1.WPL. 638-21.doc

Bhogale

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION (L) NO.638 OF 2021

Purnartha Investment Advisers Private Limited.. Petitioner

vs.

Securities and Exchange Board of India & anr... Respondents

--------------------

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.

--------------------

CORAM : S.C. GUPTE &

M.S.KARNIK, JJ.

DATE : 18

th

JUNE, 2021

(THROUGH V.C.)

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

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Advisors) Regulations, 2013 and Circular issued in pursuance

thereof, being Circular Reference No.SEBI/HO/IMD/DF1/CIR/P/2020/

182 dated 23.09.2020, providing for modes of charging fees to

their clients by Investment Advisors. The challenge is on the

footing of both want of legislative power in SEBI (by delegated

authority) to make a provision such as regulation 15A or to issue a

Circular such as Circular dated 23.09.2020 and breach of

fundamental right of Investment Advisors to carry on a profession

of their choice by enacting unreasonable restrictions.

3.In 2013, SEBI issued the Securities and Exchange Board of

India (Investment Advisors) Regulations, 2013 for regulating the

business of Investment Advisors. On 15.01.2020, SEBI circulated a

consultation paper for revision of these original regulations

amongst various stakeholders and interested parties. On

23.01.2020, the present Petitioner submitted its response to the

consultation paper. On 17.02.2020, after taking into account the

response received from various stakeholders to the consultation

paper, a proposal was formulated and placed for consideration of

the Board. The Board approved the proposal and issued the

impugned amendment Regulations on 03.07.2020. The Petitioner

challenges the Amendment Regulations to the extent that they

introduce Regulation 15A into the original SEBI Regulations of

2013. Regulation 15A provides for fees to be charged by

Investment Advisors and is in the following terms :-

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“15A. Investment Advisor shall be entitled to charge fees for

providing investment advice from a client in the manner as

specified by the Board.”

4.In pursuance of this Regulation, SEBI has issued a Circular

dated 23.09.2020 titled as “Guidelines for Investment Advisors”

inter alia providing for execution of Investment Advisor agreements

with their clients by Investment Advisors containing terms and

conditions provided in a Schedule annexed as Annexure-A to the

Circular. The Circular also prescribes fees in pursuance of

Regulation 15A of the amended Regulations. The Circular provides

for charging of fees by Investment Advisors from their clients in

either of the two modes which are set out below :-

“ (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 ofered by IA.

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 ofered by IA.”

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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

efected 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 refunded

the fees for unexpired period. However, IA may retain a

maximum breakage fee of not greater than one quarter fee.”

5.The Petitioner claims to be an Investment Advisor having a

huge pan-country reputation for its practices, with about 7800

clients. It is the Petitioner’s case that SEBI has no authority under

the SEBI Act to make regulations concerning fees to be charged by

Investment Advisors such as the Petitioner. Secondly, it is

submitted that making of the impugned Regulation (Regulation

15A) and prescribing fees under the Circular of 23.09.2020

tantamount to a breach of the Petitioner’s fundamental right to

practice a profession or business of its choice. It is submitted that

restrictions introduced by the Regulation and the Circular amount

to unreasonable restrictions on the Petitioner’s business or

profession.

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6.The Securities and Exchange Board of India Act, 1992 (‘SEBI

Act’) provides for establishment of a Board to protect the interests

of investors in securities and to promote the development of, and

to regulate, the securities market and for matters connected

therewith or incidental thereto. The Act, in Chapter II thereof,

provides for establishment of the Securities and Exchange Board of

India (‘Board’). It provides for, in Chapter IV thereof, powers and

functions of the Board. Section 11 is the pivotal Section of Chapter

IV. Sub-section (1) of Section 11 is in the following terms :-

“11.Functions of Board.

(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.”

The provisions of sub-section (2) of Section 11, which we are

concerned with in the present case, are as follows :-

“(2) Without prejudice to the generality of the foregoing

provisions, the measures referred to therein may provide for -

(a) regulating the business in stock exchanges and any

other securities markets;

(b) registering and regulating the working of stock

brokers, sub-brokers, share transfer agents, bankers to an

issue, trustees of trust deeds, registrars to an issue, merchant

bankers, underwriters, portfolio managers, investment advisers

and such other intermediaries who may be associated with

securities markets in any manner;

.

.

.

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.

.

.

.

.

(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.

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(2)In particular, and without prejudice to the generality

of the foregoing power, such regulations may provide for all or

any of the following matters, namely :-

.

.

.

(d) the conditions subject to which certificate of

registration is to be issued, the amount of fee to be paid for

certificate of registration and the manner of suspension or

cancellation of certificate of registration under Section 12.

(da) the terms determined by the Board for settlement of

proceedings under sub-section (2) and the procedure for

conducting of settlement proceedings under sub-section (3) of

section 15JB;

(db) any other matter which is required to be, or may be,

specified by regulations or in respect of which provision is to be

made by regulations.”

10.Section 31 of the SEBI Act requires every regulation made

under that Act to be laid, as soon as after it is made, before each

House of Parliament, while it is in session, for a period of thirty

days. If both houses of Parliament agree that any regulation should

not be made or should be made in a modified form, such

modification or annulment has to follow. The regulation then has

efect only in such modified form or is of no efect, as the case may

be.

11.The Securities and Exchange Board of India (Investment

Advisors) Regulations, 2013 are made by the Board in pursuance of

its powers under sub-section (1) of Section 30 read with Clause (b)

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of sub-section (2) of Section 11 of the SEBI Act. Regulation 3

provides for an application to be made by an Investment Advisor

for grant of certificate of registration under Section 12 of the SEBI

Act. Regulation 6 prescribes the contents of such application and

eligibility criteria for grant of certificate of registration. Upon the

Board being satisfied about the applicant’s compliance with the

requirements specified in Regulation 6, a certificate of registration

is issued in a form provided under the First Schedule to the

Regulations subject to such terms and conditions as the Board may

deem fit to the Applicant Investment Advisor. Regulation 15

provides for the general responsibility of every Investment Advisor.

Clause (9) of Regulation 15 provides that an “Investment Advisor

shall abide by Code of Conduct as specified in Third Schedule”. The

Third Schedule to the Regulations, titled as ‘Code of Conduct for

Investment Advisor’, in Clause (6) provides for fair 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

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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 diferent

provisions of the SEBI Act. Firstly, Section 11 provides for powers

and functions of the Board, which include making of diferent

measures with a view to protect the interest of investors in

securities and promote the development of, and regulate, the

securities market. The provisions of sub-section (1) of Section 11

are in general form; they do not admit of any restrictions on the

powers of the Board. Sub-section (2) of Section 11, which opens

with the words “without prejudice to the generality of the foregoing

provisions”, then sets out various measures which the Board may

provide for in accordance with its powers and functions under

Section 11. These measures, as we have noted above, include

regulating the working of various functionaries connected with

securities market including Investment Advisors. These may also

include provisions for levying fees or other charges for carrying out

the purposes of Section 11.

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14.As a matter of general principles of statutory interpretation,

statutes delegating power to make rules, as observed by the

Supreme Court in the case of Academy of Nutrition

Improvement Vs. Union of India

1

, follow a standard pattern. As

the Supreme Court noted, the relevant Section would first contain a

provision granting the power to make rules to the delegate in

general terms, by using the words “to carry out the provisions of

this Act” or “to carry out the purposes of this Act”. This is usually

followed by another sub-section enumerating matters/areas in

regard to which specific power is delegated by using the words “in

particular and without prejudice to the generality of the foregoing

power, such rules may provide for all or any of the following

matters”. Interpreting these provisions, the Supreme Court has in a

number of decisions held that where power is conferred on a

delegate to make subordinate legislation in general terms, the

subsequent particularisation of matters/topics has to be construed

as merely illustrative and not limiting the scope of the general

power.

15.In particular reference to Section 11 of the SEBI Act, the

Supreme Court, in the case of Sahara India Real Estate

Corporation Limited and Others Vs. Securities and

Exchange Board of India and another

2

, has observed as

follows :-

1(2011) 8 SCC 274

2(2012) 10 SCC 603

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“303.1. Sub-section (1) of Section 11 of the SEBI Act casts an

obligation on SEBI to protect the interest of investors in

securities, 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 efect 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 efect 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) which ordain that SEBI

would be at liberty to call for information from, or undertake

inspections of, or conduct inquiries, or audits into “stock

exchanges”, “mutual funds”, and “other persons associated

with the securities market”, “intermediaries”, and “self-

regulatory organisation in the securities market”. The power to

call for information was expressly extended to “banks”, “any

other authority or board or corporation”, in respect of any

transaction in securities which is under investigation or inquiry

(at the hands of SEBI) by adding clause (i-a) to sub-section (2).

Sub-section (2-A) of Section 11 of the SEBI Act extends to SEBI

the power to inspect (in addition to power already delineated in

sub-section (2) of Section 11 referred to above) books, registers

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or other documents or records “of any listed public company or

a public company … which intends to get its securities listed on

any recognised stock exchange.”

The above observations have been noted with approval by

the Supreme Court in the case of Arun Kumar Agrawal Vs.

Union of India and others

3

.

16.Having regard to the general principles of statutory

interpretation and observations of the Supreme Court in particular

reference to Section 11 of the SEBI Act, noted above, it cannot be

gainsaid that measures to be adopted by SEBI, in carrying out its

obligations of protection of interest of investors in securities and

promotion of development, and regulation, of securities market,

being couched in open-ended terms, have no prearranged limits.

The nature and manner of measures, which can be adopted by

SEBI for giving efect to the functions assigned to it, have been left

to the discretion and wisdom of SEBI, such discretion not being

curtailed or whittled down in any manner by any other provision of

the SEBI Act.

17.In any event, the power to regulate the working of

Investment Advisors, which is a specific power or function of the

Board under Clause (b) of sub-section (2) of Section 11, even if one

disregards the generality of the provisions of sub-section (1) of

Section 11, would surely encompass within itself the power to

make provisions concerning fees to be charged by Investment

3(2014) 2 SCC 609

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Advisors from their clients. In particular reference to levying of fees

or charges for carrying out the purposes of Section 11, a special

provision even finds place in Clause (k) of sub-section (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 specify the manner for

charging of fees by Investment Advisors. Even these Amendment

Regulations were placed before both houses of Parliament and

have become the law of the land. In pursuance of these

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Regulations, SEBI has issued its Circular of 23.09.2020 inter alia

providing for two permissible modes of fees to be charged by

Investment Advisors with general conditions applicable to both

modes. There is ample authority with the board, in the premises,

to prescribe the modes of fees and general conditions applicable to

such modes.

19.The judgment of Petroleum and Natural Gas Regulatory

Board Vs. Indraprastha Gas Limited and others

4

, relied upon

by learned counsel for the Petitioner, is clearly distinguishable on

facts. What was called in question in that case was the tenability of

a judgment of Delhi High Court, which had ruled that Petroleum

and Natural Gas Regulatory Board (for short ‘Board’) was not

empowered to fix or regulate retail prices at which gas was to be

sold by entities such as the Petitioner before the Court to

consumers or any component of network tarif or compression

charge for entities having their own distribution networks. Such

power was claimed by the Board under the provisions of Section 11

of Petroleum and Natural Gas Regulatory Board Act, 2006. Under

that Section, the Board had the power to regulate, by regulations,

(i) access to common carrier or contract carrier so as to ensure fair

trade and competition amongst entities and for that purpose

specify pipeline access code; (ii) transportation rates for common

carrier or contract carrier; and (iii) access to city or local natural

gas distribution network so as to ensure fair trade and competition

4(2015) 9 SCC 209

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amongst entities as per pipeline access code (Section 11(e)). The

Supreme Court agreed with the view of the High Court that there

was no intent on the part of the legislature in these provisions to

confer any power to fix the maximum retail price on the Board.

The Court observed that only functions of enforcing retail service

obligations and marketing service obligations were conferred on

the Board by the legislature. The Court was of the view that

Section 11(e) only used the word “common carrier” or “contract

carrier” and this did not clothe the Board with the power to

command any entity to put/refect a price as may be determined

by the Board as a part of its bill to a consumer. The Court held that

the Board, accordingly, did not have the power to fix tarif 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.

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20.The case of Narinder S. Chadha and others Vs.

Municipal Corporation of Greater Mumbai and others

5

, cited

by learned counsel for the Petitioner, is also on an altogether

diferent point. That case concerned implementation by Municipal

Corporations of various cities of the Cigarettes and other Tobacco

Products (Prohibition of Advertisement and Regulation of Trade and

Commerce, Production, Supply & Distribution) Act, 2003

(“Cigarettes Act”). The conditions of licence issued by Mumbai

Municipal Corporation under Section 394 of the Mumbai Municipal

Corporation Act inter alia prohibited tobacco or tobacco related

products in any form, whether in the form of cigarette, cigar, bidi or

otherwise with the aid of a pipe, wrapper or any other instrument,

in the licensed premises. Whereas Section 6 of the Cigarettes Act

permitted sale of cigarettes and other tobacco products, except to

persons under 18 years of age and in an area within a radius of 100

yards of any educational institution, the condition of licence

prohibited the sale of cigarettes or other tobacco products in

premises licensed by the Municipal Corporation. The Supreme

Court was of the view that this licence condition would amount to

adding another exception to sale of cigarettes or other tobacco

products which was in keeping with the provisions of the Cigarettes

Act. The Court, in the premises, did not agree with the High Court

when it held that all that the Municipal Corporation did in that case

was to follow the provisions of the Cigarettes Act and the Rules

made thereunder. It was in this backdrop that the Supreme Court

5(2014) 15 SCC 689

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set aside the judgment of this Court and deleted the particular

condition forming part of the licence issued by the Municipal

Corporation.

21.The case of Cellular Operators Association of India and

others Vs. Telecom Regulatory Authority of India and

others

6

dealt with Regulations issued by Telecom Regulatory

Authority of India (for short ‘TRAI’) inter alia for ensuring the quality

and standard of service by licensees as may be prescribed by the

licensor or TRAI. The amending regulation, which was challenged

in that case, made every originating service provider, who provided

cellular mobile telephone services, liable to credit the calling

consumer with one rupee for each call drop which took place within

its network, upto a maximum of three call drops per day. This

amendment was made purportedly in exercise of powers conferred

on the Board by Section 36 read with Section 11 of the Telecom

Regulatory Authority of India Act, 1997, and particularly Section

11(1)(b)(i) and (v) of that Act. The functions of the Board under

Clauses (i) and (v) of Section 11(1)(b) were to, respectively, ensure

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

6(2016) 7 SCC 703

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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 orderly growth of the telecom

sector had been violated. It was in these premises that the Court

held the impugned Regulation as not carrying out the purposes of

the Act and therefore, ultra vires. This statement of law by the

Supreme Court can have no bearing on the facts of our case, where

there is a specifically delegated power in the Board to regulate the

business of Investment Advisors, and there is no case of the

impugned Regulation being either dehors, or inconsistent with the

purpose of, the Act, which is to protect the interest of investors,

and develop and regulate the securities market. Providing for

charging of fair and reasonable fees to their investor clients by

Investment Advisors is but a measure, as noted above, for

protecting the interest of investors and healthy growth of the

securities market.

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22.Learned Counsel for the Petitioner argues that a stipulation

as to fees, being in the nature of a fiscal measure, a delegated

authority can make such stipulation only if its delegation in that

behalf is specific; there is no scope for an implied authority.

Learned Counsel relies on the case of Ahmedabad Urban

Development Authority Vs. Sharadkumar Jayantikumar

Pasawalla and ors.

7

in support of the proposition advanced.

In that case, the Ahmedabad Urban Development Authority,

established under the Gujarat Town Planning and Urban

Development Act, 1976 ("Town Planning Act"), had levied a

development fee under the regulations impugned in that case. The

Gujarat High Court held that the Authority was not vested under

the Town Planning Act with the power to charge any betterment or

development fee. The argument of the Development Authority

before the Supreme Court, which was the appellant before the

Court, was that if the state legislature was competent to impose

such fees, the Development Authority, by virtue of delegated

legislation, could also impose betterment fee or development fee

and simply because imposition of such fee was not specifically

mentioned in the delegating provision, it could not be held that the

Authority had no power to do so. The Supreme Court rejected the

contention, observing that "in a fiscal matter it will not be proper to

hold that even in the absence of express provision, a delegated

authority can impose tax or fee.... such power of imposition of tax

and/or fee by delegated authority must be very specific and there

7(1992) 3 SCC 285

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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 inserts Regulation 15A in the original

Regulations of 2013, is violative of Section 30(1) read with Section

30(2)(d) of the SEBI Act. Section 30(1) of the SEBI Act empowers

the Board to make regulations "consistent with this Act and the

rules made thereunder” so as “to carry out the purposes of this

Act". As an illustrative measure, whilst exercising this power, the

Board is authorised, under Section 30(2)(d), to provide inter alia for

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conditions subject to which a certificate of registration under

Section 12 is to be issued and suspension or cancellation of such

certificate. As we have noted above, whilst discussing the contours

of Section 11 of the SEBI Act, even Section 30(1) is an omnibus

provision, conferring wide and sweeping powers on the Board to

make regulations, the only restrictions being that such regulations

have to be (i) consistent with the SEBI Act and the rules and (ii)

necessary for carrying out the purposes of that Act. Sub-section

(2) of Section 30 merely provides for illustrative measures which

the Board may specify whilst making such regulations; it does not

in any way detract from the wide amplitude of powers conferred on

the Board. In other words, SEBI does possess ample power to

make regulations in matters not covered by the illustrative

measures provided under Section 30(2) (including clause (d)

thereof) so long as such regulations are consistent with the SEBI

Act and the rules and carry out the purposes of that Act. As we

have seen above, specifying 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

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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.

24.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 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.

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25.The case of Institute of Chartered Accountants of India

Vs. K. Bhagvatheeswaran and another

8

, cited by learned

Counsel for the Petitioner, involved restrictions placed by the Union

of India on chartered accountants’ right to practice their profession.

These restrictions included the ceiling limit of the number of tax

audit assignments in a financial year permissible to an individual

practitioner or firm (maximum 30 audits) as well as a cap on audit

fees. A breach of these restrictions was made an instance of

professional misconduct. The Madras High Court, which decided

the case, was of the view that professions of lawyers, chartered

accountants, etc. had their own historical conventions, traditions,

customs and practices; and placing of restrictions on the number of

cases/audits was an unreasonable restriction under 19(6) of the

Constitution, which was also violative of Article 14. A client, the

Court observed, must be free to choose his lawyer/chartered

accountant, and conversely, the number of cases/audits which can

be accepted by a professional must be left to such professional. As

for capping of fees and making of any charge above it being made

a professional misconduct, the Court was of the opinion that the

restriction was arbitrary and violative of both Article 14 and Article

19(1)(g); such restriction was not in keeping with the conventions

and traditions of the profession. The Court held that what would be

the fee was a matter to be decided by mutual consent of the client

and the professional and parties ought to be left free to decide the

same; charging of higher or lower fee could not be regarded as

8AIR 2005 Mad 287

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professional misconduct. In our view, the Petitioner herein cannot

seek much assistance from this decision. In the first place, unlike

in that case, which did not have any regulatory statutory

framework for fixing of a ceiling of permissible tax audits or fees for

such audits, in our case the SEBI Act makes particular provisions

empowering the Board to regulate the working of Investment

Advisors. The profession or business of Investment Advisor is not a

traditional profession having its own customs and conventions.

Nothing at least has been pointed out to us by learned counsel for

the Petitioner in that behalf. If anything, Investment Advice is a

profession/business which has come about as an adjunct of the

securities market; the Investment Advisor works because investors

need professional advice for participating in the afairs of the

securities market. It is the statutory duty of SEBI to protect such

investors, and develop and regulate that market inter alia by

regulating the working of Investment Advisors. If, for performing

such duty, SEBI fixes the manner of charging of fees by Investment

Advisors or the maximum permissible fees, such fixation per se

cannot be faulted as being violative of Article 14 or 19(1)(g). It is

another matter, if, whilst fixing these matters, SEBI acts in an

unreasonable or capricious manner; in such case, its legislative (or

executive) exercise may be vitiated by arbitrariness eschewed by

Article 14 or unreasonable restriction not being covered under

Article 19(6) and thus infringing Article 19(1)(g). That, we are

afraid, has not been the case here.

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26.There is, accordingly, 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.

27.In the premises, the Petition is dismissed. No order as to

costs.

(M.S.KARNIK, J.) (S.C.GUPTE, J.)

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