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Authored by Aishwarya Lakshmi VM


SEBI, vide Circular dated 23rd September 2020, provided the Guidelines for Investment Advisers, [hereinafter ‘Circular’] wherein at Para (iii) a detailed methodology of levying fees was prescribed. This contentious Amendment to IA Regulations and Guidelines thereof was challenged for constitutional validity and the Hon’ble High Court of Bombay had an opportunity to decide on the same. In this article, we analyse the said judgment of the High Court.

Legislative Background:

Investment Advisers are intermediaries who provide investment advise to their clients for consideration and are regulated by the SEBI (Investment Advisers) Regulations, 2013 [hereinafter IA Regulations]. Since SEBI received numerous complaints from investors regarding the exorbitant fees levied by Investment Advisers and the dubious practice of forcing clients to pay additional fees for buying weekly reports, charging extraneous fees like service fees, file handling fee etc., SEBI in its Consultation Paper, dated 15th January 2020 discussed the said matter.

Considering the public comments, the IA Regulations were amended on 30th September 2020 [hereinafter the Amending Regulations’] to include Regulation 15A which provided for the fees that may be charged by Investment Advisers. As per Regulation 15A “Investment Adviser shall be entitled to charge fees for providing investment advice from a client in the manner specified by the Board.” Subsequently the Circular was also issued.

The case of Purnartha Investment Advisers Private Limited v. SEBI:

The Petitioners, through a Writ Petition, challenged the Amending Regulations and the Circular dated 23rd September 2020 on the following grounds:

i. The Amending Regulations and the Circular are ultra vires of the SEBI Act since there is no power to given to SEBI to prescribe fees which can be charged by Investment Advisers from their clients.

ii. Moreover, prescribing fees was an essential legislative function and hence the Amending Regulations and the Circular suffer from the vice of excessive delegated legislation.

iii. Arguendo, it was also contended that if there is a power to cap the professional fees that may be charged by Investment Advisers, the same is violative of the Golden Triangle in the Fundamental Rights of the Constitution, primarily violating the freedom to practice any profession or carry on any occupation, business, or trade.

iv. Also the Petitioners contended that the fee as fixed by SEBI is arbitrary and unreasonable and that the authority (i.e., the General Manager of investment Department of SEBI) who signed the Circular had no authority to issue the same.

The Hon’ble High Court of Bombay, weighing the submissions of the Petitioner and the Respondent laid down that:

1. The Amending Regulations and the Circular were issued after following the due process of public consultation as prescribed in the law and after obtaining the approval of SEBI. Further Sections 11 and 30 of the SEBI Act, 1992, which are overarching provisions, give a general power to SEBI to make regulations in consistence with the Act. Since SEBI is duty bound to protect the interest of the investors and the integrity of the securities market, it has acted well within its scope and powers in respect of the Amending Regulation and the Circular.

2. Since the scope of judicial review of delegated legislation is minimal and there is a presumption of validity of the delegated legislation the High Court held the Regulations to be valid. Also, the Court felt that the Amending Regulations and the Circular satisfied the five-point test as laid down in the Internet and Mobile Association of India v. RBI [2020 SCC Online SC 275].

3. Moreover, the Court noted that the fee was enhanced from Rs.75,000 as specified in the Consultation Paper to Rs.1,25,000/- in the Circular. Hence, it was reasoned that SEBI had applied its mind and after taking into consideration the public comments only SEBI had issued the Circular.

4. As per the SEBI (Delegation of Statutory and Financial Powers) Order, 2019 a Deputy General Manager of SEBI is authorised to issue and sign Guidelines/ Schemes/ Circulars. Since the person who signed the Regulations was of a higher rank than what was prescribed in the Order, the Court found that the Circular was issued with due authority.


The Investment Advisers shall charge fees only in accordance with the Circular and the same was also clarified by SEBI in an Informal Guidance. The Investment Advisers are not permitted to collect any fee other than what is prescribed in the Circular. As per the Circular, the fee that may be charged by an Investment Adviser under the Assets Under Advice (AUA) method shall not exceed 2.5 percent of the AUA per annum. If the method of levying fee is fixed fee mode, the annual fee that may be levied by the Investment Adviser shall not exceed INR 1,25,000. Also, the Investment Advisory Agreement should mandatorily incorporate the fee amount charged by the Investment Adviser.

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