SEBI notification barring mutual funds from charging entry load not ultra vires

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HIGH COURT OF KERALA

V.K. Prakas

v.

Union of India

T.R. Ramachandran Nair, J.

W.P. (C) No. 21207 of 2009 (U)

Date of Judgment- 13.06.2012

 

The petitioners have approached this Court seeking various reliefs, including quashing of Ext.P2 circular. The main ground of challenge of the order is that the Securities and Exchange Board of India has no power to issue the notification.

The circular is for the benefit of the investors. It ensures transparency or openness as distributors have been asked to disclose the commissions they are entitled to, under different competing schemes of various mutual funds so that the investor can make a considered choice. Conflict of interest is avoided or at least informed to the investor. Distributor is required to disclose commission, if any, payable to him by the mutual fund on the investment made by the investor. Thus the circular does not bar payment of commission by a mutual fund but mutual funds cannot charge upfront load.

The distributor is entitled to charge for his services from the investor as per mutual contract. The scheme enforces and provides that there will be no entry load for all mutual funds. SEBI is an expert body, which is entitled to regulate the market and has now issued circular dated 30th June, 2009. In economic matters and matters relating to finance, courts are reluctant to interfere unless clear violation of Article 14 is made out.

In view of the above, the writ petition is dismissed.