FRANKLIN TEMPLETON TRUSTEE SERVICES PRIVATE LIMITED AND ANOTHER versus AMRUTA GARG AND OTHERS ETC.

Citation: [2021] 5 S.C.R. 559 · Decided: 14-07-2021 · Supreme Court of India · Bench: S. ABDUL NAZEER · Disposal: Directions issued

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Judgment (excerpt)

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   [2021] 5 S.C.R. 559
559
FRANKLIN TEMPLETON TRUSTEE SERVICES PRIVATE
LIMITED AND ANOTHER
v.
AMRUTA GARG AND OTHERS ETC.
(Civil Appeal No. 498-501 of 2021)
JULY 14, 2021
[S ABDUL NAZEER AND SANJIV KHANNA, JJ.]
Securities and Exchange Board of India (Mutual Funds)
Regulation, 1996:
Regns. 18(15)(c) and 39 to 42 – Interpretation of – Winding
up of six mutual fund schemes – High Court interpreting Regn
18(15)(c) and Regn 39(2)(a) held that the decision of the trustees
to wind up a scheme under clause (a) to Regn 39(2) must muster the
consent of the majority of the unitholders as per Regn 18(15)(c) –
Case of SEBI, the trustees and the Asset Management Company
that prior consent of the unitholders is not envisaged when the
trustees, or SEBI directs winding up of a scheme in the interest of
the unitholders; and that the decision of the trustees and SEBI to
wind up a scheme is final and binding on the unitholders – Appeal
before this Court – This Court in its earlier order accepting the poll
results, directed winding up of six mutual fund schemes – As regards,
interpretation of Regns 39 to 42 and their interrelation with Regn
18(15)(c) and constitutional validity of Regns 39 to 42, held:
Regulations of 1996 do not suffer from the vice of manifest
arbitrariness, thus, Regulations of 1996 constitutionally valid –
Applying principle of harmonious construction to Regn 18(15)(c)
with Regns 39 to 42, would mean that the opinion of the trustees
would stand, but the consent of the unitholders is a pre-requisite
for winding up – Securities and Exchange Board of India Act, 1992.
Constitutional validity of 1996 Regulations – Held:
Regulations of 1996 do not suffer from the vice of manifest
arbitrariness – Since the Regulations are in the nature of economic
Regulations, while exercising the power of judicial review, restraint
would be exercised unless clear grounds justify interference – Views
would not be supplanted for that of the experts as this can put the
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560
SUPREME COURT REPORTS
[2021] 5 S.C.R.
marketplace into serious jeopardy and cause unintended
complications – Regs. 18(15)(c) and 39 to 42.
Regn 18(15)(c) with Regns 39 to 42 – Interpretation of Regns
39 to 42, their interplay and harmonious construction with Regn
18(5)(c) – Held: Under clause (a) of Regn 39(2) the power of
winding up of a scheme is vested with the trustees, under clause (b)
with the unitholders and under clause (c) with the SEBI, however,
under Regn 18(15)(c), the trustees are required to seek consent of
the unit holders, when they by majority decide to wind up a scheme
– Use of the word ‘shall’ in Regn 18(15)(c) is couched as a command
– Expression ‘when the majority of the trustees decide to wind up’
in Regn 18(15)(c) manifestly refers to clause (a) to Regn 39(2) as
this is the only Regulation which entitles the trustees to wind up the
scheme – Regn 18(15)(c), when it refers to trustees’ decision to wind
up, it implies the trustees’ opinion to wind up the scheme – Applying
principle of harmonious construction in the context of the
Regulations of 1996, would mean that the opinion of the trustees
would stand, but the consent of the unitholders is a pre-requisite
for winding up – This interpretation does not in any way dilute or
render clause (b) to Regn 39(2) meaningless or redundant – This
clause applies where the winding up process is initiated at the
instance of 75% of the unitholders – Clause (b) does not in any
manner reflect that clause (c) to Regn 18(15) should not be read as
it ordains in simple words – Regn 41 refers to and relates to the
procedure and manner of winding up which cannot be equated with
the requirement of consent as postulated by Regn 18(15)(c) – Regn
41(1) applies even in cases where 75% unitholders have passed
the resolution for winding up of the scheme under Regn 39(2)(b) or
where SEBI directs the scheme to be wound up in the interest of the
unitholders under Regn 39(2)(c) – On the other hand Regn 18(15)(c)
applies only when majority of the trustees form an opinion and
decide to wind up or prematurely redeem the units in entirety, a
situation covered by Regn 39(2)(a) – To ignore the mandate of Regn
18(15)(c) would nullify the legislative intent – Need to obtain consent
of the unitholders is mandated under clause (c) to sub-Regn 15 to
Regn 18 when the trustees under clause (a) to Regn 39(2) decide to
wind up a scheme – To deny the unitholders a say, when Regn
18(15)(c) requires their consent, debi

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