2022 (8) TMI 657

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....ers. As a corollary, the stay granted by us vide order dated 12th April 2022, while issuing notice in the application therein, also stood vacated. By the present order, we provide the reasons for dismissal of the captioned application. 2. FIFA claims that independent financial advisors/mutual fund distributors are entitled to payment of commission agreed between them and Franklin Templeton Asset Management (India) Private Limited, which are in the nature of recurring expenses as per Regulation 52 of the Security and Exchange Board of India (Mutual Funds) Regulations, 1996 For short, "Regulations". Our attention is drawn to sub-clause (i) of Regulation 52(4)(b), which states that 'recurring expenses' encompass marketing and selling expens....

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.... activities, create or cancel units and issue or redeem units of the scheme. It would be a different matter if the unitholders do not approve the winding up of the scheme, which is not a fact in the present case, as the unitholders have consented to the winding up of the six Schemes in accordance with Regulation 18(15)(c). 4. If we are to accept the contention of FIFA, the necessary sequitur is to also acknowledge and accept that the asset management company, even post the publication of notices under Regulation 39(3)(b), would be entitled to fees and expenses mentioned and covered by Regulation 52, as per the terms and quantum specified in sub-regulation 6 to Regulation 52. Sub-clause (c) to Regulation 52(6) specifies the percentage of ....

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....es as are due and payable under the scheme and after making appropriate provision for meeting the expenses connected with such winding up, the balance shall be paid to the unitholders in proportion to their respective interest in the assets of the scheme as on the date when the decision for winding up was taken. (3) .... (4) ...." We would concede that, in the given case, some of the recurring expenses mentioned in clause (b) to Regulation 52(4) like audit fee, insurance premium, cost of statutory advertisements, etc., would be covered and would satisfy the requirement of clause (b) to Regulation 41(2). However, if and only when they fall under and meet the requirement of the expenses connected with the winding up can t....

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....ee paragraph 78 in the judgment reported as (2021) 9 SCC 606 Clause (b) to Regulation 52(4) refers to recurring expenses, that is, expenses which will recur from time to time. It does not refer to one-time payment which is deferred. The recurring liability is not a present liability, but an obligation which, on satisfaction of certain conditions, may accrue in future. The right to claim commission may not accrue and become due and payable. Distributor commission, as a recurring liability, is not payable if the unitholder(s) redeem the unit. Winding up of the scheme entails similar effects and consequences. 8. As noticed above, it is the asset management company which is entitled to charge fees and expenses in terms of sub-regulations ....

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....t payable, as the scheme is to be wound up and the money is to be collected and paid to the unitholders, in terms of and as per the mandate of Regulation 41. Even if a distributor renders some services to the unitholders after publication of the notice under Regulation 39(3)(b), it would not entitle him to claim an amount from the asset management company. The Circular dated 22nd October 2018 cannot override the Regulations. The Circular does not intend to do so. It has been issued to bring about transparency in expenses, reduce portfolio churning and mis-selling in mutual fund schemes. The intent behind specifying total expense ratio and the performance disclosure for mutual funds is to bring greater transparency in expenses and to not con....