Case Note & Summary
The petitioner, Purnartha Investment Advisers Private Limited, challenged the constitutional validity of Regulation 3(XII) of the Securities and Exchange Board of India (Investment Advisors) (Amendment) Regulations, 2020, which inserted Regulation 15A into the principal regulations, and a Circular dated 23.09.2020 issued thereunder. The challenge was on the grounds that SEBI lacked legislative competence to make such a regulation and that it imposed unreasonable restrictions on the right to carry on a profession under Article 19(1)(g) of the Constitution. The court examined the scope of SEBI's rule-making power under Section 30 of the SEBI Act, 1992, and found that the regulation was within the delegated authority as it was aimed at protecting investor interests and regulating the conduct of investment advisors. The court also held that the restrictions on fee modes were reasonable and proportionate, serving the public interest by preventing conflicts of interest and ensuring transparency. The petition was dismissed, upholding the validity of the impugned regulation and circular.
Headnote
A) Constitutional Law - Delegated Legislation - Legislative Competence - SEBI Act, 1992, Section 30 - The court held that SEBI has the power under Section 30 of the SEBI Act to make regulations for the purpose of carrying out the objects of the Act, including regulating the fee structure of investment advisors. The impugned Regulation 15A and Circular are within the scope of delegated legislative power and not ultra vires. (Paras 2-10) B) Constitutional Law - Fundamental Rights - Article 19(1)(g) - Reasonable Restrictions - SEBI (Investment Advisors) Regulations, 2013, Regulation 15A - The court held that the restrictions imposed by Regulation 15A and the Circular on the mode of charging fees by investment advisors are reasonable and in the interest of the general public, aimed at preventing conflicts of interest and ensuring transparency. They do not violate the right to carry on a profession under Article 19(1)(g). (Paras 11-20) C) Securities Law - Investment Advisors - Fee Regulation - SEBI (Investment Advisors) Regulations, 2013, Regulation 15A - The court upheld the validity of Regulation 15A which prohibits investment advisors from charging fees based on the quantum of assets under advice or on a percentage of returns, and the Circular specifying permissible fee modes. The provisions are designed to protect investor interests and maintain market integrity. (Paras 2-20)
Issue of Consideration
Whether Regulation 15A of the SEBI (Investment Advisors) (Amendment) Regulations, 2020 and the Circular dated 23.09.2020 are ultra vires the SEBI Act, 1992 and violate Article 19(1)(g) of the Constitution of India.
Final Decision
The court dismissed the petition, upholding the constitutional validity of Regulation 15A of the SEBI (Investment Advisors) (Amendment) Regulations, 2020 and the Circular dated 23.09.2020.
Law Points
- Delegated legislation
- legislative competence
- Article 19(1)(g) reasonable restrictions
- SEBI Act
- 1992
- Investment Advisors Regulations
- 2013
- fee regulation
- professional autonomy
