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TMI Blog2021 (7) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... cifying measures for protection of investors and development and regulation of securities market being the duty of the Board under Section 11 of the SEBI Act and without prejudice to the generality of such duty the Board having the express power to regulate the working of Investment Advisors (under Sub-Section (2)(b) of Section 11), which, as noted above, encompasses measures to provide for the manner of charging of fees as well as cap of fees, the impugned regulation (Regulation 15A) is clearly within the delegation made in favour of the Board under Section 30(1) of the SEBI Act. If charging of fees in accordance with the specification of the Board is accordingly made a condition of continued registration under Section 12 of the SEBI Act, such condition would be covered by Section 30(2)(d) of the SEBI Act. On the subject of violation of Article 19(1)(g) of the Constitution of India, it is important to note that the impugned Regulation as well as the Circular issued by SEBI in pursuance thereof does not in any way prohibit any party from carrying on the business or profession of Investment Advisor. The Regulation and Circular merely put restrictions, and reasonable restrictions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That, we are afraid, has not been the case here. No merit in the challenge to the impugned Regulation as well as the impugned Circular prescribing modes as well as ceiling of fees to be charged by Investment Advisors. - WRIT PETITION (L) NO.638 OF 2021 - - - Dated:- 18-6-2021 - S.C. GUPTE M.S.KARNIK, JJ. Mr. Rahul Totala a/w Mr. Ashwin Poojari and Mr. Neil Chettiar I/b. Ashwin Poojari RT Legal for the Petitioner. Mr. J.J. Bhatt, Senior Advocate a/w Mr. Omprakash Jha and Ms. Shivani Kumbhojkar I/b. The Law Point for Respondent No.1-SEBI. Mr. Anil C. Singh, Additional Solicitor General a/w Mr. Aditya Thakkar and Mr. D.P. Singh for Respondent No.2-UOI. ORAL JUDGMENT (PER S.C. GUPTE, J.) Heard learned counsel for the Petitioner and learned counsel for Respondent No.1-Securities and Exchange Board of India ( SEBI ) and for Respondent No.2-Union of India. 2. This Petition challenges constitutional validity and vires of Regulation 3(XII) of the Securities and Exchange Board of India (Investment Advisors) (Amendment) Regulations, 2020 ( Amendment Regulations ), by which Regulation 15A was inserted into the Securities and Exchange Board of India (Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. IA shall be required to demonstrate AUA with supporting documents like demat statements, unit statements etc. of the client. c. Any portion of AUA held by the client under any pre-existing distribution arrangement with any entity shall be deducted from AUA for the purpose of charging fee by the IA. (B) Fixed fee mode The maximum fees that may be charged under this mode shall not exceed INR 1,25,000 per annum per client across all services offered by IA. The Circular also prescribes general conditions applicable to both modes in the following terms :- (B) General conditions under both modes a. In case family of client is reckoned as a single client, the fee as referred above shall be charged per family of client . b. IA shall charge fees from a client under any one mode i.e. (A) or (B) on an annual basis. The change of mode shall be effected only after 12 months of on boarding/last change of mode. c. If agreed by the client, IA may charge fees in advance. However, such advance shall not exceed fees for 2 quarters. d. In the event of pre-mature termination of the IA services in terms of agreement, the client shall be refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . . (k) levying fees or other charges for carrying out the purposes of this Section. 7. Section 12 of the SEBI Act provides for Registration of various professionals such as stock-brokers, sub-brokers, share transfer agents, etc., including Investment Advisors. It provides for a compulsory certificate of registration to be obtained from the Board in accordance with the Regulations made under the SEBI Act by these professionals and intermediaries who may be associated with securities market. 8. Section 19 of the SEBI Act provides for delegation by the Board, by general or special order in writing, to any member, officer of the Board such of its powers and functions under that Act (except the powers under Section 29) as may be deemed necessary. 9. Section 30 of the SEBI Act provides for the power of the Board to make regulations with a view to carry out the purposes of the Act. Section 30, so far as the same is relevant for our purposes, is quoted below :- 30. Power to make regulations. (1) The Board may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act. (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reasonable charges to be claimed by Investment Advisors from their clients. Clause 6 is in the following terms :- 6. Fair and reasonable charges An investment advisor advising a client may charge fees, subject to any ceiling as may be specified by the Board, if any. The investment advisor shall ensure that fees charged to the clients is fair and reasonable. 12. As noted above, Regulation 15A was introduced by the Amendment Regulation of 2020 enjoining Investment Advisors to charge fees for providing investment advice to their clients in the manner specified by the Board. The Circular issued by the Board in pursuance of this regulation provides for two modes of charging of fees by Investment Advisors and general conditions to be applied to both modes. Both modes have a ceiling on fees that may be charged. 13. Having regard to this apparatus of law, what we have to decide is, whether the Board has the requisite authority under the SEBI Act, in the first place, to make regulations concerning charging of fees by Investment Advisors from their clients. The power of SEBI to do so is said to be sourced from three different provisions of the SEBI Act. Firstly, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to promote the development of the securities market, and to regulate the securities market, by such measures as it thinks fit . It is therefore apparent that the measures to be adopted by SEBI in carrying out its obligations are couched in open-ended terms having no prearranged limits. In other words, the extent of the nature and the manner of measures which can be adopted by SEBI for giving effect to the functions assigned to SEBI have been left to the discretion and wisdom of SEBI. It is necessary to record here that the aforesaid power to adopt such measures as it thinks fit to promote investors interest, to promote the development of the securities market and to regulate the securities market, has not been curtailed or whittled down in any manner by any other provisions under the SEBI Act, as no provision has been given overriding effect over sub-section (1) of Section 11 of the SEBI Act. 303.2. Coupled with the clear vesting of the power with SEBI referred to above, sub-section (2) of Section 11 of the SEBI Act illustratively records the measures which can be adopted by SEBI. For the present controversy, reference may be made to clauses (i) and (i-a) of sub-section (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (2) of Section 11. We are not basing our analysis, however, on this provision, since it is possible to say that this provision relates to the power of SEBI to fix fees or charges for it to carry out its functions under Section 11. 18. In pursuance of these provisions and in keeping with their mandate, the Regulations of 2013 have been framed by SEBI for regulating the business of Investment Advisors. These regulations, which were tabled before both houses of Parliament, inter alia provide for various conditions for grant of certificate of registration. These conditions include the duty to abide by the provisions of the Regulations on the part of Investment Advisors including the duty to abide by the Code of Conduct specified in the Regulations. The Code of Conduct inter alia enjoins upon an Investment Advisor advising a client to charge fair and reasonable fees, subject to any ceiling as may be specified by the Board. Though SEBI had the requisite power to prescribe the manner for charging of fees by Investment Advisors, under the original Regulations, it has framed Amendment Regulations inter alia inserting Regulation 15A in the original Regulations, which entitles it to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consumer. The Court held that the Board, accordingly, did not have the power to fix tariff charges. The law laid down in this case has nothing to do with the facts of our case. In our case, the Board not only has the general power to make measures so as to protect the interest of investors in securities, to promote the development of, and regulate, the securities market, it has the particular power to regulate the working of Investment Advisors. Any regulation of working of Investment Advisors would, as we have noted above, clearly include making of provisions for the manner of charging of fees by Investment Advisors as well as maximum fees that may be charged by them for their services. The Board thus has the requisite delegated authority for specifying appropriate measures concerning fees to be charged by Investment Advisors. 20. The case of Narinder S. Chadha and others Vs. Municipal Corporation of Greater Mumbai and others (2014) 15 SCC 689, cited by learned counsel for the Petitioner, is also on an altogether different point. That case concerned implementation by Municipal Corporations of various cities of the Cigarettes and other Tobacco Products (Prohibition of Adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsure compliance of terms and conditions of licence and to lay down the standards of quality of service to be provided by the service providers and conduct periodical survey of such service so as to protect the interest of consumers of telecommunication services. The Court was of the view that the impugned Regulation could have no reference to these provisions; it did not lay down any standard of quality of service to be provided by the service provider, and it was not made with a view to ensure compliance with the terms and conditions of the licence or to lay down any standard of quality of service that needed compliance. The impugned Regulation was thus held to be dehors the above referred to provisions of Section 11. It was also held that it not only did not carry out the purposes of the Act but was contrary to such purposes. In particular, the Court observed that in attempting to protect the interest of consumers of the telecom sector at the cost of the interest of service providers (who complied with the leeway of an average of 2% of call drops per month given by another Regulation framed under Section 11(1)(b)(v)), the balance that was sought to be achieved by the Act for ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic and there is no scope of implied authority for imposition of such for imposition of such tax or fee . These observations and the law stated therein have no bearing on the controversy that we are considering here. Specification of manner of charging fees by Investment Advisors and fixation of a ceiling of such fees by SEBI, in our case, does not amount to imposition of tax or fee; it is simply a measure of regulation of the business of Investment Advisors in the interest of investors and for healthy growth of the securities market. And, as we have noted above, power to make such regulation is specifically delegated to the Board by virtue of Section 30 of the SEBI Act read with Section 11 of that Act. 23. Learned Counsel for the Petitioner does not press his alternative prayer to declare Sections 30(1) and 30(2)(d) of the SEBI Act as ultra vires the Constitution of India, being arbitrary, unreasonable and violative of Articles 14, 19(1)(g) and 300A of the Constitution, if these Sections are interpreted to confer/delegate power to cap professional fees charged by Investment Advisors to their clients. What is instead submitted is that the Amendment Regulation, to the extent it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s important to note that the impugned Regulation as well as the Circular issued by SEBI in pursuance thereof does not in any way prohibit any party from carrying on the business or profession of Investment Advisor. The Regulation and Circular merely put restrictions, and reasonable restrictions at that, on the general right of businessmen and professionals to carry on the business or profession of Investment Advisor. Prescribing a mode for charging of fees as also the ceiling of fees to be charged by Investment Advisors amounts to a reasonable restriction, at least in principle, in the matter of carrying on the business or profession of Investment Advisors, apart from being an important measure for protection of investors and development and regulation of securities market. In so far as reasonableness of the particular quantum of ceiling of fees determined by SEBI or conditions laid down for charging of such fees are concerned, there is no material placed on record by the Petitioner to suggest that the fees fixed or conditions stipulated are so unreasonable or capricious as not to admit of Investment Advisors freedom to practice their profession or business. 25. The case of I ..... 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