HIGH COURT OF KERALA
Union of India
T.R. Ramachandran Nair, J.
W.P. (C) No. 21207 of 2009 (U)
Date of Judgment- 13.06.2012
1. 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.
2. The respondents have filed a counter affidavit.
3. The learned Standing Counsel for the respondents submitted that the matter is covered by a decision of the Delhi High Court in W.P.(C)No.10390 of 2009. Therein, the Delhi High Court relied on the decision of Supreme Court in R.K.Garg v. Union of India  133 ITR 239. Paragraphs 8 & 9 of the judgment is extracted below:-
8. 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.
9. 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. Sufficient latitude and play in the joints is required. In the case of R.K.Garg (supra), it was observed as follows:
“Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait- jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J. said in his inimitable style:
In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events – self – limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.
The court must always remember that “legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry”.; “that exact wisdom and nice adaptation of remedy are not always possible” and that “judgment is largely a prophecy based on meagre and uninterrupted experience.” Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what may one call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore abjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.”
In view of the above, the writ petition is dismissed.”
I respectfully concurs with the same and the same principles will apply here. Accordingly, the Writ Petition is dismissed.