By Abhirup Roy and Aditya Kalra
MUMBAI (Reuters) – An Indian tribunal put on hold on Thursday a directive to ban a senior executive of U.S. money manager Franklin Templeton (FT) after he challenged it saying the market regulator had “overstepped” its powers in taking the decision.
Vivek Kudva, head of Asia Pacific distribution at FT, was barred last month by the Securities and Exchange Board of India (SEBI), which said he and his family members used non-public information to sell holdings worth about $4 million in Franklin debt funds that were shut down weeks later and caused investor panic.
The regulator had imposed a one-year market ban on Kudva and his wife and fined them a total of $1 million. It said it was not “fair conduct” as Kudva was privy to non-public information.
In an appeal heard by the Securities Appellate Tribunal on Thursday, Kudva argued he acted only on public information. SEBI objected to his position, but the tribunal judges decided to put the ban on hold while his appeal his heard.
But Kudva will still need to deposit half of the penalty imposed on him, the tribunal said.
In his 232-page appeal filing, which was seen by Reuters and is not public, Kudva had argued that Indian law prohibits unfair trade practices, but mutual fund redemptions were not a “trade” and were akin to withdrawing one’s own money from a bank.
SEBI had “overstepped its authority and misused the discretion”, while passing its order and there was no reasoning in the regulator’s decision “to justify the draconian directions and restrictions,” said the filing by Kudva, who has worked at FT for more than 15 years and is a former HSBC executive.
Franklin, part of Franklin Resources Inc, manages more than $8 billion for more than 2 million people in India.
Its India unit is locked in a broader legal battle with SEBI after the fund house, considered a fixed income heavyweight, was barred from launching any new debt schemes for two years following a probe into closure of six credit funds in 2020 that the regulator said found “serious lapses and violations”.
The securities tribunal put that SEBI order on hold this week after hearing Franklin’s appeal, but still ordered it to deposit about half of the $68.5 million it had been asked to refund.
Kudva’s and Franklin’s appeals will both be heard next on August 30.
In FT’s appeal filing, seen by Reuters, the fund house argued it acted in investor interest and followed Indian regulations in winding up the funds, and has distributed nearly three quarters of the assets to the unitholders as of mid-June.
The filing adds FT used “business judgment in good faith” to close the funds and that it should not be penalised for it.
(Reporting by Abhirup Roy and Aditya Kalra; Editing by Muralikumar Anantharaman)
