Bombay HC upholds Sebi’s power to regulate fees of investment advisers

The Bombay High Court has upheld the Securities and Exchange Board of India's (Sebi) power to regulate fees charged by investment advisers.

"The power of SEBI to do so is said to be sourced from three different provisions of the SEBI Act," said the court.

Purnartha Investment Advisers Private Ltd had challenged Sebi's authority to decide on fees which investment advisers can charge clients.

The firm also claimed that the regulation (Regulation 15A), which caps investment advisers' fees, is unconstitutional as it breaches the advisers' fundamental right to practise a profession or business of choice.

Observing that the regulator has the power to cap investment advisers' fees, the court said the Act which governs Sebi gives it sweeping powers to make regulations as long as they are consistent with the Sebi Act and necessary to carry out the purpose of the Act.

"Specifying measures for the 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," the court said.

The court also held that the capping of fees is not a breach of fundamental right. Sebi deciding the maximum fees advisers can charge amounts to a "reasonable restriction" in carrying on the business or profession of investment advisers. However, it's an essential measure for the protection of investors and the development and regulation of the securities market.

"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," the court said.