Winding up of mutual fund schemes: unitholder consent by majority of participating voters upheld; objections to e-voting rejected

Winding up of mutual fund schemes requires unitholder consent under clause (c) to Regulation 18(15), which the document interprets as consent by a majority of unitholders who participated in the poll, not a majority of all unitholders. Objections to e-voting procedures and to the appointment of the e-voting provider were rejected because the platform was certified and supervised and the participation levels (approximately 38% numerical, 54% value) were sufficient; rejected corporate votes would only increase affirmative proportions. Trustees may engage a third party to undertake orderly realization, liquidation and distribution to unitholders; appointment of a third party to wind up was directed.

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Issues Involved:
1. Interpretation of SEBI (Mutual Funds) Regulations, 1996 regarding unitholders' consent for winding up mutual fund schemes.
2. Allegations of mismanagement and fraud against the Asset Management Company (AMC) and trustees.
3. Validity and fairness of the e-voting process for unitholders' consent.
4. Appointment of a third party for winding up the schemes and distribution of funds.

Issue-wise Detailed Analysis:

1. Interpretation of SEBI (Mutual Funds) Regulations, 1996:
The primary issue was the interpretation of clause (c) to sub-regulation (15) of Regulation 18, which mandates the consent of unitholders for winding up mutual fund schemes. The judgment under challenge interpreted this clause to mean that unitholders' consent is required even when trustees decide to wind up a scheme under Regulation 39(2)(a). SEBI contested this interpretation, arguing that trustees' decision under Regulation 39(2)(a) is standalone and does not require unitholders' consent. The court concluded that the term 'consent' refers to the majority of unitholders who participate in the poll, not the majority of all unitholders.

2. Allegations of Mismanagement and Fraud:
Objecting unitholders alleged gross mismanagement, dereliction of duty, and violations of SEBI norms by the AMC and trustees. They claimed more than Rs. 15,000 crores were withdrawn from the schemes two weeks before the winding-up decision. The court decided to segregate and examine these issues subsequently, noting that SEBI had issued a show cause notice based on a forensic audit report, which was pending adjudication.

3. Validity and Fairness of the E-voting Process:
The court examined the procedure and fairness of the e-voting process used to obtain unitholders' consent for winding up the schemes. The e-voting was conducted under the supervision of Mr. T.S. Krishnamurthy, former Chief Election Commissioner of India, appointed by SEBI. The court addressed objections regarding the involvement of KFin Technologies, which provided the e-voting platform, and found no substantial irregularities. The court emphasized that the e-voting results, showing overwhelming consent for winding up, were valid and should not be lightly interfered with.

4. Appointment of a Third Party for Winding Up and Distribution of Funds:
The court appointed M/s. SBI Funds Management Private Limited to undertake the winding-up process, including liquidation of assets and distribution of funds to unitholders. This decision was made to ensure transparency and efficiency, considering the substantial amount of securities yet to be realized. The court directed that distribution could be made in tranches without waiting for the complete liquidation of all assets.

Conclusion:
The court held that the consent of unitholders for winding up, as per Regulation 18(15)(c), means the majority of those who participate in the poll. The objections to the e-voting results were rejected, and the unitholders' consent for winding up the six schemes was upheld. The winding-up process and disbursements would proceed under the supervision of M/s. SBI Funds Management Pvt. Ltd., ensuring the best possible liquidation value for unitholders. The court clarified that this order does not address other issues related to misfeasance, malfeasance, or fraud, which would be examined separately.

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