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TMI Blog2020 (10) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of the Scheme. The consent of unit-holders will be by a simple majority. In view of the obligation of the Trustees under sub-clause (c) of clause (15) of Regulation 18, a notice as required by clause (3) of Regulation 39 can be issued and published only after making compliance with the requirement of obtaining consent of the Unit-holders. Clause 15A of Regulation 18 of the Mutual Funds Regulations 1996 operates in a different field which has nothing to do with the process of winding up of a Scheme. Therefore, compliance with Clause 15A of Regulation 18 is not a condition precedent for winding up of a Scheme pursuant to sub-clause (a) of clause (2) of Regulation 39. Considering the duties of the Trustees under the Mutual Funds Regulations, they perform a public duty. Therefore, when it is found that the Trustees have violated the provisions of the SEBI Act or Mutual Funds Regulations, a Writ Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, can always issue a writ of mandamus, requiring the Trustees to abide by the mandatory provisions of the SEBI Act or the Mutual Funds Regulations. In the facts of the case, for the reasons which we have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (15) of Regulation 18. Hence, we restrain the Trustees from taking any further steps on the basis of the impugned notices dated 23rd April 2020 and 28th May 2020, till consent of the unit-holders by a simple majority to the decision of winding up is obtained by the Trustees in accordance with sub-clause (c) of Clause (15) of Regulation 18 of the Mutual Funds Regulations; iii) It will be open for the Trustees to obtain consent of the unit-holders as provided in sub-clause (c) of clause (15) of Regulation 18 and to take further steps in accordance with clause (3) of Regulation 39 of the Mutual Funds Regulations; iv) We hold that Regulations 39 to 41 of the Mutual Funds Regulations are legal and valid; v) We direct the Securities and Exchange Board of India to ensure that the Forensic Auditors submits their report in accordance with Regulation 64 at the earliest. After the report is submitted by the Forensic Auditor, the Securities and Exchange Board of India or its Chairman shall examine the report and shall take a decision on the question of taking action as provided in Regulation 65 of the Mutual Funds Regulations and under SEBI Act. The decision shall be taken within six weeks f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und: i) Franklin India Low Duration Fund (Number of Segregated portfolios-2) ii) Franklin India Ultra Short Bond Fund (Number of Segregated portfolios-1) iii) Franklin India Short Term Income Plan (Number of Segregated portfolios-3) iv) Franklin India Credit Risk Fund (Number of Segregated portfolios-3) v) Franklin India Dynamic Accrual Fund (Number of Segregated portfolios-3) vi) Franklin India Income Opportunities Fund (Number of Segregated portfolios-2) 2. There were three writ petitions filed in the High Courts of Delhi, Gujarat and Madras for challenging the action of winding up of the aforesaid six Schemes (for short "the said Schemes"). A criminal petition was filed in Madras High Court seeking a writ of mandamus against the respondents therein for setting criminal law in motion against those who were allegedly responsible for the winding up of the said Schemes. 3. On 19th June, 2020, the Apex Court passed an order in Special Leave Petition (civil) No. 7553/2020 and Transfer Petition (civil) Nos. 663-664/2020), transferring the aforesaid four cases to this High Court. The order of the Apex Court reads thus: "After hearing the learned senior cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for against the Securities and Exchange Board of India (for short, 'SEBI') established under the provisions of the Securities and Exchange Board of India Act, 1992 (for short 'SEBI Act'). In the writ petition filed before the Delhi High Court, there is also a challenge to the validity of the Regulations 39, 40 and 41 of the Mutual Funds Regulations. Crl. P. No. 8660/2020 has been filed in the Madras High Court, essentially seeking a relief of a writ of mandamus directing registration of First Information Report. Letters Patent Appeal (LPA) No. 311/2020 filed before the Gujarat High Court is an appeal directed against the interim order passed by the learned Single Judge of Gujarat High Court in Special Civil Application No. 7201/2020. As per the aforesaid order dated 19th June 2020, the Apex Court transferred the aforesaid cases to this High Court. The same were registered and renumbered in this High Court. After registration in this Court, the following corresponding new numbers have been assigned: 5. Presumably, due to the situation created by pandemic COVID -19, there was some delay in receiving the files from the High Courts. After receiving the files, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it will be necessary for us to briefly narrate the few factual aspects set out in the pleadings filed on record. The factual aspects are common in all these petitions and, therefore, we are adverting to the facts of the case stated in W.P. No. 8545/2020 (Delhi Petition). FACTS OF THE CASE: IN WRIT PETITION No 8545 OF 2020: 9. It is pointed out that 6th respondent - Franklin Templeton Trustee Services Private Limited (the Trustees), entered into business of Mutual Funds in India in the year 1996. It is a company covered by definition of "Trustee" within the meaning of clause (g) of Regulation 2 of the Mutual Funds Regulations. The 5th respondent is an Asset Management Company (for short 'AMC') within the meaning of clause (d) of Regulations 2 of the Mutual Funds Regulations. The 8th respondent-Franklin Resources Inc, is a USA based company of which, the 7th respondent-Templeton International Inc is a subsidiary company. The 7th respondent is a "sponsor" within the meaning of clause (x) of Regulation 2 of the Mutual Funds Regulations. It is pointed out in the petition that on 4th January, 1996, the Franklin Templeton Mutual Fund (for short 'the Mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enhancement to 40% in case of Franklin India Short Term Income Fund and Franklin India Income Opportunities Fund was granted subject to conditions mentioned therein. In case of Franklin India Credit Risk Fund, the borrowing limit was enhanced to 30% subject to conditions. The condition of using the incremental borrowing limit only for redemption was incorporated in the said letter. On 14th April 2020, AMC addressed e-mail to SEBI. In the said e-mail, it was mentioned that as a last resort, the Mutual Fund may be required to resort to suspension of redemption as permitted under the Regulations and a request was made for removing the restriction of being able to suspend the redemptions only for a period of 10 days out 90 days. After few days i.e., on 20th April, 2020, the Trustees submitted a proposal to SEBI for winding up of the said Schemes and Franklin India Dynamic Accrual Fund. By the said letter, while seeking permission to wind up, forbearance on the proposal for winding up was sought from SEBI. 12. On 23rd April, 2020 the Trustees issued the impugned notice informing that they have decided to wind up the said Schemes mentioned in paragraph 1 above, pursuant to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 40 and 41 of the Mutual Funds Regulations as ultra vires SEBI Act, 1992. A prayer was also made for quashing the impugned notices dated 23rd April 2020 and 28th May 2020. Another prayer was for directing the respondents to refund the money invested by the petitioner in the Franklin Templeton Short Term Income Plan or to allow the petitioner to redeem the Units. A writ of mandamus is sought directing SEBI to conduct an investigation into the affairs of FTMF as contemplated under Regulation 61 of the Mutual Funds Regulations. Another prayer was made seeking a writ of mandamus against the 4th respondent Serious Fraud Investigation Office to register FIR and to conduct investigation into the affairs of Trustees and AMC. 15. Before we go to the reply/response filed by the 3rd respondent - SEBI and the other companies, it is necessary for us to refer to the facts of other petitions and prayers made therein. IN WRIT PETITION NO. 8644 OF 2020 AND WRIT APPEAL NO. 399 OF 2020 16. Now we come to writ petition No. 8644/2020. The petitioners in this writ petition filed before the Gujarat High Court are claiming to be the investors in the said Schemes of the Mutual Fund. According to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BY SEBI, AMC AND TRUSTEES: 19. Now we are referring to the statement of objections/response/counter filed by the contesting respondents. 20. In W.P. No. 8545/2020, the 3rd respondent-SEBI has contended that though the petitioner has contended that the Regulations 39, 40 and 41 are ultra vires and unconstitutional as well as violative of Article 14 of the Constitution of India, the petitioner has not explained how Article 14 has been violated. It is contended that Regulation 39(2) has to be read with the Regulation 41 of the Mutual Funds Regulations. It is contended that Regulation 41 only deals with the procedure and the manner of the winding up process. It is contended that Regulation 39 (2) only states that a Scheme can be wound up after repaying the amount due to the unit-holders but the manner in which the repayment is to be made is provided under Regulation 41. It is contended that under Regulation 41, the approval of the unit-holders is needed only for authorizing the Trustees or any other person to take steps for winding up of a Scheme, consequent upon the decision of winding up of the Scheme. It is submitted that Regulation 41 provides adequate protection to the unit-hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes under winding up. It is contended that vide letter dated 27th May, 2020, the Forensic Audit/inspection of the books of accounts and other records and documents of the FTMF, AMC and Trustees has already been initiated. If any violation is found, appropriate action will be taken under the law and that said inspection process should not be linked with the decision of the Trustees to voluntarily winding up the said six Schemes. 23. Reliance is placed on the circulars dated 23rd March 2020 and 30th April, 2020 by which, the timelines fixed in the earlier circulars was extended. It is further submitted that sub-clause (a) of clause (2) of Regulation 39 confers finality on the decision of the Trustees. It is contended that in view of Regulation 40 read with sub-clause (b) of clause (3) of Regulation 39, the decision to wind up of a Scheme automatically takes effect. 24. Referring to press release dated 7th May, 2020 relied upon by the petitioners, it is submitted that said press release is only an advisory to the FTMF to focus on returning the money of the investors as soon as possible. It is submitted that if in the Forensic Audit/inspection ordered by SEBI in respect of the said S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that SEBI has already taken action by appointing a Forensic Auditor. It is stated that both the companies are cooperating with the Auditor. 30. It is submitted that the petitioners have not exhausted the efficacious remedies available to them by approaching the Securities Appellate Tribunal. It is submitted that they have approached SEBI by filing complaints for redressal of their grievances, which are already registered on SEBI's Complaints Redress System (SCORES). It is pointed out that the petitioners, in the petition filed before the Gujarat High Court have filed two complaints with SCORES. But, without awaiting the response from SCORES, within 30 days thereafter, the writ petitions have been filed and therefore, two parallel remedies have been adopted for the same cause of action. 31. It is also contended that these writ petitions involve various complex and disputed questions of fact and there is an alternate efficacious mechanism in law to thoroughly examine and deal with such factual allegations. It is submitted that considering the fact that SEBI, being a specialized sectoral regulatory authority is already proceeding with the Forensic Audit/inspection/ investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the sale of investments in the portfolio of Non Convertible Debenture/Bonds (for short, 'NCDs') in the secondary market. It is submitted that the net result for the Schemes due to COVID-19 pandemic and associated market dislocations was a massive and sustained liquidity crisis. Due to liquidity crisis, on one hand, the investors in large numbers suddenly sought redemption and on the other hand, the market for assets meant to fund such redemptions (i.e. corporate bonds) completely seized up. 35. It is pointed out that the said Schemes have been successful over a sustained period of time and have successfully navigated stressed market cycles in the past. The long and successful track record of the Schemes is placed on record. The various facts and figures have been set out. 36. It is pointed out that the impact of COVID -19 pandemic is not a unique to the Indian Corporate bond markets. It is pointed out that the United States Corporate bond market seized up on account of COVID-19 and related market disruptions. It is pointed out that in European market, at least 76 funds managing assets worth 40 billion USD were compelled to suspend redemption in March, 2020 due to incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a hasty and disorganized manner at discounted valuations in adverse market conditions, which would have caused value losses to the entire body in particular, small and retail unit-holders. It is submitted that the decision of winding up was taken specifically with a view to protect the best interests of the unit-holders of the Scheme. 40. The events subsequent to the decision of the winding up have also been set out. It is pointed out that the net asset value (NAV) of each Schemes is being published on daily basis. Details about the cash realized by these six Schemes on account of winding up since the winding up and up to 27th July, 2020 have been set out. 41. It is submitted that the decision of winding up of the said Schemes and decisions regarding investments are taken in accordance with SEBI Regulations and investment objectives of the respective Schemes as set out in the Scheme document. It is contended that the Trustees and AMC have exercised requisite care and diligence at all times. It is pointed out that the Board of Directors of the Trustees and AMC had also put in place various guard-rails over and above the regulatory requirements of law with a view to manage and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Trustees is not a public authority or agency or instrumentality of the State. It is urged that the petitions ought not to be entertained. 45. As far as two foreign entities are concerned, a contention has been raised that no jurisdiction lies with the Court to deal with the foreign private entities. 46. There are rejoinders filed by the petitioners to the statement of objections which are merely argumentative in nature. SUMMARY OF SUBMISSIONS OF THE PETITIONERS 47. As directed by this Court, submissions of the learned Senior Counsel appearing for the petitioner in the petition filed before the Delhi High Court (W.P. No. 8545/2020) were heard first, as there is a challenge therein to the validity of Regulations 39 to 41 of the Mutual Fund Regulations. 48. Shri. Ravindra Srivastava, the learned Senior Counsel appearing for the petitioners in writ petition No. 8545/2020 has taken us through the various provisions of SEBI Act and the Mutual Funds Regulations. He invited our attention to the objects and reasons of SEBI Act. He submitted that SEBI Act has been enacted essentially for the protection of the investors. The object of enacting the said Act is to confer statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of clause (15) of Regulation 18 will have to read into it. He urged that both the provisions must be construed harmoniously and it must be held that the powers under sub-clause (a) cannot be exercised without complying with the requirement of obtaining the consent of the unit-holders. He submitted that there is no material placed on record to show that the Trustees have complied with the requirement of obtaining the consent of the unit-holders and the requirement of sub-clause (b) of clause (3) of Regulation 39 of publishing the notice disclosing the circumstances leading to the winding up of the Scheme in two daily newspapers having circulation all over India and one vernacular newspaper having circulation at the place where the Mutual Fund is formed. He submitted that these two statutory compliances have not been made. He urged that the investors stand to lose substantially, inasmuch as firstly, the assets of the said Schemes will be sold and only after clearing the liabilities, remaining amount, if any, will be made available for distribution to the unit-holders. He submitted that under Regulation 42, an enquiry can be made by SEBI only about compliance with the procedure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of genuineness of the reasons put forth by the Trustees for winding up of the said Schemes. He submitted that SEBI, which is the protector of the unit-holders/investors has failed to discharge its statutory duties. He also relied upon the articles published in the newspapers, magazines etc., and publication of certain information about the said Schemes. 52. Coming to the challenge to the validity of the Regulations 39 to 43 of the Mutual Funds Regulations. He submitted that firstly, the provisions are discriminatory and violative of Article 14 of the Constitution of India. He submitted that his second challenge is on the ground of manifest arbitrariness. His third ground of challenge is that the provisions violate the fundamental rights conferred under Article 21 of the Constitution of India. Lastly, he urged that the said Regulations are ultra vires the statutory provisions of SEBI Act. 53. He invited our attention to the powers conferred on SEBI under Section 11-A which are conferred only for protection of investors. He also pointed out that the powers conferred on SEBI under Section 11-B which enable SEBI to issue directions to any person or class of persons includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the investors. He submitted that as per sub-clause (a) of clause (2) of Regulation 39, an unfettered power has been conferred on the Trustees without authorizing any statutory authority including SEBI to go into the question as to whether the opinion of the Trustees regarding happening of any event is lawful and within the four corners of law. He submitted that in view of clause (a) of Regulation 40, once a notice as required by sub-clause (3) of Regulation 39 is published, the Mutual Fund shall cease to carry on any business activities in respect of the said Scheme. Therefore, from the moment the notice as contemplated under clause (3) of Regulation 39 is published, in view of the express provisions of clause (a) and (c) of Regulation 40, the business of the concerned Scheme comes to an end and the units cannot be redeemed by the investors. 55. He submitted that in view of Regulation 41, firstly the Trustees of the Scheme are required to dispose of the assets of the Scheme in the best interests of the unit-holders of that Scheme. The proceeds of sale are required to be first utilized towards discharge of such liabilities as are due and payable in respect of the Scheme and af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Scheme, if majority of the Directors of the Trustee company decide to wind up of the Scheme. He pointed out that the offer document contains a clause consistent with the Regulations which provides that the Trustees shall be accountable for their acts, and be the custodian of the funds and property of the Scheme and shall hold the same in trust for the benefit of the unit-holders in accordance with SEBI Regulations and the provisions of the trust deed. He pointed out that there is a specific provision in the offer document regarding the procedure and the manner of winding up. He submitted that it is specifically stated that the Scheme may be wound up if there are changes in the capital markets and fiscal laws or legal system or any event or series of events occurs, which, in the opinion of the Trustees, requires the Scheme to be wound up. Thus, he submitted that the contingencies under which the winding up can take place are specifically mentioned and, therefore a recourse cannot be taken to sub-clause (a) of clause (2) of Regulation 39 unless such exigencies as set out in the offer document are existing. 58. He invited our attention to master circular for Mutual Funds issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st was made to SEBI to remove the restriction on the period of suspension of redemption. He also pointed out that on 20th April, 2020, the Trustees submitted a proposal to SEBI for winding up of the said Schemes. From the said proposal letter, he pointed out that the net outflow for the quarter period of 1st June-30th September 2019 of the said Schemes was ₹ 1,855.39 crores which jumped to ₹ 8,697.53 crores in the immediate next quarter. He, therefore, pointed out that the redemption pressure started increasing much before the onset of COVID 19 pandemic. He pointed out that in the said proposal letter, the Trustees pointed out the present scenario of the economy and that the said Schemes are anticipating the continued liquidity stress. 61. The learned Senior Counsel further invited our attention to the letter dated 14th April, 2020 and pointed out that in the said letter, the stand of AMC was that the last resort was the suspension of redemption. He pointed out that within six days thereafter, by another letter dated 20th April, 2020, the Trustees informed SEBI that winding up of the Scheme was the only option. He submitted that within a span of six days, no developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e challenge to the Regulations 39 to 41 is firstly on the ground that the same are ultra vires the statutory provisions of SEBI Act. Secondly, the same offend the rights conferred on the unit-holders under Article 14 of the Constitution of India, as it seek to bring about discrimination and arbitrariness. He submitted that moreover, there is a violation of fundamental rights under Article 21 of the Constitution of India as well, which is vested in the unit-holders. 64. He invited our attention to the decision of the Apex Court in the case of Securities and Exchange Board of India vs. Rakhi Trading Private Limited (2018) 13 SCC 753 and submitted that as held by the Apex Court, the main function of SEBI is to make enquiry and investigation and to give appropriate directions to the Trustees and AMC to promote the orderly and healthy growth of the securities market. He submitted that on the contrary, the stand taken by SEBI in its statement of objections is disappointing. The confidence reposed on it by the unit-holders has been shaken by such a stand. He invited our attention to another decision of the Apex Court in the case of Securities and Exchange Board of India vs. Akshya Infras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power under sub-clause (a) of clause (2) of Regulation 39. He submitted that Regulation 40 is completely arbitrary, inasmuch as, it comes into operation from the moment the compliance is made by the Trustees with clause (3) of Regulation 39. Even if the action taken under sub-clause (a) of clause (2) of Regulation 39 is illegal and arbitrary, Regulation 40 operates. Coming to Regulation 41, he submitted that the Scheme is peculiar, inasmuch as, it provides that either Trustees themselves act as liquidators or their nominee can act as a liquidator. Thus, the result is that the Trustees themselves liquidate the Schemes thereby giving scope for collusive sales. As there is no machinery available for taking corrective measures, Regulation 41 becomes absolutely arbitrary. Moreover, there are no timelines provided therein. He submitted that the provisions of Regulations 39 to 41 are manifestly arbitrary and ultra vires the provisions of SEBI Act. He submitted that the provisions of Regulation 41 discriminate between two types of investors, as can be seen from sub-clause (b) of clause (2) of Regulation 41. The creditors who have invested the money in the Scheme other than the unit-holders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of subordinate legislation are directly inconsistent with the mandatory provisions of the parent statute, such a subordinate legislation can be held to be invalid. He submitted that in the present case, the Regulations under challenge can be held to be invalid, inasmuch as, the same are manifestly unjust, oppressive or outrageous. Thereafter, the learned Senior Counsel has taken us through another decision of the Apex Court in the case of Harakchand Ratanchand Banthia and others vs. Union of India and others (1969) 2 SCC 166. He submitted that the Regulation 39 of the Mutual Funds Regulations contains the provisions which are uncertain, directionless, unjustifiable and unintelligible. He submitted that if a Regulation does not contain any principles or standard for exercise of power, the same will have to be held as arbitrary. He placed reliance on the decision of the Apex Court in the case of Air India vs. Nergesh Meerza and others (1981) 4 SCC 335. He would therefore, submit that the impugned Regulations are violative of fundamental rights conferred under Article 14 of the Constitution of India. He submitted that the common man invests his hard earned money in the Mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -holders, as provided under sub-clause (c) of clause (15) of Regulation 18. He submitted that if such interpretation is not accepted, firstly, sub-clause (c) of clause (15) of Regulation 18 will become redundant. Secondly, if such interpretation is accepted, it may save the provisions of sub-clause (a) of clause (2) of Regulation from vice of unconstitutionary. 70. He submitted that the decision of the Trustees of winding up of an open ended Scheme which was taken under Regulation 39 takes away the fundamental rights of the unit-holders of redemption and, therefore, the open ended Scheme becomes a close ended Scheme. He submitted that it also amounts to change in the fundamental attributes of the Scheme, as can be seen from the contents of offer document itself. He also relied upon the master circular for Mutual Funds issued by SEBI on 10th July, 2018 and clause 1.12 thereof and submitted that clause 1.12 specifically records that types of Schemes such as 'open ended' or 'close ended' are fundamental attributes and even the redemption/liquidity is also a fundamental attributes. He, therefore, submitted that in case of winding up of open ended Scheme, clause (15A) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also look into the question whether the reasons recorded have any rational relationship with the formation of an opinion by the Trustees. 73. Thereafter, the learned Senior Counsel has taken us through the decision of the Apex Court in the case of 63 Moons Technologies Ltd., (formerly known as financial technologies India Ltd.,) and others vs. Union of India and others. He also relied upon the decision of the Apex Court in the case of Barium Chemicals Ltd., and another vs. Company Law Board and others 1966 Supp SCR 311 : AIR 1967 SC 295. He relied upon a decision of the Apex Court in the case of Rampur Distillery Co. Ltd., vs. Company Law Board and another (1969) 2 SCC 774. 74. He submitted that large number of requests for redemption has nothing to do with the spread of COVID-19. He submitted that there are several other 'open ended Schemes' of various Mutual Funds and none of them have gone for winding up due to COVID-19. He again invited our attention to e-mail dated 14th April 2020 of AMC to SEBI in which, AMC has stated that except for taking recourse of suspension of redemption, there may not be any other alternative and therefore, a request was made that suspension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Rohtas Industries Ltd. and another vs. Rohtas Industries Staff Union and others (1976) 2 SCC 82 and pointed out by relying upon paragraph 9 of the said decision that the expansive and extraordinary power of the High Court under Article 226 of the Constitution of India is of a widest amplitude and the language goes to indicate that it can be exercised even against a private individual and is available in a case where another remedy exists. He pointed out that in the said decision, the Apex Court held that an award made by an Arbitrator under Section 10-A of the Industrial Disputes Act, 1947 can be interfered with under Article 226 of the Constitution of India. Thereafter, he relied upon a decision of the Apex Court in the case of Zee Telefilms Ltd. and another vs. Union of India and others (2005) 4 SCC 649 and submitted that with the opening up of economy and globalization, more and more governmental functions are being performed and allowed to be performed by private bodies. When the functions of a body are identifiable with the State functions, they would be State actors only in relation thereto. When a body performs governmental functions or quasi-governmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court under Article 226 of the Constitution of India are plenary and it constitutionally empowers a High Court to issue writs to any person not only for enforcement of fundamental rights but also for any purpose. 80. He submitted that the 6th respondent Trustee is appointed with the prior approval of SEBI, a statutory body, as required by Regulation 17 of the Mutual Funds Regulations. He submitted that if the object of establishment of SEBI is considered and the entire Scheme of the Mutual Funds Regulations is considered, Section 11-B of SEBI Act will have to be read with Regulation 39 of the Mutual Funds Regulations and, therefore, for the purposes of issuing directions under Section 11-B of SEBI Act, SEBI will have to go into the question whether the circumstances, as contemplated by sub-clause (a) of clause (2) of Regulation 39 indeed existed. 81. He submitted that even the terms of reference given to the Auditors/Forensic Auditors are not at all placed on record. He submitted that no one knows what has happened to the Forensic Audit, as it has not seen the light of the day. He submitted that going by the statement of objections filed by SEBI, it is apparent that it has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMC, the Trustees were of the opinion that an event has occurred which required the Schemes to be wind up. He stated that the role played by AMC in the decision of the winding up of the Schemes is on record. He invited our attention to the letter dated 20th April, 2020 of the Trustees addressed to SEBI and submitted that the net outflow, as stated in the said letter for the period between first October 2019 to 31st December 2019 shows that there were large number of requests for redemption during the said period. In the said quarter, the net outflow was ₹ 8,697.53 crores and whereas, in the immediate earlier quarter, the net outflow was ₹ 1,855.39 crores. He would, therefore, submit that the reason for increase in the demand for redemption was not at all on account of COVID-19. He pointed out the contents of the circular dated 31st May, 2016 issued by SEBI which provided for imposing restrictions on redemption for a specific period of time not exceeding ten working days in ninety days. He submitted that FTMF had made a request to extend the said period of 10 days to 40 days. 83. He invited our attention to the statement of objections filed by AMC and the Trustees and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of AMC in the decision making process. 86. He submitted that there is a material on record to show that the Trustees have delegated their power to AMC despite the fact that there was no such provision in the Trust Deed. He relied upon the interpretation put by the Calcutta High Court in the case of Shri. Mahadeo Jew and another vs. Balkrishna Vyas and another AIR 1952 Cal 763 in particular, what is held in paragraphs 22 and 23. He submitted that it is well settled law that a Trustees cannot transfer his duties, powers and obligations to some other body or person and thereby surrender his own conscience. He submitted that the Trustees cannot transfer their duties unless it is specifically provided in the Trust Deed. He submitted that the draft of the Trust Deed, as contemplated by Mutual Funds Regulations does not provides for insertion of any such clause in the trust deed, empowering the Trustees to delegate their powers to any other person or body. In this behalf, he relied upon a decision of the Apex Court in the case of Sheikh Abdul Kayum and others vs. Mulla Alibhai and others AIR 1963 SC 309. 87. He argued that if consent as provided in sub-clause (c) of clause 18 of Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d being a trust, the same cannot be revoked without prior consent of the beneficiaries/unit-holders, as required under Section 78 of the Trusts Act. He submitted that winding up of an individual Scheme amounts to revocation of trust which cannot be made in violation of the statutory provisions of the Trusts Act. 89. He relied upon a decision of the Apex Court in the case of Commissioner of Income Tax Andhra Pradesh vs. The Trustees of H.E.H. The Nizam's Family Trust (1986) 4 SCC 352. He pointed out that in the said decision, it was found that one deed of trust executed by Nizam provided for a number separate and distinct trusts. He pointed out clause (8) of Regulation 18. The code of conduct mentioned in the fifth schedule to the Mutual Funds Regulations clearly supports his case that each Scheme constitutes a separate trust within the larger trust of a Mutual Fund. He relied upon the observations made by the Apex Court in the case of Commissioner of Income Tax, Bombay City I, Bombay vs. Manilal Dhanji, Bombay AIR 1963 SC 433. He relied upon another decision of the Apex Court in the case of Sahara India Real Estate Corporation Limited and others vs. Securities and Exchange Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completely illegal. 91. Learned senior counsel appearing for the petitioner relied upon a decision of the Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. and etc., vs. Telecom Regulatory Authority of Delhi and etc., and contended that what cannot be done directly cannot also be done indirectly. Relying upon the very same decision, he submitted that the provisions of Regulation 39 will have to be read harmoniously with the provisions of clauses (15) and (15A) of Regulation 18. He submitted that the action of winding up of the Schemes is an action in rem which should be taken as a last resort. In support of his submission, he placed reliance on the decisions of the Apex Court in the case of Hind Overseas Pvt. Limited vs. Raghunath Prasad Jhunjhunwalla and another (1976) 3 SCC 259 and Swiss Ribbons Private Limited and another vs. Union of India and others (2019) 4 SCC 17. He submitted that recourse to winding up of the Scheme can be taken only as a last resort. For the same proposition, he relied upon another decision of the Apex Court in the case of Pioneer Urgan Land and Infrastructure Limited and another vs. Union of India and others (2019) 8 SCC 416. 92. He placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schemes is not brought on record and in fact, in the statement of objections, SEBI has categorically stated that it is an internal document of SEBI. Referring to the averments made in paragraphs 29 and 30 of the statement of objections filed by the Trustees and AMC, he submitted that there is no clarity as to whether the Forensic Audit is ordered or an inspection has been ordered. He submitted that SEBI must explain and must place before this Court the report of the Forensic Audit. 94. About the issue of maintainability, the learned Senior Counsel relied upon a decision of the Apex Court in the case of Marwari Balika Vidyalaya vs. Asha Srivastava and others. He submitted that the jurisdiction to issue writs under Article 226 of the Constitution of India is not confined only to the statutory agencies/authorities and instrumentalities of the State. The directions can be issued to any other person or body, performing a public duty. He submitted that if the nature of the duties imposed on a particular body is in the nature of public duties, a writ of mandamus can be issued against the said body. On the same proposition, he also relied upon the decisions of the Calcutta High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or by providing them exit option. The learned counsel invited our attention to Section 11 of SEBI Act and in particular, sub-section (1) which lays down that the duty of the Board is to protect the interests of the investors in securities and to take measures for that purpose. He invited our attention to sub-section (4) of Section 11 which confers wide powers on SEBI to take various measures provided therein either pending investigation/inquiry or on completion of such investigation or inquiry. He also invited our attention to Section 11B which confers wide power on SEBI to issue directions to any company, in respect of the matters specified in Section 11A. 97. He submitted that in view of clause (2) of Regulation 44, a Mutual Fund is not entitled to borrow more than 20% of the net assets of the Scheme and the duration of such a borrowing cannot exceed a period of more than six months. He submitted that SEBI does not have power to enhance the limit of borrowing to more than 20%. He pointed out that notwithstanding the said express provision, SEBI has permitted borrowing in excess of 20% by its letter dated 22nd April, 2020. 98. The learned counsel invited our attention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, element of public interest is certainly involved. 103. Now turning to the Criminal Petition No. 3206/2020, he submitted that the first respondent, the Economic Offence Wing of SEBI is a police station within the meaning of sub-clause (s) of Section (2) of the Code of Criminal Procedure, 1973 (for short, 'the Cr.P.C.'). He pointed out that in the complaint made by the petitioner, the allegation against AMC and the Trustees and their Directors was of commission of the offences under the provisions of the Tamil Nadu Protection of Interest of Investors (in financial establishments) Act, 1970 (for short, 'the Tamil Nadu Act') as well as the offences punishable under the provisions of the Indian Penal Code. He submitted that despite such a complaint, no action was taken by the respondents on the basis of the said complaint. We must note here that during the course of hearing, it was pointed out that on the basis of the complaint of the petitioner, a First Information Report has been registered. Therefore this petition has been disposed of by passing a separate order. SUBMISSIONS OF THIRD PARTY-APPLICANTS: 104. The learned counsel appearing for the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so invited our attention to various provisions of SEBI Act. He submitted that sub-clause (c) of clause (15) of Regulation 18 will apply to winding up of the Scheme under sub-clause (a) of clause (2) of Regulation 39 and, therefore, without the consent of the unit-holders, the winding up could not have proceeded. He also pointed out the correspondence between AMC and SEBI and Trustees and SEBI. SUBMISSIONS OF SEBI 107. Shri. Arvind Datar, learned senior counsel appearing for SEBI also made detailed submissions. At the outset, he submitted that the criticism made by the petitioners about the inaction on the part of SEBI is un-called for, inasmuch as, every possible action which could be taken under SEBI Act and the Mutual Funds Regulations has been initiated by SEBI. He submitted that in the year 2011, the total investment in the Mutual Funds was of Rupees ten lakh crores which has gone up to Rupees twenty seven lakh crores in the year 2020. He submitted that more than 2000 Mutual Funds are in existence and that SEBI's role is not confined only to Mutual Funds but it extends to all kinds of securities within the meaning of Section 2 of the Securities Contracts (Regulation) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with sub-clause (a) of clause (2) of Regulation 39. He pointed out that only under sub-clause (1) of Regulation 41, an approval of the unit-holders by simple majority is contemplated for authorising the Trustees or any other person to take steps for winding up of the Scheme. He submitted that consent referred in sub-clause (c) of clause (15) of Regulation 18 is referable to approval under clause (1) of Regulation 41. 110. He submitted that clause 15A of Regulation 18 will have no application to winding up, as it applies only when the Trustees want to make a change in the fundamental attributes of any Schemes or any other change which amounts to the modification of the Scheme and affects the interest of the unit-holders. He urged that clause 15A of Regulation 18 operates in a totally different field. 111. He submitted that the Trustees always act in fiduciary capacity and therefore, they are in best position to take a decision on the existence of circumstance which requires winding up of the Scheme. He submitted that if the consent of the unit-holders is read into sub-clause (a) of clause (2) of Regulation 39, it will have disastrous consequences. He submitted that in a given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the investment made in the Mutual Funds is also subject to risks. He submitted that if the entire Scheme of the Mutual Funds, as envisaged by the Mutual Funds Regulations is considered, the unit-holders are not entitled to refund of their investment and they will get the returns as per the provisions of the Scheme. He submitted that under the Mutual Funds Regulations, SEBI is the regulator and in fact, the running of a Mutual Fund is highly regulated. He submitted that SEBI had initiated action by ordering Forensic Audit and after receiving the final report, SEBI is bound to take action in accordance with the Regulations and SEBI Act. He submitted that a perusal of the said Regulations will show that the same were brought into force with effect from 9th December, 1996 and thereafter, several amendments thereto have been made from time to time. Inviting our attention to the averments made in the writ petitions filed in Delhi and Madras High Courts, he submitted that there are no allegations that SEBI has not done its statutory duties under the Regulations. He submitted that there are no specific allegations in the writ petitions that SEBI has not abided by a particular Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the petitioners. At this stage, learned Senior Counsel appearing for the petitioners in Delhi petition submitted that the report cannot be withheld in such a manner from the petitioners. Shri. Janak Dwarakadas, the learned Senior Counsel appearing for AMC and the Trustees submitted that he has a strong objection for SEBI filing the report in sealed cover and for this Court going through the said report even for a limited purposes of deciding the contention of SEBI that under any circumstances, the said report should not be made public. 115. Shri. Arvind Datar, learned Senior counsel relied upon a decision of the Apex Court in the case of G. Veerappa Pillai, Proprietor, Sathi Vilas Bus Service, Porayar, Tanjore District, Madras vs. Raman and Raman Limited, Kumbakonam, Tanjore District and three others AIR 1952 SC 192. He also relied upon a decision of the Apex Court in the case of Board of Control for Cricket in India vs. Cricket Association of Bihar and others (2014) 7 SCC 383. He submitted that no reliefs can be granted in these writ petitions as against SEBI and prays for dismissal of the writ petitions. Lastly, he submitted that further submissions will be canvasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Mutual Fund transactions. 119. He submitted that the nature of winding up of a Scheme and the nature of winding up of a company are completely different and in fact, winding up of a Scheme is not in that sense winding up, but it is winding down. On the interplay between clauses 15(c) and 15A of Regulation 18 and sub-clause (a) of clause (2) of Regulation 39, he heavily relied upon sub-clause (d) of clause (15) of Regulation 18 which was omitted by an amendment with effect from 22nd May 2000. He submitted that sub-clause (c) of clause (15) of Regulation 18 operates post the decision of winding up and therefore, the consent mentioned in sub-clause (c) has a direct co-relation with the approval under clause (1) of Regulation 41. He submitted that there is no difference between the word approval and consent. He urged that clause (15A) of Regulation 18 operates in a different sphere. 120. He reiterated that the decision of winding up under Regulation 39 (2) (a) is always subject to power to issue directions by SEBI under Section 11B of SEBI Act. He submitted that after sending the letter dated 20th April 2020, even if an indication would have been given by SEBI that the Trustee sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulated per quarter and continued liquidity stress was anticipated for the reasons stated in the said e-mail. He pointed out that it was stated therein that in view of the circular dated 1st October 2019 issued by SEBI, unlisted convertible debentures become illiquid and untradeable. He pointed out that a request was made by e-mail to grant permission to the Mutual Funds to trade unlisted papers for a temporary period of one year. It was also requested that non-banking financial corporations be permitted to avail moratorium on payments to banks. It was requested that SEBI may consider of removing restrictions by allowing postponement of redemption for forty days out of every ninety days. He pointed out that a request was also made through e-mail to SEBI to take proactive and urgent steps to help the industry. He submitted that there was no response from SEBI to this e-mail. He submitted that SEBI did not come out with any concrete steps, in response to the said e-mail. He pointed out that on 20th April 2020, the Trustees had sent a detailed letter to the whole time member/director of SEBI by pointing out the facts and figures in respect of the seven Schemes. He pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of clause (2) of Regulation 39. In fact, the restrictions imposed by Regulation 40 trigger immediately after compliance with clause (3) of Regulation 39. He submitted that sub-clause (d) of clause (15) of Regulation 18 which provided for consent of the unit-holders has been deleted. He submitted that superimposition of sub-clause (c) of clause (15) of Regulation 18 on sub-clause (a) of clause (2) of Regulation 39 is not at all called for. He submitted that sub-clause (c) of clause (15) of Regulation 18 refers to a decision already taken by the Trustees for winding up and therefore, what is contemplated by sub-clause (c) of clause (15) of Regulation 18 is nothing but an approval under clause (1) Regulation 41. He submitted that there is no difference between the meaning of the words 'approval' and 'consent'. He submitted that if textual interpretation is given to the provisions of the Regulations, there is no scope to read the word 'consent' into the provisions of sub-clause (a) of clause (2) of Regulation 39 and in fact, the 'consent' as contemplated by sub-clause (c) of clause (15) of Regulation 18 is the approval contemplated under clause (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Scheme does not amount to revocation of the Trust and in fact, it is an execution of the Trust. 128. He, submitted that the prayer made in the writ petition for investigation will not survive for consideration, inasmuch as, the Forensic Auditor has been appointed by SEBI to investigate in accordance with Regulation 66. 129. He, thereafter, invited our attention to a written note by which, a reference has been made to the factual allegations in the petitions filed in three High Courts. He submitted that the allegations of violation of Mutual Funds Regulations are not at all substantiated by the petitioners. Thereafter, he invited our attention to relevant allegations in the petitions and the response of AMC and the Trustees in their statement of objections. He submitted that each and every factual allegation has been specifically dealt with in the statement of objections filed by AMC and the Trustees. He pointed out that the pleadings made by AMC and the Trustees in the petition filed before the Delhi High Court will show that the Assets Under the Management of the Schemes were to the extent of ₹ 52,000 crores in October, 2019 which have been reduced to ₹ 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice Holmes quoted therein. He also relied upon a decision of the Apex Court in the case of Bhavesh D. Parish and others vs. Union of India and another (2000) 5 SCC 471. He submitted that the Mutual Funds Regulations constitute the Regulations framed by an expert body like SEBI dealing with the Mutual Funds. He submitted that the laws relating to economic activities are required to be viewed with greater latitude by the Courts than the laws touching the civil rights. He relied upon a decision of the Apex Court in the case of R.K. Garg vs. Union of India and others (1981) 4 SCC 675. He submitted that when it comes to a petition involving challenge to economic and fiscal regulatory measures, the Courts will have to show restraint, as the Judges are not experts in the field. He submitted that it is not the case of the petitioners that SEBI lacks the competence to frame the Mutual Funds Regulations. The said Regulations will have to be shown to be contrary to SEBI Act or contrary to the constitution of India. 132. Coming to the arguments of the petitioners as regards the manifest arbitrariness, he submitted that the exhaustive Scheme of the said Regulations is required to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Legislature capriciously, irrationally and in disproportionate manner. He submitted that this type of manifest arbitrariness is not attracted in these petitions. He submitted that the same is the test laid down by the Apex Court in the case of Shayara Bano vs. Union of India and others (2017) 9 SCC 1. 133. He submitted that as far as violation of Article 14 is concerned, mathematical nicety or perfect equality are not required under Article 14, as held by the Apex Court in the case of Kedar Nath Bajoria, Son of Ramjidas Bajoria vs. State of West Bengal 1954 SCR 30. He submitted that it is not the requirement of Article 14 of the Constitution of India that classification should be scientifically perfect. He relied upon a decision of the Apex Court in the case of Venkateshwara Theatre vs. State of Andhra Pradesh and others (1993) 3 SCC 677. He submitted that the provisions of the Regulations regarding winding up of the Schemes sub-serve larger public interest of safeguarding commercial interests of majority of the unit-holders. He relied upon a decision of the Apex Court in the case of Internet and Mobile Association of India vs. Reserve Bank of India. 134. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 24th April 2020, only one borrowing was made. He also pointed out from the affidavit filed on 18th September 2020 the circumstances under which the borrowings were made. 138. He invited our attention to clause (12) and (25) of Regulation 18. He submitted that it is the duty of the Trustees to ensure that the Trust properties are properly protected, held and administered by a proper person. He invited our attention to key information memorandum of the said Schemes and submitted that there was no investment made after 23rd April 2020, in view of clause (a) of Regulation 40, as making investment of the funds will amount conducting business activity. He submitted that for protecting the interest of the unit-holders and for meeting the demand by the creditors, such steps were required to be taken by making borrowings. He submitted that the disclosure of the said fact has been made in accordance with clause (4) of Regulation 41. He has taken us through the contents of the affidavit filed by AMC and the Trustees on 18th September 2020 and pointed out the manner in which the borrowings were made. He submitted that there is no compromise made on the interest of the unit-holders. He inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement in AMC. He submitted that AMC is strictly maintaining the books of accounts, records and the documents, as required by Regulation 50. REJOINDER OF THE PETITIONERS: 141. Shri. Ravindra Srivatsava, the learned Senior Counsel appearing for the petitioners in W.P. No. 8545/2020 gave a brief rejoinder and submitted that the requirement of obtaining consent of the unit-holders is not only found in sub-clause (c) of clause (15) of Regulation 18 but it is very much a part of the Scheme document. He invited our attention to the statement of additional information and in particular, page 714 of the common compilation and submitted that the requirement of obtaining consent of the unit-holders is accepted by FTMF itself, as the statement of additional information is issued by it. He submitted that some meaning will have to be assigned to the consent referred in sub-clause (c) of clause (15) of Regulation 18. He submitted that SEBI which has framed the Regulations is now trying to disown it by contending that the unit-holders will have no say in the matter of decision of winding up taken by the Trustees. He submitted that in exercise of its powers under Section 11B, SEBI can interfere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Apex Court in the case of Commissioner of Police, Bombay vs. Gordhandas Bhanji AIR 1952 SC 16, he submitted that though the Trustees could have taken factual inputs from AMC, the Directors of AMC could not have been a part of the decision making process of AMC. He submitted that on careful scrutiny of the minutes of meeting dated 20th April 2020 and 23rd April 2020, it is apparent that the decision of Mr. Sanjay Sapre, head of AMC carried the day. 144. He submitted that the minutes show that some officers of SEBI were interacting with AMC and the Trustees and there appears to be a tacit approval to the decision of winding up by SEBI. He submitted that surprisingly, SEBI has not at all placed on record any documents to show the action taken by SEBI on the basis of the letter of AMC dated 14th April 2020 of AMC and the letter dated 20th April 2020 of the Trustees. He submitted that SEBI, being a statutory body has not done its duty. 145. The learned counsel submitted that this Court can always examine the decision making process of the Trustees leading to winding up of the said Schemes. He stated that process shows undue, haste and colourable exercise of power by misusin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the petitioners about the arbitrariness of the decision have not been rebutted by any of the respondents. 148. He submitted that the argument that the petitioners want to compel the Trustees to run the Scheme is completely unfounded. He submitted that the petitioners being the unit-holders are entitled to seek the relief of quashing of the illegal decision taken by the Trustees. He submitted that the argument of AMC and the Trustees that there is nothing wrong in the investments made is only based on the document of a Scheme which does not pertain to the Scheme in which the petitioner has made investment. He submitted that the petitioner is concerned only with the Short Term Income Mutual Fund which is a debt Scheme and in the document relating to the said Scheme, it is specifically mentioned that the investments objective is to seek stable returns and no information is provided in the said document about the proposal to make investments in low rated portfolios. 149. He submitted that the argument that even in the teeth of clause (a) of Regulation 40, borrowings can be made by Mutual Fund after action is taken under clause (3) of Regulation 39 is completely erroneous and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners and other investors. 151. Shri. Adithya Sondhi, learned Senior Counsel submitted that the report on Forensic Audit is not an evidence and therefore, privilege cannot be claimed. In any case, the privilege has to be specifically claimed. He relied upon the decisions of the Apex Court in the case of State of Punjab vs. Sodhi Sukhdev Singh AIR 1961 SC 493 and Reserve Bank of India vs. Jayantilal N. Mistry (2016) 3 SCC 525. He invited attention of the Court to the provisions of Section 179 and 180 of the Companies Act to contend that the borrowing is a part of day to day business of a company. He relied upon a decision of the Apex Court in the case of Official Trustee of Tamil Nadu vs. Udavumkarankal and others AIR 1993 SC 1472=1993 Supp (3) SCC 509. He submitted that the fact that four Schemes out of six Schemes under winding up have become cash rich shows that the decision of the Trustees of winding up was erroneous or flawed. He also countered the submissions made by the respondents regarding maintainability of the writ petitions. 152. Shri. Puneeth Jain and Shri. Ashish Kamath, the learned counsel made submissions on behalf of the intervener, supporting the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trustees have established that they have complied with sub-clauses (a) and (b) of clause (3) of Regulation 39? vii) Assuming that the decision of the Trustees of winding up is lawful, whether AMC could have lawfully made the borrowings after 24th April 2020 for the purposes for meeting the demands for redemption and for the purposes of repaying the outstanding loans notwithstanding the provision of clause (a) of Regulation 40? Whether AMC could have lawfully paid the redemption amount after 24th April, 2020 in case of redemption requests received prior to 24th April, 2020? viii) Whether the petitioners are entitled to have a copy of report of the Forensic Auditor which is produced on record by SEBI in a sealed envelope and whether any privilege can be claimed in respect of the said document by SEBI, AMC and Trustees? ix) Whether the petitioners are entitled to have un-redacted copy of the Resolutions dated 20th April 2020 and 23rd April 2020 passed by the Board of Directors of the Trustees, redacted copies of which are placed on record by the Advocate for AMC and the Trustees? x) Whether SEBI has jurisdiction under Section 11B of SEBI Act to interfere with the decision of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eplace the aforesaid Ordinance". (Underline supplied) 157. As can be seen from the preamble of SEBI Act, the same has been enacted to provide for the establishment of a Board (SEBI) to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto. 158. Section 3 of SEBI Act provides for establishment of SEBI. Chapter-IV of the said Act deals with the powers and functions of SEBI. Section 11 of SEBI Act is relevant which read thus: "11. Functions of Board - (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for-- (a) regulating the business in stock exchanges and any other securities markets; (b) registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, Trustees of trust deeds, registrars to an is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esearch for the above purposes; (la) calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions; (m) performing such other functions as may be prescribed. (2-A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in Section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. (3) Notwithstanding anything contained in any other law for the time being in force while exercising the powers under clause (i) or clause (ia) of sub-section (2) or sub-section (2A) the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit, in respect of the following matters, namely:-- (i) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to dispose of or alienate an asset forming part of any transaction which is under investigation: Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2-A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. (4-A) Without prejudice to the provisions contained in sub-sections (1), (2), (2A), (3) and (4), Section 11-B and Section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under Sections 15-A, 15-B, 15-C, 15-D, 15-E, 15-EA, 15-EB, 15-F, 15-G, 15-H, 15-HA and 15-HB after holding an inquiry in the prescribed manner. (5) The amount disgorge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irections and levy penalty - (1) Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary-- (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the interests of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions,-- (a) to any person or class of persons referred to in Section 12, or associated with the securities market; or (b) to any company in respect of matters specified in Section 11-A, as may be appropriate in the interests of investors in securities and the securities market. (2) Without prejudice to the provisions contained in sub-section (1), sub-section (4-A) of Section 11 and Section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under Sections 15-A, 15-B, 15-C, 15-D, 15-E, 15-EA, 15-EB, 15-F, 15-G, 15-H, 15-HA and 15-HB after holding an inquiry in the prescribed manner. Explanation.--For the remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Rupees one lakh but it may extend to Rupees one crore. The procedure for imposing penalties is laid down under Section 15-I. 163. Another relevant provision of SEBI Act is Section 30 which confers powers to make Regulations, which reads thus: 30. Power to make regulations - (1) The Board may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely:-- (a) the times and places of meetings of the Board and the procedure to be followed at such meetings under sub-section (1) of Section 7 including quorum necessary for the transaction of business; (b) the term and other conditions of service of officers and employees of the Board under subsection (2) of Section 9; (c) the matters relating to issue of capital, transfer of securities and other matters incidental thereto and the manner in which such matters shall be disclosed by the companies under Section 11-A; (ca) the utilisation of the amount credited under sub-section (5) of Section 11; (cb) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... physical settlement of such contracts." (underlines supplied) 167. The word "sponsor" is defined in clause (x) of Regulation 2 which reads thus: "(x) "sponsor" means any person who, acting alone or in combination with another body corporate, establishes a Mutual Fund;" There are three other relevant definitions of 'Trustees', 'unit' and 'unit-holder' under clause (y), (z) and z (i) of Regulation 2 which read thus: "(y) "Trustees" mean the Board of Trustees or the Trustee Company who hold the property of the Mutual Fund in trust for the benefit of the unit-holders;] (z) "unit" means the interest of the unit-holders in a Scheme, which consists of each unit representing one undivided share in the assets of a Scheme; (z)(i) "unit holder" means a person holding unit in a Scheme of a Mutual Fund." (underlines supplied) Clause (u) of Regulation 2 defines a "Scheme" to mean a Scheme of a Mutual Fund launched under Chapter-V of the Mutual Funds Regulations. In this group of writ petitions, we are concerned with 'open-ended Scheme' which is defined in clause (s) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation 2(y) have fiduciary relationship with the unit-holders of the Mutual Fund. As per Regulation 17, the appointment of a Trustee can be made only with the prior approval of SEBI. As far as the duties, responsibilities and obligations of the Trustees are concerned, we are discussing the same at a subsequent stage. The appointment of the Trustees is to be made by the sponsor with the prior approval of SEBI. After the Trust Deed is executed under the Indian Registration Act in accordance with the Regulation 14, the Trustees and AMC are required to execute an investment management agreement containing the clauses as provided in the fourth schedule to the Mutual Funds Regulations. The investment management agreement is required to be executed with the prior approval of SEBI. 172. As per Regulation 19, an application for approval of Asset Management Company is required to be made in Form No. D. Clause (1) of Regulation 20 provides that the sponsor or, if so authorized by the trust deed, the trustees shall appoint AMC subject to approval by SEBI. Regulation 22 provides for imposition of conditions for grant of approval. The job of AMC is to make the investment of funds of the Schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Fund Scheme can be invested by Mutual Fund in accordance with Regulation 43 in (i) securities, (ii) money market instruments, (iii) privately placed debentures, (iv) securitized debt instruments, which are either asset backed or mortgage backed securities, (v) gold or gold related instruments, or (vi) real estate assets as defined in clause (a) of regulation 49A or (vii) infrastructure debt instruments and assets as specified in clause (1) of regulation 49L. The investments so made under Regulation 43 are subject to restrictions specified in the Eighth Schedule. Regulation 48 is about computation of NAV of each Scheme to be made by a Mutual Fund. Under the Scheme of the Regulations, AMC, by exercising due diligence and care, is required to take decisions regarding investments by a Mutual Fund. The Code of Conduct prescribed for AMC is also a part of the Regulations. 178. Chapter VIII deals with inspection and audit. Under Regulation 61, SEBI has powers to investigate into the affairs of a Mutual Fund and inspect its records by appointing one or more persons as inspecting officers. Regulation 61 reads thus: "61. Board's right to inspect and investigate.--(1) The Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any of the provisions of the Act or the regulations, initiate action under section 11, 11B or section 24 of the Act. (2) The Board may in addition to suspension or cancellation of certificate, order suspension of launching of any scheme of a mutual fund for a period not exceeding one year for violation of any of the provisions of these regulations after following procedure under this Chapter. (3) The Board may during the pendency of any proceeding of suspension or cancellation under this Chapter also order suspension for launching of any scheme not exceeding three months without following procedure under this Chapter: Provided that no order shall be passed without giving an opportunity of hearing." 179. Before we deal with the specific submissions made across the Bar, we must elaborately consider the role of (i) the sponsor, (ii) the Asset Management Company (AMC), (iii) the Trustees and especially their obligations to the investors. We have already outlined the Scheme of the Mutual Funds Regulations. We must also consider the interplay amongst the three players namely, the sponsors, AMC and the Trustees. The sponsor in this case is the Templeton International Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Mutual Fund and even its associate and group companies including AMC of the fund through the Schemes of Mutual Fund cannot have 10% or more shareholding or voting rights in AMC or Trustee company or any other Mutual Fund. Similarly, the sponsor or its associates or group of companies cannot have the representation on the board of AMC or Trustee company or any other Mutual Fund. A trust deed, as contemplated by Regulation 14 has to be registered as an instrument of trust executed by the sponsor in favour the Trustees or Trustee company. The third schedule lays down the mandatory clauses to be incorporated in the trust deed. One of the most important clauses therein is clause (3) which requires that the trust deed must provide that the Trustees shall take into their custody, or under their control, all the property of the Schemes of the Mutual Fund and hold it in trust for the unit-holders. The second important clause in the third schedule is that the trust deed must specifically provide that the unit-holders would have beneficial interest in the trust property to the extent of individual holding in respective Schemes. Thus, all the property of the Schemes of a Mutual Fund is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Trustees or AMC are responsible for any loss or damage caused to the unit-holders by their acts of negligence or acts of commission or omission. The reason is that it is provided that there cannot be a clause indemnifying the Trustees for such a loss or damage. There is a salutary provision in the third schedule in the form of clause 17 which lays down that the trust deed shall contain a clause to the effect that no amendment to the trust deed shall be carried out without the prior approval of SEBI and unit-holders. Thus, amendment to the trust deed is impermissible without the prior approval of the unit-holders. 183. Before we go into the provisions contained in Regulation 18 which lay down the rights and obligations of the Trustees, there is one more clause in the third schedule which is clause 12 which also gives an idea about the role of the Trustees. Clause 12 read thus: "12. The Trust Deed shall provide for the responsibility of the Trustees to supervise the collection of any income due to be paid to the Scheme and for claiming any repayment of tax and holding any income received in trust for the holders in accordance with the Trust Deed, Regulations." W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these regulations and the Scheme they shall forthwith take such remedial steps as are necessary by them and shall immediately inform the Board of the violation and the action taken by them. (11) Each trustee shall file the details of his transactions of dealing in securities with the Mutual Fund on a quarterly basis. (12) The Trustees shall be accountable for, and be the custodian of, the funds and property of the respective Schemes and shall hold the same in trust for the benefit of the unit-holders in accordance with these regulations and the provisions of trust deed. (13) The Trustees shall take steps to ensure that the transactions of the Mutual Fund are in accordance with the provisions of the trust deed. (14) The Trustees shall be responsible for the calculation of any income due to be paid to the Mutual Fund and also of any income received in the Mutual Fund for the holders of the units of any Scheme in accordance with these regulations and the trust deed. (15) The Trustees shall obtain the consent of the unit-holders-- (a) whenever required to do so by the Board in the interest of the unit-holders; or (b) whenever required to do so on the requisition made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans that if any investor gets unfair treatment as a result of inappropriate valuation, AMC and sponsor of the Mutual Fund are liable to pay the compensation to the investors. Regulation 26 provides for Mutual Fund appointing a custodian to carry out the custodial services for the Schemes of the said fund. Regulation 27 provides that Mutual Fund is required to enter into a custodial agreement with the custodian with the prior approval of the Trustees. 189. Now, we come to the provisions of the Mutual Funds Regulations which lay down the procedure for launching the Schemes. The procedure for launching the Schemes of a Mutual Fund is laid down in Chapter-V. Regulation 28 makes it clear that no Schemes can be launched by AMC unless it is approved by the Trustees and a copy of offer document is filed with SEBI. It is provided that the sponsor or AMC shall invest not less than 1% of the amount which would be raised in the new fund offer or Rupees fifty lakhs, whichever is less. It is provided that such investment shall not be redeemed unless the Scheme is wound up. In what manner the disclosure should be made in the offer document is laid down in Regulation 29. SEBI has power to requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any AMC shall be eligible to be appointed as a Trustee of any other Mutual Fund. It is also provided that no person who is appointed as a Trustee of a Mutual Fund shall be eligible to be appointed as a Trustee of any other Mutual Fund. It is provided that two third (2/3rd) of the Trustees shall be independent persons and they shall not be associated with the sponsors. If a trustee company is appointed as a trustee, its directors cannot act as a Trustee of any other Trustee company unless the object of the Trust is not in conflict of interest with the object of the Mutual Fund. It is also provided that the Trustee company and AMC cannot have the same Auditor. 193. Before we turn to the interpretation of the relevant provisions of the Mutual Funds Regulations, it is necessary to summarize the obligations and duties of AMC and the Trustees under the Mutual Funds Regulations. We enlist some of the important duties and obligations. A. Obligations of the Trustees: (i) To ensure that AMC enters into transactions in accordance with the Mutual Funds Regulations and the Scheme [Regulation 18 (7); (ii) To ensure that AMC takes adequate steps to ensure that interests of investors of on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main responsible for the supervision of its activities in relation to the Mutual Fund and to enter into an agreement with the custodian [clause (10) of Third Schedule]; (xvii) To perform the duties as specified in Regulation 49-I of the Mutual Funds Regulations (applicable to real estate Mutual Fund Scheme); and (xviii) To produce to the inspecting officer such books of accounts, records and other documents and to furnish such statements and information relating to the activities of the Mutual Fund in its custody or control [Regulation 63 (1)]. B. Obligations of the AMC: i) To invest the funds raised under various Schemes in accordance with the provisions of the Trust Deed and Regulations [ clause (iii) of fourth Schedule]; ii) Not to acquire any of the assets out of the Scheme property which involves the assumption of any liability which is unlimited or which may result in encumbrance of the Scheme property [clause (iv) fourth schedule]; iii) Not to take up any activity in contravention of the Mutual Funds Regulations [clause (v) of fourth schedule]; iv) To disclose the basis of calculating the repurchase price and NAV of various Schemes of the fund to the investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after repaying the amount due to the unit-holders,-- (a) on the happening of any event which, in the opinion of the Trustees, requires the Scheme to be wound up; or (b) if seventy-five per cent of the unit-holders of a Scheme pass a resolution that the Scheme be wound up; or (c) if the Board so directs in the interest of the unit-holders. (3) Where a Scheme is to be wound up under sub-regulation (2), the Trustees shall give notice disclosing the circumstances leading to the winding up of the Scheme:-- (a) to the Board; and (b) in two daily newspapers having circulation all over India, a vernacular newspaper circulating at the place where the Mutual Fund is formed. 40. Effect of winding up.--On and from the date of the publication of notice under clause (b) of sub-regulation (3) of regulation 39, the trustee or the asset management company as the case may be, shall-- (a) cease to carry on any business activities in respect of the Scheme so wound up; (b) cease to create or cancel units in the Scheme; (c) cease to issue or redeem units in the Scheme. 41. Procedure and manner of winding up.-- (1) The trustee shall call a meeting of the unit-holders to approve by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead thus: "(15) The Trustees shall obtain the consent of the unit-holders-- (a) whenever required to do so by the Board in the interest of the unit-holders; or (b) whenever required to do so on the requisition made by three-fourths of the unit-holders of any Scheme; or (c) when the majority of the Trustees decide to wind up or prematurely redeem the units. (d) [* * *]" (15A) The Trustees shall ensure that no change in the fundamental attributes of any Scheme or the trust or fees and expenses payable or any other change which would modify the Scheme and affects the interest of unit-holders, shall be carried out unless,-- (i) a written communication about the proposed change is sent to each unit holder and an advertisement is given in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated; and (ii) the unit-holders are given an option to exit at the prevailing Net Asset Value without any exit load." (Underlines supplied) 196. The argument of the petitioners is that the consent, as contemplated by sub-clause (c) of clause (15) of Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that on the one hand, the petitioners have made very serious allegations against the Trustees and AMC of mismanaging the funds of not acting in fiduciary capacity in the interest of the unit-holders etc, and on the other hand, by filing these writ petitions, they want to force the Trustees and AMC to run the said Schemes. An argument is also canvassed by the respondents that the Trustees and AMC were never put to notice that even for winding up of the Schemes under sub-clause (a) of clause (2) of Regulation 39, consent of the unit-holders will be required. If they were made aware of the said position, they would not have floated the said Schemes at all. It was also submitted that the consent referred in sub-clause (c) of clause 15 of Regulation 18 is an approval as contemplated by clause (1) of Regulation 41(1). It was submitted that there was no difference between the concept of 'consent' and 'approval' and in fact, it is one and the same. 198. There is a serious doubt whether the aforesaid arguments are open to FTMF, in view of the Statement of Additional Information published by it. We find that the fact that the consent of unit-holders is required for windin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; confidence in the capital market. The primary purpose of the statutory enactments is to provide an environment conducive to increased participation and investment in the securities market which is vital to the growth and development of the economy. The provisions of the SEBI Act and the Regulations will, therefore, have to be understood and interpreted in the above light". (emphasis added) 200. Regulation 18 is titled as "Rights and Obligations of the Trustees" which is a part of Chapter-III titled as "Constitution and management of Mutual Fund and operation of Trustees etc". Regulation 18 sets out several obligations of the Trustees. In clause (15), the word 'shall' has been used. When Regulation 18 contains several obligations of the Trustees, one cannot argue that the obligations mentioned therein need not be performed. An obligation is a legal duty to do or not to do any act. The Trustees have no choice but to discharge their obligations. Moreover, the Trustees have to act in fiduciary capacity qua unit-holders. Regulation 18 does not provide for any exceptions. Therefore, strict interpretation of the clauses in Regulation 18 is called for. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the units is a decision to redeem units in a particular Scheme. This indicates that sub-clause (c) deals with a Scheme of a Mutual Fund. On the one hand, there is no specific provision incorporated in the Mutual Funds Regulations for winding up of a Mutual Fund and on the other hand, there is a specific provision for winding up of a Scheme. Therefore, there is no manner of doubt that sub-clause (c) of clause (15) of Regulation 18 refers to a decision of majority of the Trustees to wind up a Scheme. No other winding up is contemplated by the Regulations. As per the definition of 'Trustees' contained in clause (y) of Regulation 2, the Trustees can be a Board of Trustees or a Trustee Company. In this case, the Trustees are a Trustee Company. Therefore, in this case, the decision to wind up a Scheme will be always by majority of the Board of Directors of the Trustees. As stated earlier, the Mutual Funds Regulations do not provide for winding up of any of the entities, save and except a Scheme. Hence, clause (c) undoubtedly refers to winding up of a Scheme. 202. Whenever the Trustees exercise powers which are conferred on them or whenever the Trustees take actions which are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 41 comes into picture only after a valid decision is taken to wind up a Scheme in accordance with one of the three sub-clauses (a), (b) and (c) of clause (2) of Regulation 39 and after due compliance is made with clause (3) of Regulation 39. The approval contemplated by said provision is not to the decision of the winding up of a Scheme. The approval is only on the issue who will take steps for winding up of the Scheme. Whether the Trustees will take steps or any other person. The approval under clause (1) of Regulation 41 has nothing to do with the decision to wind up a Scheme. The approval is only for authorising the Trustees or any other person to take steps for actual winding up. 205. Coming back to sub-clause (c) of clause (15) of Regulation 18, the consent of the unit-holders contemplated therein is at a stage when the majority of the Trustees decide to wind up a Scheme or prematurely redeem the units. This consent is to the decision to wind up a Scheme. It has nothing to do with the approval granted by the unit-holders under Regulation 41 (1) for authorizing either the Trustees or any other person to take steps for winding up of the Scheme. The steps for winding up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-clause (c) of clause (15) of Regulation 18. 207. In the case of Hardeep Singh (supra), in paragraph 44 of the said decision, the Apex Court held thus: "44. No word in a statute has to be construed as surplusage. No word can be rendered ineffective or purposeless. Courts are required to carry out the legislative intent fully and completely. While construing a provision, full effect is to be given to the language used therein, giving reference to the context and other provisions of the statute. By construction, a provision should not be reduced to a "dead letter" or "useless lumber". An interpretation which renders a provision otiose should be avoided otherwise it would mean that in enacting such a provision, the legislature was involved in "an exercise in futility" and the product came as a "purposeless piece" of legislation and that the provision had been enacted without any purpose and the entire exercise to enact such a provision was "most unwarranted besides being uncharitable". (emphasis added) Therefore, sub-clause (c) of clause (15) of Regulation 18 has to be interpreted in such manner that the 'consent' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsent to do so. Sub-clause (c) of clause (15) of Regulation 18 is silent on the nature of majority. Obviously, it is not a specific majority like three-fourth majority. Wherever three-fourth majority of the unit-holders was intended, the Mutual Funds Regulations say so. For example, sub-clause (b) of clause (15) of Regulation 18 and sub-clause (b) of clause (2) of Regulation 39. Therefore, it has to be a simple majority. For this purpose, we must make a reference to a decision of a Full Bench of the Allahabad High Court in the case of Wahid Ullah Khan vs. District Magistrate, Nainital and others. In paragraph 32, the Allahabad High Court held thus: "32. The word "majority" speaks of greater number out of the total number which cannot be a fixed number. In fact, the starting point of majority is more than half, but any number more than half still continues to be majority. Majority cannot be said only confining to more than half. Majority of three-fourths of the total number, two-thirds of the total number would all come within the sphere of the word "majority". A person is said to have won by a majority of fifty thousand votes or thirty thousand votes. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Mutual Fund; or iii) If a majority of the directors of the Trustee company decide to wind up the Scheme(s) or prematurely redeem the units." (underlines and emphasis added) Neither the Trustees nor AMC have disowned the above clause which is in their own statement of Additional Information. They have not placed on record any material to show that the above clause was subsequently modified. Sub-clause (iii) above is very specific which refers to a contingency when majority of the directors of the Trustee company decide to wind up Scheme(s). In such a case, as laid down by clause (b) above, the Trustees are under a mandate to obtain consent of the unit-holders. This is how FTMF has read sub-clause (c) of clause (15) of Regulation 18. What is stated in SAI is a part of the Scheme information. Thus, even in the additional information published by FTMF itself, there is a specific clause that the Trustees shall obtain consent of the unit-holders of the Scheme, if a majority of the directors of the Trustee company decide to wind up a Scheme. Thus, even FTMF clearly understood and accepted that if majority of directors of the Trustee company decide to wind up a Scheme, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Trustees in accordance with sub-clause (a), it will require consent of unit-holders by a simple majority. The majority need not be of seventy five percent of the unit-holders. It will be a simple majority of the unit-holders. Sub-clauses (a) and (b) of clause (2) of Regulation 39 will operate in different contingencies even if our interpretation is correct. 214. On behalf of SEBI, it was canvassed that reading the word 'consent' of the unit-holders contained in sub-clause (a) will have disastrous consequences. As held earlier, it is the obligation of the Trustees to take consent of the unit-holders when the Board of Directors of the Trustee company, by majority, take a decision to wind up a Scheme or prematurely redeem the units in a Scheme. As the Mutual Funds Regulations lay down that this is the obligation of the Trustees, the argument that not giving freedom to the Trustees to wind up a Scheme will be disastrous, will not stand to reason. In fact, the provision for consent ensures that the Trustees do not wind up any Scheme as per their whims and fancies. This provision is made consistent with the object of protecting interest of the unit-holders. If such a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of an open ended Scheme, the consent of the unit-holders shall not be necessary if: (i) The change in fundamental attribute is carried out after one year from the date of allotment of units. (ii) (ii) the unit-holders are informed about the proposed change in fundamental attribute by sending individual communication and an advertisement is given in English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the head office of the Mutual Fund is situated. (iii) The unit-holders are given an option to exit at the prevailing Net Asset Value without any exit load. Explanation: For the purposes of this clause "fundamental attributes" means the investment objective and terms of a Scheme." It must be noted here that sub-clause (d) was deleted by the SEBI (Mutual Funds) (Second Amendment) Regulations, 2000 with effect from 22nd May 2000. By the same second Amendment Regulations, with effect from the same date, clause 15A of Regulation 18 was incorporated, which reads thus: "(15A) The Trustees shall ensure that no change in the fundamental attributes of any Scheme or the trust or fees and expenses pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wiped out. In case of winding up of a Scheme, after distribution of money to the unit-holders in accordance with Regulation 41, the Scheme ceases to exist. Even if the changes, as contemplated by clause (15A) of Regulation 18 are brought about, the Scheme continues to exist. 219. In case of winding up of an 'open ended Scheme', in view of Regulation 40, the unit-holders cannot seek redemption and they are entitled to receive money on pro rata basis, remaining available after sale proceeds of the assets of the Scheme are applied for clearing all the liabilities of the Scheme. In case of winding up of an 'open ended Scheme', the right of redemption of the unit-holders is completely taken away due to winding up and not due to change of fundamental attributes. The act of change of fundamental attributes is completely different from the action of winding up of a Scheme inasmuch as, once the winding up of a Scheme in accordance with Regulation 39 triggers in, the redemption comes to an end. Therefore, the argument that winding up of an 'open ended Scheme' cannot be made unless clause (15A) of Regulation 18 is complied with is completely devoid of any merit and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation 39 is the amount payable to the unit-holders in accordance with sub-clause (b) of clause (2) of Regulation 41. In case of winding up of a Scheme, the amount due to the unit-holders is the one which is payable as per sub-clause (b) of clause (2) of Regulation 41. If the argument that the amount due and payable as per the Scheme to the unit-holders must be paid before taking a decision for winding up is accepted, it will completely defeat the Scheme of Regulations 40 and 41. It will completely defeat the very object of providing for winding up of a Scheme. Therefore, once the process of winding up as per clause (2) of Regulation 39 commences, the unit-holders are entitled to claim the amounts payable only as per sub-clause (b) of clause (2) of Regulation 41. COMPLIANCE WITH CLAUSE (3) OF REGULATION 39 (Issue No (vi): 221. It must be noted here that though the case of AMC and Trustees is that compliance with clause (3) of Regulation 39 was made on 24th April 2020, there is no material placed on record to show that a notice disclosing the circumstances leading to the winding up of the Schemes was published in a vernacular newspaper circulating at the place where the Mutual Fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meet the redemptions) was up for repayment on 20th May 2020. Though, moratorium was sought from Bank of Baroda, the same was denied. To avoid any action by Bank of Baroda, a loan of ₹ 900 crores was taken through TREPS and an amount of ₹ 100 crores was advanced by AMC. It is stated that on 8th September 2020, the amount borrowed from TREPS was repaid by availing loan of ₹ 900 crores from JP Morgan. This is the factual position which will have to be kept in mind in the context of the stand of the Trustees that the provisions of clause (3) of Regulation 39 were complied with on 24th April 2020. 223. For the sake of convenience, we are again reproducing the Regulation 40 which reads thus: "40. Effect of winding up.--On and from the date of the publication of notice under clause (b) of sub-regulation (3) of regulation 39, the trustee or the asset management company as the case may be, SHALL-- (a) Cease to carry on any business activities in respect of the Scheme so wound up; (b) Cease to create or cancel units in the Scheme; (c) Cease to issue or redeem units in the Scheme." (emphasis added) 224. Regulation 40 triggers in from the date of publica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged himself in a particular business. These are the decisions rendered specifically under the Taxation laws. The rules of interpretation of Taxing statutes require that if two interpretations of a provision are possible, the one which is favourable to the assessee is required to be accepted. 225. But, in the context of the Scheme of the Mutual Funds Regulations, this Court will have to consider the meaning of 'business activities'. As stated in the earlier part of our discussion, a Scheme is launched by AMC with the approval of the Trustees. There are different categories of Schemes in which the investments are made by the members of the public. From plain reading of the provisions of Regulation 43, it is clear that the money received from the unit-holders and investors is required to be invested by AMC strictly in accordance with Regulation 43. The investments are to be made subject to investment restrictions specified in the seventh schedule. As far as borrowings are concerned, clause (2) of Regulation 44 provides that the Mutual Fund shall not borrow except to meet temporary liquidity needs of the Mutual Fund for the purpose of repurchase, redemption of units or pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if there are large number of requests for redemption of units by the unit-holders in respect of 'open ended Scheme', a Mutual Fund may face temporary liquidity crunch. In such a situation, it is permissible for a Mutual Fund to make borrowings only for payment of redemption amount. Therefore, borrowings made as specified in clause (2) of Regulation 44 will certainly amount to 'business activities' of a Mutual Fund or a Scheme, inasmuch as, such borrowings are made for the purpose of meeting demand for redemption which is a part of business of the Scheme. 227. Regulation 40 is interlinked with Regulation 41. In view of Regulation 40, the moment compliance is made with clause (3) of Regulation 39, the 'business activities' of the Scheme of a Mutual Fund must stop. The creation or cancellation of units and issue or redemption of the units of the said Scheme must also cease. The reasons is, as required by sub-clause (a) of clause (2) of Regulation 41, all the assets of the Scheme under winding up are required to be disposed of in the best interest of unit-holders and thereafter, as per sub-clause (b) of clause (2) of Regulation 41, the proceeds of the sale are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as payment of interests and penalty as provided in clause (d) of Regulation 53 may not follow. Re. Issue No. (iv)- maintainability: 229. Now, we must deal with the issue of maintainability of the writ petitions. This issue must be dealt with in two parts. The first part is whether this Court is powerless to issue a writ under Article 226 of the Constitution of India, even if there is a specific breach of statutory provisions of the Mutual Funds Regulations and the provisions of the SEBI Act, by AMC or the Trustees. The second part will be whether in writ jurisdiction under Article 226 of the Constitution of India, this Court should interfere with the decision of the Trustees of winding of the said Schemes. 230. Now, coming to the first part of the issue of maintainability, various decisions have been relied on by the rival parties. The first decision is in the case of Rohtas Industries (supra) wherein, the issue before the Apex Court was whether writ jurisdiction under Article 226 of the Constitution of India can be exercised for interfering with an Award passed by an Arbitrator under Section 10A of Industrial Disputes Act, 1947. The Apex Court held that interference can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have a legal and a specific right to enforce the performance of those duties". Therefore, the condition precedent for the issue of mandamus is that there is in one claiming it a legal right to the performance of a legal duty by one against whom it is sought. An order of mandamus is, in form, a command directed to a person, corporation or an inferior tribunal requiring him or them to do a particular thing therein specified which appertains to his or their office and is in the nature of a public duty. It is, however, not necessary that the person or the authority on whom the statutory duty is imposed need be a public official or an official body. A mandamus can issue, for instance, to an official of a society to compel him to carry out the terms of the statute under or by which the society is constituted or governed and also to companies or corporations to carry out duties placed on them by the statutes authorising their undertakings. A mandamus would also lie against a company constituted by a statute for the purposes of fulfilling public responsibilities. [Cf. Halsbury's Laws of England, (3rd ed.), Vol. II, p. 52 and onwards]. 7. The company being a non-statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , p. 682, "1317. A public authority is a body, not necessarily a county council, Municipal Corporation or other local authority, which has public or statutory duties to perform and which perform those duties and carries out its transactions for the benefit of the public and not for private profit." There cannot be any general definition of public authority or public action. The facts of each case decide the point. 30. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. But nevertheless it may be noticed that the Government or government authorities at all levels are increasingly employing contractual techniques to achieve their regulatory aims. It cannot be said that the exercise of those powers are free from the zone of judicial review and that there would be no limits to the exercise of such powers, but in normal circumstances, judicial review principles cannot be used to enforce contractual obligations. When that contractual power is being used for public purpose, it is certainly amenable to judicial review. The power must be used for lawful purposes and not unreasonably. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Ramesh Ahluwalia v. State of Punjab (supra) in which this court has considered the issue at length and has thus observed: "13. in the aforesaid case, this Court was also considering a situation where the services of a Lecturer had been terminated who was working in the college run by the Andi Mukti Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust. In those circumstances, this Court has clearly observed as under: (V.R. Rudani case, SCC PP. 700-701, paras 20 & 22) "20. The term 'authority' used in Article 226, in the context, must receive a liberal meaning unlike the term in Article 12. Article 12 is relevant only for the purpose of enforcement of fundamental rights under Article 32. Article 226 confers power on the High Courts to issue writs for enforcement of the fundamental rights as well as non-fundamental rights. The words 'any person or authority' used in Article 226 are, therefore, not to be confined only to statutory authorities and instrumentalities of the State. They may cover any other person or body performing public duty. The form of the body concerned is not very much relevant. What is relevant is the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Article 226 of the Constitution of India. In paragraphs 31 to 33, the Apex Court held thus: "31. Be that as it may, it cannot be denied that the Board does discharge some duties like the selection of an Indian cricket team, controlling the activities of the players and others involved in the game of cricket. These activities can be said to be akin to public duties or State functions and if there is any violation of any constitutional or statutory obligation or rights of other citizens, the aggrieved party may not have a relief by way of a petition under Article 32. But that does not mean that the violator of such right would go scot-free merely because it or he is not a State. Under the Indian jurisprudence there is always a just remedy for the violation of a right of a citizen. Though the remedy under Article 32 is not available, an aggrieved party can always seek a remedy under the ordinary course of law or by way of a writ petition under Article 226 of the Constitution, which is much wider than Article 32. 32. This Court in the case of Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. V.R. Rudani [(1989) 2 SCC 691] has held: (SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the writ petition was maintainable. The entire law on the subject was considered in some detail by the Apex Court. Paragraphs 18, 26 and 27 of the judgment are relevant which read thus: "18. From the decisions referred to above, the position that emerges is that a writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State (Government); (ii) an authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any statute, to compel it to perform such a statutory function." (emphasis added) "26. A company registered under the Companies Act for the purposes of carrying on any trade or business is a private enterprise to earn livelihood and to make profits out of such activities. Banking is also a kind of profession and a commercial activity, the primary motive behind it can well be said to earn returns and profits. Since time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trol over the affairs of the company. For other companies in general carrying on other business activities, maybe manufacturing, other industries or any business, such checks are provided under the provisions of the Companies Act, as indicated earlier. There also, the main consideration is that the company itself may not sink because of its own mismanagement or the interest of the shareholders or people generally may not be jeopardized for that reason. Besides taking care of such interest as indicated above, there is no other interest of the State, to control the affairs and management of the private companies. Care is taken in regard to the industries covered under the Industries (Development and Regulation) Act, 1951 that their production, which is important for the economy, may not go down, yet the business activity is carried on by such companies or corporations which only remains a private activity of the entrepreneurs/companies." 27. Such private companies would normally not be amenable to the writ jurisdiction under Article 226 of the Constitution. But in certain circumstances a writ may issue to such private bodies or persons as there may be statutes which need to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate authority. However, such private authority must be discharging a public function and the decision sought to be corrected or enforced must be in discharge of a public function. The role of the State expanded enormously and attempts have been made to create various agencies to perform the governmental functions. Several corporations and companies have also been formed by the Government to run industries and to carry on trading activities. These have come to be known as public sector undertakings. However, in the interpretation given to Article 12 of the Constitution, this Court took the view that many of these companies and corporations could come within the sweep of Article 12 of the Constitution. At the same time, there are private bodies also which may be discharging public functions. It is difficult to draw a line between public functions and private functions when they are being discharged by a purely private authority. A body is performing a "public function" when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on such body, the public law remedy can be enforced. A body can be said to be performing a public function when it seeks to achieve some collective benefits for the public or a section of the public and is accepted by the public or section of the public having authority do so. 238. In the case of Ramakrishna Mission and another vs. Kago Kunya and others (2019) 16 SCC 303 the Apex Court has dealt with the question whether Ramakrishna Mission is a State, within the meaning of Article 12 of the Constitution of India. In paragraph 32, the Apex Court held thus: "32. Before an organisation can be held to discharge a public function, the function must be of a character that is closely related to functions which are performed by the State in its sovereign capacity. There is nothing on record to indicate that the hospital performs functions which are akin to those solely performed by State authorities. Medical services are provided by private as well as State entities. The character of the organisation as a public authority is dependent on the circumstances of the case. In setting up the hospital, the Mission cannot be construed as having assumed a public function. The hospital h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a section of the public having authority to do so. Moreover, a writ may be issued to a private body or private person when they fail to comply with the provisions of any statute which need to be complied with by all concerned, including a private company. This is so because of the language used by Article 226 of the Constitution of India which shows that a writ can be issued to any person or authority. Applying these principles, it can very well be said that a writ of mandamus can be issued against a private body which is not "State" within the meaning of Article 12 of the Constitution provided the above tests are satisfied. Hence, the High Court under Article 226 of the Constitution can exercise power of judicial review of the action of such a body. 241. There cannot be any difficulty in holding that a writ of mandamus can be issued against SEBI, as it can be said to be an agency and instrumentality of the State. The question is whether a writ of mandamus under Article 226 can be issued against the Trustees. 242. It was argued that the relationship between the unit-holders on the one hand and AMC and the Trustees on the other hand is purely a contractual relationship w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. In case of the Trustees of a Mutual Fund, they do not have the choice of selecting beneficiaries. As is clear from the Mutual Funds Regulations, object of said Regulations is to protect the investors and to regulate Mutual Funds. The investors are public or a section of public. The Regulations is a piece of a delegated legislation under SEBI Act. The object of SEBI Act is to protect the investors and to regulate securities market. It is a Welfare Legislation. A very important duty of looking after and protecting the interest of the unit-holders who are members of public or a section of public has been entrusted to the Trustees. Therefore, it can be said that Trustees perform a public duty or discharge a public function qua large number of investors/unit-holders. The Trustees seek to achieve some collective benefits for a section of the general public namely, the unit-holders. Thus, it can be safely concluded that that the Trustees, while exercising powers under the Mutual Funds Regulations, discharge a public duty and perform public function. Any violation of public duty by the Trustees and corresponding denial of rights of unit-holders will entitle unit-holders to invoke Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emes. Even SEBI did not produce the resolution passed by the Trustees. In fact, when this Court made a query about the resolution, Shri. Arvind Datar, the learned senior counsel appearing for SEBI stated that the same will be produced by the Trustees. Only during the course of arguments made by Shri Harish Salve, learned Senior Counsel appearing for AMC and the Trustees, the minutes of the meeting of the Board of Directors of the Trustee company held on 20th April 2020 and 23rd April 2020 were placed on record along with an affidavit of 17th September 2020. The contention raised in this affidavit is that the grievance regarding the non production of minutes was not at all raised in the pleadings in the writ petition and the same was made for the first time during the course of oral arguments made in Writ Petition No. 8545/2020 and 8644/2020. Surprisingly, in paragraph five of the said affidavit, a specific contention was raised contending that the minutes of the meetings of the Board of Directors of the Trustees held on 20th April 2020 and 23rd April 2020 are confidential in nature which contain confidential/sensitive information. In fact, in the copy of the minutes of the meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tees withhold the reasons contained in the Board resolution from the affected unit-holders, they will be committing a breach of their duties under the Regulations and also a breach of trust. Hence, it is the duty and obligation of the Trustees to disseminate information by providing a copy of the resolution recording a decision to wind up a Scheme. 250. Another relevant provision is clause (6) of Third Schedule which reads thus: "(6). The Trust Deed shall provide that it is the duty of Trustees to provide or cause to provide information to unit-holders and board as may be specified by the board." Hence, there is a statutory obligation on the part of the Trustees to furnish the information to the unit-holders, as may be specified by SEBI. This is over and above clause (2) above. Unfortunately, SEBI did not exercise its statutory power. However, the obligation to maintain the minutes of the meetings and obligation to disseminate information to the unit-holders will naturally include the obligation to provide copies of the minutes of the meeting recording a decision of winding up of a Scheme to the affected unit-holders. As far as the unit-holders are concerned, no confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, in the Resolution of the Board dated 23rd April 2020, it is recorded that apart from the Directors of the Trustees, two independent Directors of AMC, the President of AMC were invited to attend the meeting. Certain explanation was sought from the President of AMC. It further records that the President stated that number of engagements had taken place with SEBI on the need to wind up the Schemes and SEBI has confirmed informally that they will kindly look into the forbearance sought vide letter dated 20th April 2020. It also records that the President stated that SEBI has indicated that it shall be considerate in procedural forbearances. Ultimately, it is stated in the resolution recorded in the minutes that based on a review of the material placed before it and recommendations of the Board of AMC, winding up of the Schemes is the only viable mode of preserving value for investors and an event has occurred, which requires the Scheme to be wound up. Ultimately, it is recorded that "after careful considerations, deliberations and re-evaluations of the options placed in the previous meeting and in this meeting of the Board of Directors and the informal discussions with SEBI, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in the minutes. Mr. Sanjay Sapre clarified that SEBI Regulations allow AMC and Trustees to impose restrictions on redemptions for a period of ten working days in ninety days and even during said period of ten days, the Scheme is under obligation to honour redemptions requests up to ₹ 2 lakhs. It is recorded that the Schemes have more than three lakhs investors in aggregate and, therefore, the Schemes do not have ability to generate adequate cash through sale of assets to honour redemptions requests made by unit-holders/investors. It is recorded that the news regarding imposition of restrictions on redemptions may accelerate redemption demands which may further intensify the liquidity issue. It is noted that on the reopening after ten days period of redemption restrictions, there will be significant increase in the redemptions which will exceed the capacity of the said Schemes to generate liquidity through sale of assets. It is, therefore, stated that it was inadvisable to adopt the said approach. It is recorded that if the Schemes continue to operate for another day of redemptions, there would be further loss of investor value. There was a further discussion recorded abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the various Schemes of the Mutual Funds and to ensure that the activities of AMC are conducted in accordance with the provisions of the Regulations. AMC acts as a fund manager as well. The investments are made by AMC and in case of open ended Scheme, the redemptions are also dealt with by AMC. Naturally, AMC consists of experts in the field who have intricate knowledge of capital and securities market and various financial aspects. It is the obligation of AMC to report to the Trustees on various aspects of the functioning of the Schemes and from what has been recorded in the minutes of the meeting held on 20th April 2020 and 23rd April 2020, it can be seen that there was a discussion between the Board of Directors of the Trustees and the President of AMC and other persons associated with AMC on the four options which have been noted in the minutes dated 20th April 2020. In the said meetings, certain queries were made by the Board of Directors of the Trustees to Mr. Sanjay Sapre, the President of AMC and other officers of AMC who were present in the meeting about the viable options. The effect of postponement of redemptions by ten days was also discussed. There is a reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wind up a Scheme of a Mutual Fund on the happening of any event which, in the opinion of the Trustees, requires the Scheme to be wound up. The 'happening of any event' is not specifically defined in the Mutual Funds Regulations. The event should be such that it requires winding up of a Scheme. 'Happening of an event' means existence of a factual situation or circumstance, which, in the opinion of the Trustees, warrant a decision to be taken to wind up a Scheme. The 'event' referred in sub-clause (a) is nothing but a factual situation arising which requires a drastic decision of winding up of a Scheme to be taken. As the Trustees are holding the assets of the Schemes in fiduciary capacity and as the unit-holders are the beneficiaries of the Trust, the decision under sub-clause (a) of clause (2) of Regulation 39 has to be taken in the best interests and for benefit of the unit-holders. The question raised is whether an event had indeed happened, compelling the Trustees to take a recourse to the provisions of Regulations 39 (2) (a) of the Mutual Funds Regulations. 259. An argument was canvassed by the petitioners that in the communication dated 14th April 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actors are required to be considered by the Trustees who have in their fold, experts in the field. The question whether the decision of winding up of the said Schemes will be ultimately beneficial to the investors/unit-holders or whether it will be detrimental to the interest of the investors/unit-holders can be dealt with only by the experts in the field. It is not possible for a Writ Court to decide whether the impugned decision is beneficial to the unit-holders or it is detrimental to their interest. We do not possess expertise to decide whether the decision of winding up was in the best interest of the unit-holders/investors, inasmuch as, basically, the decision of winding up of the said Schemes is a commercial decision. It cannot be said that the factors which are set out in the minutes of the meetings dated 20th April 2020 and 23rd April 2020 were irrelevant or extraneous. The commercial viability of the decision to wind up cannot be decided by a Writ Court. We have held that merely because of the presence of top brass of AMC in the meeting of the Board of Directors of the Trustees, the decision making process is not vitiated. We find nothing wrong with the decision making pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. Therefore, the Mutual Funds Regulations make elaborate provisions for creating a three-tier system consisting of 'sponsor', 'AMC' and the 'Trustees'. There are stringent provisions which regulate the activities of AMC and Trustees. The restrictions on their powers have been well defined in the Mutual Funds Regulations. Their rights and obligations have been expressly laid down. In fact, all the activities of the Mutual Funds including management of the Schemes floated by Mutual Funds are highly regulated by virtue of various provisions of the Mutual Funds Regulations which we have already elaborately discussed in the earlier part of this Judgment. Considering the specific object of the SEBI Act, as found in its preamble, it cannot be disputed that the Regulations of Mutual Funds and its development are the objects of the SEBI Act. On plain reading of sub-section (1) of Section 30, it is crystal clear that the Regulations can be framed for promoting development of Mutual Funds and for regulating the same for protecting the interest of the investors. The regulation of Mutual Funds will also include regulation of winding up of the Scheme of Mutual Funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit-holders to the decision of the Trustees of winding up, the Scheme cannot be wound up. Thus, the opinion of the Trustees as contemplated by Regulation 39 (2) (a) gets translated into actual winding up provided that there is a consent of the unit-holders as aforesaid. The obligation of obtaining consent of the unit-holders incorporated in sub-clause (c) of clause (15) of Regulation 18 acts as a major safeguard against arbitrary and/or colourable exercise of power by the Trustees. They cannot take any such decision as per their whims and fancies as the same is subject to consent of the unit-holders. Therefore, there are sufficient safeguards and safety rails provided. The vice of arbitrariness is not attracted by Regulation 39 (2) (a). 267. The prayer in the petition filed before Delhi High Court is to strike down Regulations 39 to 41. If the activity of winding up of the Scheme is not regulated by introducing the stringent provisions like Regulation 39, the Trustees will be in a position to arbitrarily wind up the Schemes of a Mutual Fund. In view of sub-clause (a), (b) and (c) of clause (2) of Regulation 39, winding up of a Scheme can take place in three contingencies. The fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guaranteed by Article 21 of the Constitution of India is violated by winding up of a Scheme. Therefore, the said argument is deserves to be rejected. In our considered view, the challenge to constitutional validity of Regulations 39 to 42 must fail. In any case, we are dealing with a legislation in the sphere of economic policy which requires a greater latitude. Re. Issue No. (ix): - power of SEBI under Section 11B: 270. Another question is about the powers of SEBI under Section 11B of the SEBI Act. We have already held that the power to issue directions under Section 11B (1) can be exercised to issue directions to AMC and the Trustees. The said direction can be issued when SEBI, after making or causing to be made an enquiry, is satisfied that (a) it is necessary to issue directions in the interest of investors or orderly development of securities market; (b) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the interests of investors of securities market; or (c) to secure the proper management of any such intermediary or person. The first question is whether SEBI has power to interfere with the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he SEBI Act suggests that SEBI has to act as a watchdog to protect the interests of the investors. 272. Coming back to the facts of the case, as noted in the earlier part of the Judgment, SEBI was not even possessing a copy of the resolution dated 23rd April 2020 passed by the Board of Directors of the Trustees providing for winding up. SEBI did not respond to the e-mail dated 14th April 2020 sent by AMC. SEBI failed to reply to the letter dated 20th April 2020 addressed by the Trustees, in which, permission and guidance of SEBI was sought for winding up of the Schemes. In response to a specific query made by the Court, the learned Senior Counsel appearing for SEBI has stated that SEBI was not aware whether compliance of sub-clauses (a) and (b) clause (3) of Regulation 39 was made by the Trustees. It is an admitted position that this was perhaps the first case in the history where Regulation 39(2)(a) was invoked. Therefore, SEBI ought to have been cautious and ought to have played very active role. Even for SEBI, such a winding up was an extraordinary event. SEBI did not bother to even enquire about the compliance with clause (3) of Regulation 39 by the Trustees. SEBI did not both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce are very wide which include checking the exposure of unlisted securities in the wound up Schemes, examining the investment rationale and checking whether due diligence was shown at the time of making investments. The Auditors are also required to check whether adequate effort was made by AMC to sell the unlisted securities. Investigation is also ordered under the said order about the investments made by AMC. The Forensic Auditor is also required to check whether any exit was given to corporates, HNIs or related parties before the decision to wind up. The Forensic Auditor is also required to enquire into whether any money has been siphoned off. The Auditor is also required to go into the issues raised in various complaints received by SEBI regarding said Schemes under winding up and to find out the lapses committed by AMC. It is stated in the affidavit that various documents were forwarded to the Forensic Auditors including the gist of complaints of the investors. It was further stated that after completion of Forensic Audit, a report dated 31st July, 2020 was submitted by the Auditors which was received by SEBI on 3rd August, 2020. It is further stated that supplementary finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Act or any rules or regulations made thereunder have been violated; (e) to investigate into the complaints received from the investors or any other person on any matter having a bearing on the activities of the Mutual Funds, Trustees and asset management company; (f) to suo motu ensure that the affairs of the Mutual Fund, Trustees or asset management company are being conducted in a manner which is in the interest of the investors or the securities market." 276. Regulation 61 contemplates SEBI appointing a person as inspecting officer for the purposes set out in clause (1) thereof. The procedure to be followed in inspection and investigation is also mentioned in Chapter-VIII. Under Regulation 64, the inspecting officer is under an obligation to submit a report on completion of the inspection or investigation. SEBI has power to direct the inspecting officer to file interim report. It is provided in Regulation 65 that SEBI or its Chairman, after considering the inspection or investigation report, is empowered to take further action including action under Chapter-V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 which includes cance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber Singh S/o Shri Hansraj Singh. The contention raised in the affidavit is that the report will have to be treated as a confidential document. In paragraph 15 of the affidavit, it is stated thus: "In view of the foregoing, I most respectfully pray, the Hon'ble Court may be pleased not to direct SEBI to make the aforesaid Audit Report public. I further pray that in the event the Hon'ble Court passes a direction to SEBI to submit the said Forensic Report for the consideration of the Court, the said Report may be permitted to be placed in a sealed envelope/cover and marked as 'confidential' in the interest of justice." (underline supplied) 2. Today, we have heard the submissions of Shri Arvind Datar, the learned Senior Counsel appearing for SEBI in support of what is pleaded in the aforesaid affidavit. Notwithstanding the statement made in paragraph 15 of the affidavit, he states that SEBI will produce before the Court in a sealed envelope, a copy of the Forensic Audit report submitted by M/s. Chokshi and Chokshi LLP as well as a copy of reply submitted by Asset Management Company (for short "AMC") and the Trustees. He, however, submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th September 2020, the Registrar (Judicial) was directed to produce the report of the Forensic Audit filed in a sealed cover as well as the copies of the minutes in the sealed cover which were kept in his safe custody. Accordingly, as noted in the detailed order dated 22nd September 2020, the Registrar (Judicial) appeared before the Court and produced both the sealed covers which were opened in open Court in presence of the Advocates representing AMC and Trustees and the Advocates for petitioners in W.P. No. 8545/2020 and 8644/2020. The said Advocates were permitted to physically appear before the Court. After opening both the sealed covers, notes were taken by one of us (Chief Justice) consisting of two sheets. Thereafter, both the covers were again resealed by the Registrar (Judicial) in open Court and took the same into his custody. The three Advocates who were physically present before the Court have countersigned on resealed covers containing the report of the Auditors and copies of the minutes. The notes made by the Court running into two pages were also kept in a sealed cover which was handed over by the Court Officer to the Personal Secretary to the Chief Justice. 280. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o modifications, based on the responses sought. Further, it is not even an interim report, as there was no such direction issued by SEBI in terms of proviso to Regulation 64. Only on the basis of the final inspection or investigation report that SEBI or its Chairman are required to take action in terms of Regulation 65. Thus, the report produced before the Court in a sealed cover can at best described as a tentative report. In our view, the report of the Auditor being tentative and subject to modifications, it is not a relevant document which can be considered by this Court for the purposes of deciding the issues involved in these petitions. If this report is made public, it will adversely affect further investigation considering the fact that it will go viral on social and other media. A writ of mandamus has not been sought by any of the petitioners for production of the report of the Forensic Auditors. Therefore, the only question to be decided is whether the said document produced by SEBI is relevant for deciding the petitions on merits. As the said report is only a tentative report which can undergo modifications, this Court cannot rely upon the said report. Therefore, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t every Scheme under a Mutual Fund constitutes a trust within a trust and hence, winding up of a Scheme amounts to revocation of the trust. The argument was that a revocation of trust which is created otherwise than under a Will can be made only in accordance with Section 78 of the Trusts Act. However, in view of the findings which we have recorded on the question of interplay between sub-clause (c) of clause (15) of Regulation 18 and sub-clause (a) of clause (2) of Regulation 39, it is unnecessary to go into the issues raised based on the Trusts Act. AVAILABILITY OF EFFICACIOUS REMEDIES 285. One of the argument canvassed was that alternative efficacious remedies are available to the petitioners under the SEBI Act. An argument was canvassed that complaints have been filed by the petitioners with SEBI. It is urged that SEBI has power to impose penalty for violation of the Mutual Funds Regulations. Another argument was canvassed that a remedy of appeal is available before the Securities Appellate Tribunal. We find that an appeal is provided to the Securities Appellate Tribunal under Section 15-T. But there is no appeal provided therein against the decision of winding up. An appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 15A of Regulation 18 of the Mutual Funds Regulations 1996 operates in a different field which has nothing to do with the process of winding up of a Scheme. Therefore, compliance with Clause 15A of Regulation 18 is not a condition precedent for winding up of a Scheme pursuant to sub-clause (a) of clause (2) of Regulation 39. The issue No. (iii) is answered accordingly; iv) Considering the duties of the Trustees under the Mutual Funds Regulations, they perform a public duty. Therefore, when it is found that the Trustees have violated the provisions of the SEBI Act or Mutual Funds Regulations, a Writ Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, can always issue a writ of mandamus, requiring the Trustees to abide by the mandatory provisions of the SEBI Act or the Mutual Funds Regulations. Issue No. (iv) is answered accordingly; v) In the facts of the case, for the reasons which we have recorded earlier, no interference can be made with the decision of the Trustees dated 23rd April 2020 of winding up of the said Schemes. However, the decision can be implemented only after obtaining the consent of unit-holders as required by sub-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferencing. The hearing concluded on 24th September 2020. The cases were heard on 29th August 2020 and 19th September 2020 which were the Court holidays. As additional affidavits were produced by AMC and the Trustees, with a view to bring the same to the notice of the other parties, the matters were again listed on 5th October 2020. We must note here that perhaps, this must be the one of the longest hearing conducted through video conferencing. The hearing through video conferencing was conducted on 25 working days for total 61 hours. What is more important is that hearing went on very smoothly without any major glitch. It enabled the learned members of the Bar to appear from London, New Delhi, Chennai, Mumbai and Bengaluru. Only once an issue of connectivity of internet was faced for a brief period of ten minutes just before the submissions of learned Solicitor General of India were heard. During the course of hearing, decisions of various Courts and number of documents were forwarded by e-mail which were considered by this Court. All the parties will not agree about the correctness of the conclusions drawn on merits. But we are sure that all the parties will agree that notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Trustees to obtain consent of the unit-holders as provided in sub-clause (c) of clause (15) of Regulation 18 and to take further steps in accordance with clause (3) of Regulation 39 of the Mutual Funds Regulations; iv) We hold that Regulations 39 to 41 of the Mutual Funds Regulations are legal and valid; v) We direct the Securities and Exchange Board of India to ensure that the Forensic Auditors submits their report in accordance with Regulation 64 at the earliest. After the report is submitted by the Forensic Auditor, the Securities and Exchange Board of India or its Chairman shall examine the report and shall take a decision on the question of taking action as provided in Regulation 65 of the Mutual Funds Regulations and under SEBI Act. The decision shall be taken within six weeks from the date of the receipt of the Forensic Audit Report; vi) We direct the Trustees to provide true copies of the Board Resolutions placed on record in sealed cover to unit-holders of the said six Schemes as and when they apply for providing copies thereof; vii) We hold that the unit-holders are not entitled to receive a copy of the Forensic Audit Report filed on record in a sealed cover; ..... X X X X Extracts X X X X X X X X Extracts X X X X
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