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TMI Blog2022 (6) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (Amendment) Regulations, 2020 on 03.07.2020. By virtue of this amendment Regulation 15A was inserted. The Said Regulation 15A of the Regulations provided that an Investment Advisor shall be entitled to charge fee for providing investment advice from a client in the manner specified by the Board. After the insertion of Regulation 15A in the (Investment Advisors) Regulations, 2013, respondent No.1 issued a circular No. SEBI/HO/IMD/DF-I/CIR/P/2020/182 dated 23.09.2020. In this circular para 2(iii), provision was made as under with regard to charging of fee by Investment Advisors which states as under: "(iii) Fees Regulation 15 A of the amended Investment Advisor Regulations provide that Investment Advisers shall be entitled to charge fees from a client in the manner as specified by SEBI, accordingly Investment Advisers shall charge fees from the clients in either of the two modes: (A) Assets under Advice (AUA) mode a. The maximum fees that may be charged under this mode shall not exceed 2.5 percent of AUA per annum per client across all services offered by Investment Advisor. b. Investment Advisor shall be required to demonstrate AUA with supporting documents like dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , kill the incentive for Investment Advisors to excel and beat other Investment Advisors; that the ceiling on maximum fee that can be charged as per the impugned Regulation 15A and the Circular is not based upon performance of the Investment Advisor in terms of financial returns generated but, it is either a fixed fee or fee based upon Assets Under Advise (AUA). According to the petitioners, the fee would be the same both for an Investment Advisor who converts the clients' AUA of Rs. 1 crore to Rs. 10 crores, and for another Investment Advisor, who converts the clients AUA of Rs. 1 crore to Rs. 10 lakhs. According to them, highly skilled or expert Investment Advisors would not have any incentive to excel and to maximise clients' wealth, and only unskilled or non-expert Investment Advisor would have incentive to stay in the Investment Advisor business; and it is completely illogical and unjustifiable for the respondent No.1 to bring such a Regulation and the Circular. (d) It is contended that since the petitioners have outstanding track records in managing client's money, and some stocks identified by the petitioners had even multiplied 50 to 100 times, it is an unreasonable r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue directions) of the SEBI Act wherein the Investment Advisors were observed to be violating the provisions of the SEBI (Investment Advisors) Regulations, 2013 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. The respondent No.1 constituted a working group to, inter alia, review the SEBI (Investment Advisors) Regulations, 2013. On 15.01.2020 after deliberations of the working group and its recommendations, the respondent issued a Public Consultation Paper proposing caps on maximum fees that an Investment Advisor can charge from its clients. On 17.02.2020, the Board of the respondent No.1, after considering all points of view, approved the proposal to amend the SEBI (Investment Advisors) Regulations, 2013. Pursuant thereto, Amendment Regulations were notified on 03.07.2020 in the official gazette and the same came into force on 30.09.2020, whereby, Regulation 15A was inserted in the SEBI (Investment Advisors) Regulations, 2013. Regulation 15A, as inserted vide Amendment Regulations, 2020, read as follows: - "Fees. 15A. Investment Adviser shall be entitled to charge fee for providing investment advice from a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable by an Investment Advisor is Rs. 1.25 Lakhs per annum and in the "assets under Advice mode", an Investment Advisor can may charge his client fees upto 2.5% of the Assets under Advice per annum. It is stated that if an Investment Advisor is managing asset of Rs. 2 Crore, then the maximum fees that can be charged by the Investment Advisor from the client under the AUA mode of fees is Rs. 5,00,000/- per annum ( 2.5% of Rs. 2 Crore); In case the AUA is increased i.e due to fresh investment or earning of profit etc., by the client from Rs. 2 Crore to Rs. 5 Crore, then the Investment Advisor can charge maximum fees of Rs. 12,50,000/- (2.5% of Rs. 5 Cr) in a year. According to respondent No.1, the bigger the Asset under Advise of the Investment Advisor, the higher will be the maximum fees that can be charged by him from his client. It is denied that fixation of a maximum cap of fee which may be charged by Investment Advisor violates any fundamental rights of the petitioners since there is no prohibition on the petitioners carrying on activity on Investment Advisors. It is also stated that the action of respondent No.1 thus falls within the ambit of the regulatory regime c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved and held as under: 60.1. The Court will not debate academic matters or concern itself with intricacies of trade and commerce. 60.2. It is neither within the domain of the courts nor the scope of judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are the courts inclined to strike down a policy at the behest of a petitioner merely because it has been urged that a different policy would have been fairer or wiser or more scientific or more logical. Wisdom and advisability of economic policy are ordinarily not amenable to judicial review. 60.3. Economic and fiscal regulatory measures are a field where Judges should encroach upon very warily as Judges are not experts in these matters. 61. In R.K. Garg, it has been observed and held that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It is further observed that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket ..... X X X X Extracts X X X X X X X X Extracts X X X X
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