If SEBI acts capriciously, then exercise of SEBI may be vitiated under Article 14: Bombay High Court

 on 29 06 2021 on 22 03 1.WPL. 638 21.docBhogaleIN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITIONNO.638 OF 2021 Purnartha Investment Advisers Private Limited.. Petitionervs.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. AdityaThakkar and Mr. D.P. Singh for Respondent No.2 UOI. CORAM : S.C. GUPTE & M.S.KARNIK JJ. DATE : 18th JUNE 2021 and for Respondent No.2 Union of India.2.This Petition challenges constitutional validity and vires ofRegulation 3(XII) of the Securities and Exchange Board of India(Investment Advisors)Regulations 2020(“Amendment Regulations”) by which Regulation 15A was insertedinto the Securities and Exchange Board of IndiaRegulations 2013 and Circular issued in pursuancethereof being Circular Reference No.SEBI HO IMD DF1 CIR P 2020 182 dated 23.09.2020 providing for modes of charging fees totheir clients by Investment Advisors. The challenge is on thefooting of both want of legislative power in SEBIto make a provision such as regulation 15A or to issue aCircular such as Circular dated 23.09.2020 and breach offundamental right of Investment Advisors to carry on a professionof their choice by enacting unreasonable restrictions.3.In 2013 SEBI issued the Securities and Exchange Board ofIndiaRegulations 2013 for regulating thebusiness of Investment Advisors. On 15.01.2020 SEBI circulated aconsultation paper for revision of these original regulationsamongst various stakeholders and interested parties. On23.01.2020 the present Petitioner submitted its response to theconsultation paper. On 17.02.2020 after taking into account theresponse received from various stakeholders to the consultationpaper a proposal was formulated and placed for consideration ofthe Board. The Board approved the proposal and issued theimpugned amendment Regulations on 03.07.2020. The Petitionerchallenges the Amendment Regulations to the extent that theyintroduce Regulation 15A into the original SEBI Regulations of2013. Regulation 15A provides for fees to be charged byInvestment Advisors and is in the following terms : 2 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc“15A. Investment Advisor shall be entitled to charge fees forproviding investment advice from a client in the manner asspecified by the Board.”4.In pursuance of this Regulation SEBI has issued a Circulardated 23.09.2020 titled as “Guidelines for Investment Advisors”inter alia providing for execution of Investment Advisor agreementswith their clients by Investment Advisors containing terms andconditions provided in a Schedule annexed as Annexure A to theCircular. The Circular also prescribes fees in pursuance ofRegulation 15A of the amended Regulations. The Circular providesfor charging of fees by Investment Advisors from their clients ineither of the two modes which are set out below : “Assets under Advicemodea. The maximum fees that may be charged under thismode shall not exceed 2.5 percent of AUA per annum per clientacross all services ofered by IA.b. IA shall be required to demonstrate AUA withsupporting documents like demat statements unit statementsetc. of the client.c. Any portion of AUA held by the client under any pre existing distribution arrangement with any entity shall bededucted from AUA for the purpose of charging fee by the IA.(B)Fixed fee modeThe maximum fees that may be charged under this modeshall not exceed INR 1 25 000 per annum per client across allservices ofered by IA.”3 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docThe Circular also prescribes general conditions applicable toboth modes in the following terms : “(B)General conditions under both modesa. In case “family of client’ is reckoned as a single client the fee as referred above shall be charged per “family ofclient”.b. IA shall charge fees from a client under any one modei.e.oron an annual basis. The change of mode shall beefected only after 12 months of on boarding last change ofmode.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 IAservices in terms of agreement the client shall be refundedthe fees for unexpired period. However IA may retain amaximum breakage fee of not greater than one quarter fee.”5.The Petitioner claims to be an Investment Advisor having ahuge pan country reputation for its practices with about 7800clients. It is the Petitioner’s case that SEBI has no authority underthe SEBI Act to make regulations concerning fees to be charged byInvestment Advisors such as the Petitioner. Secondly it issubmitted that making of the impugned Regulationand prescribing fees under the Circular of 23.09.2020tantamount to a breach of the Petitioner’s fundamental right topractice a profession or business of its choice. It is submitted thatrestrictions introduced by the Regulation and the Circular amountto unreasonable restrictions on the Petitioner’s business orprofession.4 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc6.The Securities and Exchange Board of India Act 1992provides for establishment of a Board to protect the interestsof investors in securities and to promote the development of andto regulate the securities market and for matters connectedtherewith or incidental thereto. The Act in Chapter II thereof provides for establishment of the Securities and Exchange Board ofIndiaof Section 11 is in the following terms : “11.Functions of Board.(1) Subject to the provisions of this Act it shall be theduty of the Board to protect the interests of investors insecurities and to promote the development of and to regulatethe securities market by such measures as it thinks fit.”The provisions of sub sectionof Section 11 which we areconcerned with in the present case are as follows : “(2) Without prejudice to the generality of the foregoingprovisions the measures referred to therein may provide for regulating the business in stock exchanges and anyother securities marketsregistering and regulating the working of stockbrokers sub brokers share transfer agents bankers to anissue trustees of trust deeds registrars to an issue merchantbankers underwriters portfolio managers investment advisersand such other intermediaries who may be associated withsecurities markets in any manner ...5 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc.....(k) levying fees or other charges for carrying out the purposesof this Section.”7.Section 12 of the SEBI Act provides for Registration of variousprofessionals such as stock brokers sub brokers share transferagents etc. including Investment Advisors. It provides for acompulsory certificate of registration to be obtained from the Boardin accordance with the Regulations made under the SEBI Act bythese professionals and intermediaries who may be associated withsecurities market.8.Section 19 of the SEBI Act provides for delegation by theBoard 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 deemednecessary.9.Section 30 of the SEBI Act provides for the power of theBoard to make regulations with a view to carry out the purposes ofthe 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 regulationsconsistent with this Act and the rules made thereunder to carryout the purposes of this Act.6 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc(2)In particular and without prejudice to the generalityof the foregoing power such regulations may provide for all orany of the following matters namely : ...(d) the conditions subject to which certificate ofregistration is to be issued the amount of fee to be paid forcertificate of registration and the manner of suspension orcancellation of certificate of registration under Section 12.(da) the terms determined by the Board for settlement ofproceedings under sub sectionand the procedure forconducting of settlement proceedings under sub sectionofsection 15JBany other matter which is required to be or may be specified by regulations or in respect of which provision is to bemade by regulations.”10.Section 31 of the SEBI Act requires every regulation madeunder that Act to be laid as soon as after it is made before eachHouse of Parliament while it is in session for a period of thirtydays. If both houses of Parliament agree that any regulation shouldnot be made or should be made in a modified form suchmodification or annulment has to follow. The regulation then hasefect only in such modified form or is of no efect as the case maybe.11.The Securities and Exchange Board of IndiaRegulations 2013 are made by the Board in pursuance ofits powers under sub sectionof Section 30 read with Clauseof Section 11 of the SEBI Act. Regulation 3provides for an application to be made by an Investment Advisorfor grant of certificate of registration under Section 12 of the SEBIAct. Regulation 6 prescribes the contents of such application andeligibility criteria for grant of certificate of registration. Upon theBoard being satisfied about the applicant’s compliance with therequirements specified in Regulation 6 a certificate of registrationis issued in a form provided under the First Schedule to theRegulations subject to such terms and conditions as the Board maydeem fit to the Applicant Investment Advisor. Regulation 15provides for the general responsibility of every Investment Advisor.Clauseof Regulation 15 provides that an “Investment Advisorshall abide by Code of Conduct as specified in Third Schedule”. TheThird Schedule to the Regulations titled as ‘Code of Conduct forInvestment Advisor’ in Clauseprovides for fair and reasonablecharges 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 theclients is fair and reasonable.”12.As noted above Regulation 15A was introduced by theAmendment Regulation of 2020 enjoining Investment Advisors tocharge fees for providing investment advice to their clients in the8 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docmanner specified by the Board. The Circular issued by the Board inpursuance of this regulation provides for two modes of charging offees by Investment Advisors and general conditions to be appliedto both modes. Both modes have a ceiling on fees that may becharged.13.Having regard to this apparatus of law what we have todecide is whether the Board has the requisite authority under theSEBI Act in the first place to make regulations concerningcharging of fees by Investment Advisors from their clients. Thepower of SEBI to do so is said to be sourced from three diferentprovisions of the SEBI Act. Firstly Section 11 provides for powersand functions of the Board which include making of diferentmeasures with a view to protect the interest of investors insecurities and promote the development of and regulate thesecurities market. The provisions of sub sectionof Section 11are in general form they do not admit of any restrictions on thepowers of the Board. Sub sectionof Section 11 which openswith the words “without prejudice to the generality of the foregoingprovisions” then sets out various measures which the Board mayprovide for in accordance with its powers and functions underSection 11. These measures as we have noted above includeregulating the working of various functionaries connected withsecurities market including Investment Advisors. These may alsoinclude provisions for levying fees or other charges for carrying outthe purposes of Section 11.9 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc14.As a matter of general principles of statutory interpretation statutes delegating power to make rules as observed by theSupreme Court in the case of Academy of NutritionImprovement Vs. Union of India1 follow a standard pattern. Asthe Supreme Court noted the relevant Section would first contain aprovision granting the power to make rules to the delegate ingeneral terms by using the words “to carry out the provisions ofthis Act” or “to carry out the purposes of this Act”. This is usuallyfollowed by another sub section enumerating matters areas inregard to which specific power is delegated by using the words “inparticular and without prejudice to the generality of the foregoingpower such rules may provide for all or any of the followingmatters”. Interpreting these provisions the Supreme Court has in anumber of decisions held that where power is conferred on adelegate to make subordinate legislation in general terms thesubsequent particularisation of matters topics has to be construedas merely illustrative and not limiting the scope of the generalpower.15.In particular reference to Section 11 of the SEBI Act theSupreme Court in the case of Sahara India Real EstateCorporation Limited and Others Vs. Securities andExchange Board of India and another2 has observed asfollows : 1(2011) 8 SCC 2742(2012) 10 SCC 60310 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc“303.1. Sub sectionof Section 11 of the SEBI Act casts anobligation on SEBI to protect the interest of investors insecurities to promote the development of the securitiesmarket and to regulate the securities market “by suchmeasures as it thinks fit”. It is therefore apparent that themeasures to be adopted by SEBI in carrying out its obligationsare couched in open ended terms having no prearranged limits.In other words the extent of the nature and the manner ofmeasures which can be adopted by SEBI for giving efect to thefunctions assigned to SEBI have been left to the discretion andwisdom of SEBI. It is necessary to record here that theaforesaid power to adopt “such measures as it thinks fit” topromote investors’ interest to promote the development of thesecurities market and to regulate the securities market has notbeen curtailed or whittled down in any manner by any otherprovisions under the SEBI Act as no provision has been givenoverriding efect over sub sectionof Section 11 of the SEBIAct.303.2. Coupled with the clear vesting of the power with SEBIreferred to above sub sectionof Section 11 of the SEBI Actillustratively records the measures which can be adopted bySEBI. For the present controversy reference may be made toclausesandof sub sectionwhich ordain that SEBIwould be at liberty to call for information from or undertakeinspections of or conduct inquiries or audits into “stockexchanges” “mutual funds” and “other persons associatedwith the securities market” “intermediaries” and “self regulatory organisation in the securities market”. The power tocall for information was expressly extended to “banks” “anyother authority or board or corporation” in respect of anytransaction in securities which is under investigation or inquiry(at the hands of SEBI) by adding clauseto sub sectionof Section 11 of the SEBI Act extends to SEBIthe power to inspectof Section 11 referred to above) books registers11 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docor other documents or records “of any listed public company ora public company … which intends to get its securities listed onany recognised stock exchange.”The above observations have been noted with approval bythe Supreme Court in the case of Arun Kumar Agrawal Vs.Union of India and others3.16.Having regard to the general principles of statutoryinterpretation and observations of the Supreme Court in particularreference to Section 11 of the SEBI Act noted above it cannot begainsaid that measures to be adopted by SEBI in carrying out itsobligations of protection of interest of investors in securities andpromotion 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 bySEBI for giving efect to the functions assigned to it have been leftto the discretion and wisdom of SEBI such discretion not beingcurtailed or whittled down in any manner by any other provision ofthe SEBI Act.17.In any event the power to regulate the working ofInvestment Advisors which is a specific power or function of theBoard under Clauseof sub sectionof Section 11 even if onedisregards the generality of the provisions of sub sectionofSection 11 would surely encompass within itself the power tomake provisions concerning fees to be charged by Investment3(2014) 2 SCC 60912 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docAdvisors from their clients. In particular reference to levying of feesor charges for carrying out the purposes of Section 11 a specialprovision even finds place in Clauseof sub sectionof Section11. We are not basing our analysis however on this provision since it is possible to say that this provision relates to the power ofSEBI to fix fees or charges for it to carry out its functions underSection 11.18.In pursuance of these provisions and in keeping with theirmandate the Regulations of 2013 have been framed by SEBI forregulating the business of Investment Advisors. These regulations which were tabled before both houses of Parliament inter aliaprovide for various conditions for grant of certificate of registration.These conditions include the duty to abide by the provisions of theRegulations on the part of Investment Advisors including the dutyto abide by the Code of Conduct specified in the Regulations. TheCode of Conduct inter alia enjoins upon an Investment Advisoradvising a client to charge fair and reasonable fees subject to anyceiling as may be specified by the Board. Though SEBI had therequisite power to prescribe the manner for charging of fees byInvestment Advisors under the original Regulations it has framedAmendment Regulations inter alia inserting Regulation 15A in theoriginal Regulations which entitles it to specify the manner forcharging of fees by Investment Advisors. Even these AmendmentRegulations were placed before both houses of Parliament andhave become the law of the land. In pursuance of these13 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docRegulations SEBI has issued its Circular of 23.09.2020 inter aliaproviding for two permissible modes of fees to be charged byInvestment Advisors with general conditions applicable to bothmodes. There is ample authority with the board in the premises to prescribe the modes of fees and general conditions applicable tosuch modes.19.The judgment of Petroleum and Natural Gas RegulatoryBoard Vs. Indraprastha Gas Limited and others4 relied uponby learned counsel for the Petitioner is clearly distinguishable onfacts. What was called in question in that case was the tenability ofa judgment of Delhi High Court which had ruled that Petroleumand Natural Gas Regulatory Boardwas notempowered to fix or regulate retail prices at which gas was to besold by entities such as the Petitioner before the Court toconsumers or any component of network tarif or compressioncharge for entities having their own distribution networks. Suchpower was claimed by the Board under the provisions of Section 11of Petroleum and Natural Gas Regulatory Board Act 2006. Underthat Section the Board had the power to regulate by regulationsaccess to common carrier or contract carrier so as to ensure fairtrade and competition amongst entities and for that purposespecify pipeline access code transportation rates for commoncarrier or contract carrier andaccess to city or local naturalgas distribution network so as to ensure fair trade and competition4(2015) 9 SCC 20914 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docamongst entities as per pipeline access codeonly used the word “common carrier” or “contractcarrier” and this did not clothe the Board with the power tocommand any entity to put refect a price as may be determinedby the Board as a part of its bill to a consumer. The Court held thatthe 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 ofour case. In our case the Board not only has the general power tomake measures so as to protect the interest of investors insecurities to promote the development of and regulate thesecurities market it has the particular power to regulate theworking of Investment Advisors. Any regulation of working ofInvestment Advisors would as we have noted above clearlyinclude making of provisions for the manner of charging of fees byInvestment Advisors as well as maximum fees that may be chargedby them for their services. The Board thus has the requisitedelegated authority for specifying appropriate measuresconcerning fees to be charged by Investment Advisors.15 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc20.The case of Narinder S. Chadha and others Vs.Municipal Corporation of Greater Mumbai and others5 citedby learned counsel for the Petitioner is also on an altogetherdiferent point. That case concerned implementation by MunicipalCorporations of various cities of the Cigarettes and other TobaccoProductsAct 2003(“Cigarettes Act”). The conditions of licence issued by MumbaiMunicipal Corporation under Section 394 of the Mumbai MunicipalCorporation Act inter alia prohibited tobacco or tobacco relatedproducts in any form whether in the form of cigarette cigar bidi orotherwise with the aid of a pipe wrapper or any other instrument in the licensed premises. Whereas Section 6 of the Cigarettes Actpermitted sale of cigarettes and other tobacco products except topersons under 18 years of age and in an area within a radius of 100yards of any educational institution the condition of licenceprohibited the sale of cigarettes or other tobacco products inpremises licensed by the Municipal Corporation. The SupremeCourt was of the view that this licence condition would amount toadding another exception to sale of cigarettes or other tobaccoproducts which was in keeping with the provisions of the CigarettesAct. The Court in the premises did not agree with the High Courtwhen it held that all that the Municipal Corporation did in that casewas to follow the provisions of the Cigarettes Act and the Rulesmade thereunder. It was in this backdrop that the Supreme Court5(2014) 15 SCC 68916 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docset aside the judgment of this Court and deleted the particularcondition forming part of the licence issued by the MunicipalCorporation.21.The case of Cellular Operators Association of India andothers Vs. Telecom Regulatory Authority of India andothers6 dealt with Regulations issued by Telecom RegulatoryAuthority of Indiainter alia for ensuring the qualityand standard of service by licensees as may be prescribed by thelicensor or TRAI. The amending regulation which was challengedin that case made every originating service provider who providedcellular mobile telephone services liable to credit the callingconsumer with one rupee for each call drop which took place withinits network upto a maximum of three call drops per day. Thisamendment was made purportedly in exercise of powers conferredon the Board by Section 36 read with Section 11 of the TelecomRegulatory Authority of India Act 1997 and particularly Section11(1)(b)(i) andof that Act. The functions of the Board underClausesandof Section 11(1)(b) were to respectively ensurecompliance of terms and conditions of licence and to lay down thestandards of quality of service to be provided by the serviceproviders and conduct periodical survey of such service so as toprotect the interest of consumers of telecommunication services.The Court was of the view that the impugned Regulation couldhave no reference to these provisions it did not lay down any6(2016) 7 SCC 70317 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docstandard of quality of service to be provided by the serviceprovider and it was not made with a view to ensure compliancewith the terms and conditions of the licence or to lay down anystandard of quality of service that needed compliance. Theimpugned Regulation was thus held to be dehors the abovereferred to provisions of Section 11. It was also held that it not onlydid not carry out the purposes of the Act but was contrary to suchpurposes. In particular the Court observed that in attempting toprotect the interest of consumers of the telecom sector at the costof the interest of service providersthe balance that wassought to be achieved by the Act for orderly growth of the telecomsector had been violated. It was in these premises that the Courtheld the impugned Regulation as not carrying out the purposes ofthe Act and therefore ultra vires. This statement of law by theSupreme Court can have no bearing on the facts of our case wherethere is a specifically delegated power in the Board to regulate thebusiness of Investment Advisors and there is no case of theimpugned Regulation being either dehors or inconsistent with thepurpose of the Act which is to protect the interest of investors and develop and regulate the securities market. Providing forcharging of fair and reasonable fees to their investor clients byInvestment Advisors is but a measure as noted above forprotecting the interest of investors and healthy growth of thesecurities market.18 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc22.Learned Counsel for the Petitioner argues that a stipulationas to fees being in the nature of a fiscal measure a delegatedauthority can make such stipulation only if its delegation in thatbehalf is specific there is no scope for an implied authority.Learned Counsel relies on the case of Ahmedabad UrbanDevelopment Authority Vs. Sharadkumar JayantikumarPasawalla and ors.7 in support of the proposition advanced.In that case the Ahmedabad Urban Development Authority established under the Gujarat Town Planning and UrbanDevelopment Act 1976had levied adevelopment fee under the regulations impugned in that case. TheGujarat High Court held that the Authority was not vested underthe Town Planning Act with the power to charge any betterment ordevelopment fee. The argument of the Development Authoritybefore the Supreme Court which was the appellant before theCourt was that if the state legislature was competent to imposesuch fees the Development Authority by virtue of delegatedlegislation could also impose betterment fee or development feeand simply because imposition of such fee was not specificallymentioned in the delegating provision it could not be held that theAuthority had no power to do so. The Supreme Court rejected thecontention observing that "in a fiscal matter it will not be proper tohold that even in the absence of express provision a delegatedauthority can impose tax or fee.... such power of imposition of taxand or fee by delegated authority must be very specific and there7(1992) 3 SCC 28519 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docis no scope of implied authority for imposition of such forimposition of such tax or fee". These observations and the lawstated therein have no bearing on the controversy that we areconsidering here. Specification of manner of charging fees byInvestment 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 simplya measure of regulation of the business of Investment Advisors inthe interest of investors and for healthy growth of the securitiesmarket. And as we have noted above power to make suchregulation is specifically delegated to the Board by virtue of Section30 of the SEBI Act read with Section 11 of that Act. 23.Learned Counsel for the Petitioner does not press hisalternative prayer to declare Sections 30(1) and 30(2)(d) of theSEBI Act as ultra vires the Constitution of India being arbitrary unreasonable and violative of Articles 14 19(1)(g) and 300A of theConstitution if these Sections are interpreted to confer delegatepower to cap professional fees charged by Investment Advisors totheir clients. What is instead submitted is that the AmendmentRegulation to the extent it inserts Regulation 15A in the originalRegulations of 2013 is violative of Section 30(1) read with Section30(2)(d) of the SEBI Act. Section 30(1) of the SEBI Act empowersthe Board to make regulations "consistent with this Act and therules made thereunder” so as “to carry out the purposes of thisAct". As an illustrative measure whilst exercising this power theBoard is authorised under Section 30(2)(d) to provide inter alia for20 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docconditions subject to which a certificate of registration underSection 12 is to be issued and suspension or cancellation of suchcertificate. As we have noted above whilst discussing the contoursof Section 11 of the SEBI Act even Section 30(1) is an omnibusprovision conferring wide and sweeping powers on the Board tomake regulations the only restrictions being that such regulationshave to beconsistent with the SEBI Act and the rules and of Section 30 merely provides for illustrative measures whichthe Board may specify whilst making such regulations it does notin any way detract from the wide amplitude of powers conferred onthe Board. In other words SEBI does possess ample power tomake regulations in matters not covered by the illustrativemeasures provided under Section 30(2)so long as such regulations are consistent with the SEBIAct and the rules and carry out the purposes of that Act. As wehave seen above specifying measures for protection of investorsand development and regulation of securities market being theduty of the Board under Section 11 of the SEBI Act and withoutprejudice to the generality of such duty the Board having theexpress power to regulate the working of Investment Advisors(under Sub Sectionof Section 11) which as noted above encompasses measures to provide for the manner of charging offees as well as cap of fees the impugned regulationis clearly within the delegation made in favour of the Boardunder Section 30(1) of the SEBI Act. If charging of fees in21 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docaccordance with the specification of the Board is accordingly madea condition of continued registration under Section 12 of the SEBIAct such condition would be covered by Section 30(2)(d) of theSEBI Act.24.On the subject of violation of Article 19(1)(g) of theConstitution of India it is important to note that the impugnedRegulation as well as the Circular issued by SEBI in pursuancethereof does not in any way prohibit any party from carrying on thebusiness or profession of Investment Advisor. The Regulation andCircular merely put restrictions and reasonable restrictions at that on the general right of businessmen and professionals to carry onthe business or profession of Investment Advisor. Prescribing amode for charging of fees as also the ceiling of fees to be chargedby Investment Advisors amounts to a reasonable restriction atleast in principle in the matter of carrying on the business orprofession of Investment Advisors apart from being an importantmeasure for protection of investors and development andregulation of securities market. In so far as reasonableness of theparticular quantum of ceiling of fees determined by SEBI orconditions laid down for charging of such fees are concerned thereis no material placed on record by the Petitioner to suggest thatthe fees fixed or conditions stipulated are so unreasonable orcapricious as not to admit of Investment Advisors’ freedom topractice their profession or business.22 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc25.The case of Institute of Chartered Accountants of IndiaVs. K. Bhagvatheeswaran and another8 cited by learnedCounsel for the Petitioner involved restrictions placed by the Unionof India on chartered accountants’ right to practice their profession.These restrictions included the ceiling limit of the number of taxaudit assignments in a financial year permissible to an individualpractitioner or firmas well as a cap on auditfees. A breach of these restrictions was made an instance ofprofessional misconduct. The Madras High Court which decidedthe case was of the view that professions of lawyers charteredaccountants etc. had their own historical conventions traditions customs and practices and placing of restrictions on the number ofcases audits was an unreasonable restriction under 19(6) of theConstitution which was also violative of Article 14. A client theCourt observed must be free to choose his lawyer charteredaccountant and conversely the number of cases audits which canbe accepted by a professional must be left to such professional. Asfor capping of fees and making of any charge above it being madea professional misconduct the Court was of the opinion that therestriction was arbitrary and violative of both Article 14 and Article19(1)(g) such restriction was not in keeping with the conventionsand traditions of the profession. The Court held that what would bethe fee was a matter to be decided by mutual consent of the clientand the professional and parties ought to be left free to decide thesame charging of higher or lower fee could not be regarded as8AIR 2005 Mad 28723 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.docprofessional misconduct. In our view the Petitioner herein cannotseek much assistance from this decision. In the first place unlikein that case which did not have any regulatory statutoryframework for fixing of a ceiling of permissible tax audits or fees forsuch audits in our case the SEBI Act makes particular provisionsempowering the Board to regulate the working of InvestmentAdvisors. The profession or business of Investment Advisor is not atraditional profession having its own customs and conventions.Nothing at least has been pointed out to us by learned counsel forthe Petitioner in that behalf. If anything Investment Advice is aprofession business which has come about as an adjunct of thesecurities market the Investment Advisor works because investorsneed professional advice for participating in the afairs of thesecurities market. It is the statutory duty of SEBI to protect suchinvestors and develop and regulate that market inter alia byregulating the working of Investment Advisors. If for performingsuch duty SEBI fixes the manner of charging of fees by InvestmentAdvisors or the maximum permissible fees such fixation per secannot be faulted as being violative of Article 14 or 19(1)(g). It isanother matter if whilst fixing these matters SEBI acts in anunreasonable or capricious manner in such case its legislativeexercise may be vitiated by arbitrariness eschewed byArticle 14 or unreasonable restriction not being covered underArticle 19(6) and thus infringing Article 19(1)(g). That we areafraid has not been the case here.24 Of 25 on 29 06 2021 on 22 03 1.WPL. 638 21.doc26.There is accordingly no merit in the challenge to theimpugned Regulation as well as the impugned Circular prescribingmodes as well as ceiling of fees to be charged by InvestmentAdvisors. 27.In the premises the Petition is dismissed. No order as tocosts.(M.S.KARNIK J.) 25 Of 25 

Summary: If SEBI fixes the manner of charging fees 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), held, a division bench of MS Karnik J and SC Gupte J, while adjudicating the matter in Purnartha Investment Advisers Private Limited v. SEBI; [WRIT PETITION (L) NO.638 OF 2021]. The petition challenged 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 Advisors) Regulations, 2013 and Circular issued in pursuance thereof, 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. 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: – “15A. Investment Advisor shall be entitled to charge fees for providing investment advice from a client in the manner as specified by the Board.”