, which would be examined separately.
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