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In Judicial Review of Economic Regulations, Court would exercise restraint unless clear grounds justify interference: SC

The SC on July 14, 2021 {FRANKLIN TEMPLETON TRUSTEE SERVICES PRIVATE LIMITED AND ANOTHER vs. AMRUTA GARG AND OTHERS ETC.} held that since the Regulations are in the nature of economic regulations, while exercising the power of judicial review, the court would exercise restraint unless clear grounds justify interference. It was held that the court would not supplant its views for that of the experts as this can put the marketplace into serious jeopardy and cause unintended complications. It was further held that Policy decisions can only be faulted on the grounds of mala fides, unreasonableness, arbitrariness and unfairness, in addition to violation of fundamental rights or exercise of power beyond the legal limits.

It was also held by the Bench, comprising of Justice Sanjiv Khanna and Justice S. Abdul Nazeer that the principle of manifest arbitrariness requires something to be done in exercise in the form of delegated legislation which is capricious, irrational or without adequate determining principle. It was held that delegated legislations that are forbiddingly excessive or disproportionate can also be manifestly arbitrary. 

The SC further held that a duly enacted law cannot be struck down on the mere ground of vagueness unless such vagueness transcends into the realm of arbitrariness. It was further held by the SC that the Regulations in question have been framed in exercise of power conferred by Section 30 of the SEBI Act which authorises them to make regulations consistent with the provisions of the SEBI Act to carry out the purpose of the SEBI Act. It was held that the very object of the SEBI Act is to preserve confidence of the investors and to regulate the capital market, including mutual funds. It was also held that the Regulations create a three-tier system of the sponsor, the AMC and the trustees. It was held that there are stipulations regulating the activities of the trustees and the AMC whose powers, obligations and rights have been expressly laid down. It was held that the power to regulate mutual funds, once accepted, would include the power to make regulations for winding up of a scheme of the mutual fund. It was held by the SC that not framing any regulation in this regard would have amounted to dereliction of duty on the part of SEBI and subjected it to adverse comments.

In view of the above, the SC concluded that Regulations under challenge do not suffer from the vice of manifest arbitrariness.

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