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TMI Blog2012 (6) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... utual fund schemes. It means that the investor who subscribes Rs. 100 would be issued mutual fund units equivalent in value to Rs. 100, depending upon the prevailing unit rate of the unit of the fund. If the distributor so desires, he can negotiate with a customer and settle the commission which he would be receiving. those who render service to a large number of people would be able to cut down on overhead expenses and those who operate individually would have to incur higher expense to maintain their establishment. Being inherent to every business, it would not render the policy circular violative of any law. Appeal dismissed - LPA 507 OF 2009 (Arising from order of Single Judge in WP(C) No. 10390 of 2009, dated 24-7-2009.) - - - Dated: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f various mutual funds from amongst which the scheme is being recommended to the investor." 3. Challenge to the circular was on the ground that SEBI did not have any power to issue such kind of circulars i.e., that the subject-matter of the circular was beyond the powers vested in SEBI. 4. The plea has been negated by the learned Trial Judge with reference to the powers conferred upon SEBI vide section 11 of the Securities Exchange Board of India, Act, 1992, which section reads as under:- "11 (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self-regulatory organizations in the securities market; "( ia )calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provisional Act in respect of any transaction in securities which is under investigation or inquiry by the Board;" ( j )performing such functions and exercising such powers under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government; ( k )levying fees or other charges for carrying out the purposes of this section; ( l )conducting research for the above purposes; "( la )calling from or furnishing to any such agencies, as may be specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record of the company referred to in sub-section (2A); ( v )issuing commissions for the examination of witnesses or documents. (4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely: ( a )suspend the trading of any security in a recognised stock exchange; ( b )restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; ( c )suspend any office-be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned." 5. In para 5 of the impugned decision, learned Single Judge has summarized SEBI's powers conferred by section 11. We reproduce the said narrative. It reads as under: "5. Section 11(1) of the Act is very widely worded and casts a duty on the Board to protect the interest of the investors; promote, develop and regulate the securities market by such measures as it deems it. Sub-section (2) does not restrict or narrows dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 11 by the learned Single Judge and suffice would it be to state that under sub-section (1) of section 11, to protect the interest of investors in securities, the Board is empowered to regulate the securities market and for which it is empowered to take such measures as it deems fit. 7. We would simply highlight that the circular does not prohibit commission to be charged by distributors, but prohibits an entry load in all mutual fund schemes. 8. We may highlight the evil of the past. For example, Rs. 100 was received from a customer, mutual fund units worth only Rs. 97.5 were allotted; informing the customer that Rs. 2.5 was the entry load. The Fund Managers would use the sum of Rs. 2.5 to pay commission to distributors. The ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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