Understanding Legal Interpretations in Mutual Fund Winding Up Case

Explore the complexities of legal interpretations in a recent mutual fund winding up case, where the court’s scrutiny of majority consent and statutory provisions plays a crucial role. Dive into the nuances of understanding commercial regulations and the significance of legislative intent for effective decision-making in the financial sector.


  • Immediate directions required as embargo prohibiting redemption of units has been in place for over ten months
  • Registry directed to scan and make e-copies of Observer’s report available to counsels
  • SEBI issued show cause notice pending adjudication after receipt of forensic audit report
  • Objecting unitholders claim fraud by trustees and AMC would entitle restitution
  • Question of privilege regarding the forensic audit report raised
  • Segregation of issues regarding trustees/AMC liability for later examination
  • Concerns raised about trustees’ decision to wind up schemes as a smokescreen
  • Public sentiments and confidence in mutual funds undermined leading to privation and harassment for unitholders
  • Agreement to disburse Rs.9,122 crores among unitholders in proportion to their interest in the assets of the scheme
  • The disbursal to unitholders is only possible if the six schemes are wound up
  • Decision made in the larger public interest to focus on the aspect of ‘unitholders’ consent to winding up’
  • Trustees’ submissions mentioned the NAV of the schemes as higher on January 15, 2021, compared to April 23, 2020
  • Five of the six schemes have turned cash positive
  • Immediate availability of accumulated distributable cash proceeds of Rs.9,122 crores for disbursement to unitholders
  • Assets Under Management (AUM) of the six schemes increased from Rs.25,648 crores to Rs.26,343 crores from April 23, 2020, to January 15, 2021

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  • The analysis focused on the e-voting logs, transaction logs, and data from the Master Database.
  • Multiple votes from the same IP address were detected during the Instapoll Votes.
  • The E-Voting platform provided one-time passwords randomly generated without human intervention for voter authentication.
  • Issues with capturing public IP addresses for e-votes were explained due to technical implementation problems.
  • The event logs of the Web Servers and database servers showed no abnormal events, indicating normal system functionality.
  • A random selection of 0.5% of votes was verified in the Master Database for accuracy.
  • The word ‘consent’ in the context of the clause refers to ‘consent of the majority of the unitholders’, excluding those who are not agreeable.
  • A person wins by a majority of votes, indicating the greater number of votes in favor.
  • Having a definitive opinion from all unitholders for voting in a poll on winding up a mutual fund scheme is practically impossible.
  • The concept of majority implies the greater number, not a fixed number.
  • The quorum requirement for a corporation with an indefinite number of electors only necessitates a majority of those existing at the time, not all.
  • The practical interpretation of a statute is given more weight if re-enacted with the same interpretation.
  • Numbers of unitholders can fluctuate with purchase or redemption, making it impractical to require consent from ‘fifty percent of all unitholders’.
  • Consent in Regulation 18(15)(c) should be by a majority of unitholders who exercise their voting rights on the winding up proposal.
  • An interpretation that avoids absurdity and serves the legislative purpose should be favored over one leading to futility.
  • The importance of interpretations in commercial regulations to avoid chaos and deadlock, particularly in modern regulatory enactments.
  • Diversification in investment portfolios through mutual funds managed by professionals is preferred for ordinary investors.
  • The consent of unitholders is binding collectively, not individually, as stated in the mutual fund regulations.
  • A minority vote is necessary for cases where a majority of unitholders do not approve the proposal.
  • The Black’s Law Dictionary defines majority as more than half of a total number.
  • Meaning ‘consent of unitholders’ requires a simple majority for winding up a particular mutual fund scheme.
  • Absurdity in statute interpretation includes results that are unworkable, illogical, or pointless.
  • The acts of a corporation are those of the majority of the corporators assembled together.
  • Quorum requirements need a major part to be present, with a majority in favor of the resolution for valid decisions.
  • The distinction between simple and special majority in corporate decision-making.
  • Interpretations should be clear to avoid confusion and ensure effective results in legislative intent.
  • Presence of the majority of members constitutes a valid meeting if no specific quorum rules are in place.
  • Election by a definite body requires the majority of that body, while the presence of the definite body is essential in electoral assemblies with both definite and indefinite bodies.
  • The number of electors in varied bodies can fluctuate periodically, impacting quorum calculations.
  • Section 55(3) of the Companies Act, 2013 requires consent of holders of three-fourths in value of preference shares in case of failure to redeem or pay dividend.
  • Section 103 of the Companies Act, 2013 specifies the minimum quorum for shareholder meetings.

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  • In the first hearing on 3 December, 2020, the trustees were permitted to call a meeting of the unitholders for seeking approval for winding up.
  • The trustees approved notices to be sent to the unitholders of the six schemes during their meeting on 5 December, 2020.
  • SEBI was directed on 9 December, 2020 to appoint an Observer for the e-voting by unitholders scheduled between 26 and 29 December, 2020.
  • E-voting facility was provided from 09:00 a.m. on 26 December, 2020 till 06:00 p.m. on 28 December, 2020.
  • A video conferencing meeting was set for 29 December, 2020 to seek approval of the unitholders for or against the winding up of the six schemes.
  • Unitholders participating in the meeting could vote on 29 December, 2020 during the duration of the meeting till fifteen minutes after its closure.

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Case Number: C.A. No.-000498-000501 / 2021

Click here to read/download original judgement

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