2023 (1) TMI 459 - HC - SEBI

Notification notifying the Securities and Exchange Board of India (Research Analyst) Regulations, 2014 - Mandation to petitioner to take Licence/Registration from the respondents just to speak or write regarding listed stocks, and for sharing stock related recommendations with others and on social media - petitioner s grievance is that on account of these Regulations, he has been deprived of his fundamental right of freedom of speech and expression guaranteed under Article 19(1)(a) of the Constitution of India, the right to practice profession/business of his choice guaranteed under Article 19(1)(g) and 19(6) of the Constitution of India, and also right to liberty guaranteed under Article 21 of the Constitution of India due to the alleged unreasonable restrictions imposed by the said Regulations on the petitioner. HELD THAT - It is settled law that the power to impose restrictions on fundamental rights is essentially a power to regulate the exercise of these rights; and in fact regulation and not extinction of that which is to be regulated is, generally speaking, the extent to which permissible restrictions may go in order to satisfy the test of reasonableness. A wide the range of powers is conferred on the Board under Regulation 31 since different corrective actions may have to be taken depending on the nature of the violation committed by the Research Analyst. In a given case if such powers are exercised arbitrarily or disproportionately to the misconduct committed by a Research Analyst, the affected party can approach the Securities Appellate Tribunal or invoke the jurisdiction under art.226 of the Constitution of India. But the mere possibility of abuse of such a power cannot be ground to declare them as violative of Art.19(1) (g) of the Constitution of India. In our opinion, Regulation 27 or Regulation 31 are not violative of rights conferred on the Research Analyst under Articles 19(1)(a) 19(1)(g) or Art.14 of the Constitution of India. The fact that the Astrologers or Management consultants are allowed to give consultancy, and are not regulated, does not mean that Research Analysts who provided investors with information on the basis of which investment decisions are made, should also be excluded from regulation. So the plea based on Article 14 of the Constitution of India in that regard cannot be countenanced. In this view of the matter, we do not find any merit in this Writ Petition. Accordingly, the same is dismissed.

Issues Involved:
1. Violation of Fundamental Rights under Article 19(1)(a) and 19(1)(g) of the Constitution of India.
2. Reasonableness of Restrictions under Article 19(6) of the Constitution of India.
3. Alleged Arbitrariness of Regulations 2, 16(3), 27, and 31.
4. Comparison with Unregulated Professions under Article 14 of the Constitution of India.

Detailed Analysis:

1. Violation of Fundamental Rights under Article 19(1)(a) and 19(1)(g) of the Constitution of India:
The petitioner argued that the Securities and Exchange Board of India (Research Analyst) Regulations, 2014, infringed upon his fundamental rights to freedom of speech and expression (Article 19(1)(a)) and the right to practice any profession or to carry on any occupation, trade, or business (Article 19(1)(g)). The court noted that the petitioner's activities as a Research Analyst fall under Article 19(1)(g) as they involve providing professional advice/services of a specialized nature. The court concluded that the regulations primarily affect the right to practice a profession and only incidentally interfere with the right to free speech.

2. Reasonableness of Restrictions under Article 19(6) of the Constitution of India:
The court emphasized that the power to impose restrictions on fundamental rights is essentially a power to regulate, not extinguish, the exercise of these rights. The court cited the Supreme Court's ruling in Bennett Coleman & Co. v. Union of India, which held that permissible restrictions must not be excessive and should be necessary to achieve the objectives of the law. The court found that the regulations were reasonable and necessary to ensure the quality and neutrality of research reports, thereby protecting investors and maintaining market integrity.

3. Alleged Arbitrariness of Regulations 2, 16(3), 27, and 31:
- Regulation 2(u): The petitioner contended that the definition of "Research Analyst" was overly broad and included associated persons, thus violating Article 19(1)(g). The court held that this inclusion was intended to ensure that only professionally qualified individuals are involved in preparing research reports, thereby maintaining their quality and neutrality.
- Regulation 16(3): The petitioner challenged the prohibition on Research Analysts from trading in securities they review contrary to their recommendations. The court found this restriction necessary to manage conflicts of interest and did not consider it violative of Article 19(1)(g).
- Regulation 27: The petitioner argued that this regulation conferred excessive powers on the Board to inspect books of accounts, records, and documents. The court noted that the regulation was designed to ensure compliance and protect investors, and any arbitrary use of power could be challenged in appropriate forums.
- Regulation 31: The petitioner claimed that this regulation granted the Board unfettered discretion to take action against Research Analysts. The court held that the regulation provided a range of corrective actions depending on the nature of the violation and that any arbitrary or disproportionate exercise of power could be contested.

4. Comparison with Unregulated Professions under Article 14 of the Constitution of India:
The petitioner argued that other professions, such as astrologers and management consultants, are not regulated, thus violating his right to equality under Article 14. The court dismissed this argument, stating that the nature of services provided by Research Analysts, which influence investment decisions, necessitates regulation to protect investors and maintain market integrity.

Conclusion:
The court dismissed the writ petition, finding no merit in the arguments presented. The regulations were deemed reasonable and necessary to achieve their objectives, and any incidental interference with fundamental rights was justified in the interest of public welfare and market integrity. The plea based on Article 14 was also rejected, as the nature of the services provided by Research Analysts warranted regulation.

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