TaxTMI 
TaxTMI 
2021 (7) TMI 168
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....Board of India (Investment 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 propos....
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....nation 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. 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 ther....
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....by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act. (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 m....
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....g 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, Section 11 provides for powers and functions of the Board, which include making of different 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. 14. As a matter of general principles of statutory interpretation, statutes delegating power to make rules, as observed by the Supreme Court in t....
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....I 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 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 K....
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....isors, 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 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 (2015) 9 SCC 209, 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 Petition....
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....nt 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 n....
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.... 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. 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 s....
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....ional 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 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 mak....
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....nreasonable or capricious as not to admit of Investment Advisors' freedom to practice their profession or business. 25. The case of Institute of Chartered Accountants of India Vs. K. Bhagvatheeswaran and another AIR 2005 Mad 287, 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 profession....