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TMI Blog2023 (1) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The petitioner alleges that the impugned Regulations restrict his fundamental Right of free speech and expression guaranteed by Article 19(1)(a) of the Constitution of India by making it mandatory for the 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. According to him, the citizens have a right to receive information and ideas, and if petitioner is prevented from exercising his right of free speech by making stock related recommendations, it would amount to denial to the general public of its right to receive information and ideas. He also alleges that the restrictions imposed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to him, though there were no complaints against him, in November 2021, an inspection was launched against him under Regulation 27 to settle personal scores with him since he had earlier complained against the respondents to the higher authorities. He however admits that the respondents had launched an inspection based on a complaint received against him. His challenge is also to Regulation 31 of the Regulations which entitles the Board, after consideration of the inspection report, and after giving reasonable opportunity of hearing to a Research Analyst or a Research Entity or its authorized representative to issue direction as it deems fit in the interest of securities market or the investors including a direction requiring the Research Analyst or Research Entity not to provide research recommendation for a particular period, requiring him or it to refund any money collected as fees, charges or commissions to from the clients along with requisite interest, and prohibiting the Research Analyst or Research Entity from operating in the capital market or accessing in the capital market for a specified period. In his opinion, this amounts to conferring of unfettered, excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment products for making investment decisions by potential investors. It also recognizes that such advice from the investment analysts is many times prone to conflicts of interests that may prevent them from offering independent and unbiased opinions. According to the consultation paper, these conflicts would hamper the neutrality of a research report which affects the investment decision of the investors; if some entity produces a biased research report to inflate the price artificially, the market at large gets affected; secondly, the quality of the analysis depends on the market and the industry experience of the Research Analyst, and it may be preferable to have appropriate regulations of Research Analysts that will not only ensure the neutrality of the research reports, but also improve the quality of the reports. The consultative paper recognizes that there was no guideline to identify and deal with the conflict of interests by Research Analyst who are not registered by the Board, and absence of an exclusive and comprehensive regulations to deal with the conflicts of interest by the Research Analyst posed regulatory gaps in the management and mitigation of possible conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) discussions on the broad-based indices; (iii) commentaries on economic, political or market conditions; (iv) periodic reports or other communications prepared for unit holders of mutual fund or alternative investment fund or clients of portfolio managers and investment advisers; (v) internal communications that are not given to current or prospective clients; (vi) communications that constitute offer documents or prospectus that are circulated as per regulations made by the Board; (vii) statistical summaries of financial data of the companies; (viii) technical analysis relating to the demand and supply in a sector or the index; (ix) any other communication which the Board may specify from time to time;" Regulation 3 of the Regulations makes it necessary for the Research Analyst to obtain a Certificate of Registration from the Board under the Regulations after their commencement. Regulation 7 of the Regulations prescribes the minimum qualifications to be possessed by an individual registered as Research Analyst or by individuals employed as Research Analyst and partners of Research Analyst. It states as under:- "Regulation 7 (1) An individual registered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially 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. In Bennett Coleman & Co. v. Union of India [(1972) 2 SCC 788, at page 828], the Supreme Court held : "100. Permissible restrictions on any fundamental right, even where they are imposed by duly enacted law, must not be excessive, or, in other words, they must not go beyond what is necessary to achieve the objects of the law under which they are sought to be imposed. The power to impose restrictions on fundamental rights is essentially a power to "regulate" the exercise of these rights. 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. The term "regulate" has come up for interpretation on several occasions before American Courts which have held that the word "regulate" means "to adjust by rule, method, or established mode; to direct by rule or restrictions; to subject to govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in Section 3. Section 6 prohibits the import into and export from India of certain advertisement. Section 14 is a saving clause which excludes registered practitioners, treatises or books, advertisements sent confidentially to medical practitioners, wholesale or retail chemists for distribution among registered medical practitioners or to hospitals or laboratories. It also excludes advertisements printed or published by Government or with the previous sanction of the Government. Section 15 gives the Government the power to grant exemptions from the application of Sections 3, 4, 5 and 6 in certain cases. The Supreme Court repelled the contention that the Act abridges the right to freedom of speech holding as under: "17. An advertisement is no doubt a form of speech but its true character is reflected by the object for the promotion of which it is employed. It assumes the attributes and elements of the activity under Article 19(1) which it seeks to aid by bringing it to the notice of the public. When it takes the form of a commercial advertisement which has an element of trade or commerce it no longer falls within the concept of freedom of speech for the object is not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, and claims to have professional expertise in the said area of interest namely the stock market related activities. He is, thus, professing to provide a professional advice/ service of a specialized nature. Such activities would undoubtedly fall under Article 19(1)(g) of the Constitution of India. In our opinion, considering the scope and object of the impugned regulations and their true nature and character, there is no direct abridgement of the right of free speech. There might be only an incidental interference with the said right. So the restrictions sought to be imposed by the impugned regulations have to considered from the said perspective and so ought to be tested as to their reasonableness under Art.19(6) of the Constitution of India. Clause (6) of Article 19 of the Constitution of India empowers the State to make a law relating to the professional or technical qualifications necessary for practicing any profession or carrying on any occupation, trade or business. As regards the contention of the petitioner that the explanation to Clause (u) of Regulation 2 includes in the definition of the 'Research Analyst' 'even an associate person who reports directly or indirectl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search entity in relation to research activities, in the interest of the securities market or in the interest of investors." Before ordering such inspection, Regulation 28(1) prescribes giving of 7 days' notice, though Clause (2) of Regulation 28 also permits the Board to dispense with such notice if it is in the interest of the investors. Regulation 31 states as under: "Action on the inspection report. Regulation 31: The Board may after consideration of the inspection report and after giving reasonable opportunity of hearing to research analyst or research entity or its authorized representatives, without prejudice to any other action under the Act, issue such directions as it deems fit in the interest of securities market or the investors including requiring research analyst or research entity not to provide research recommendation for a particular period; (i) requiring the research analyst or research entity to refund any money collected as fees, charges or commissions or otherwise to the concerned clients along with the requisite interest. (ii) prohibiting the research analyst or research entity from operating in the capital market or accessing the capital market fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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