IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Review Petition No. 10 of 2006
in
Appeal No: 238 of 2004
Date of Decision 28/08/2006
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1. LKP Securities Limited
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2. LKP Merchant Finance Limited
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…..Applicant - Appellants
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Versus
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1. Securities & Exchange Board of India
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2. National Stock Exchange of India Ltd.
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….Respondents
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Mr. Ravikumar Varanasi, Advocate for the applicants - appellants.
Dr. Poornima Advani, Sr. Advocate with Mr. U.N. Das, Advocate for respondent no.1.
None for respondent no.2
CORAM
Justice N.K. Sodhi, Presiding Officer
R.N. Bhardwaj, Member
Per: Justice N.K. Sodhi, Presiding Officer (Oral)
This is an application filed under Section 15U(2)(e) of the Securities and Exchange Board of India Act, 1992 seeking review of our order dated 29/05/2006 dismissing the appeal filed by the applicants holding that they were not entitled to the benefit of fee already paid by the transferor.
2. The matter of payment of registration fee is governed by Regulation 10 read with Schedule III to the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (for short “the Regulations”). The only eventuality in which a newly registered entity is eligible for exemption from payment of registration fee is when it gets itself corporatised provided, of course, it satisfies the other requirements of paragraph 4 of Schedule III to the Regulations. In the case before us it is not in dispute that the applicant no.2 had transferred its membership card in favour of the first applicant.
3. When the appeal came up for hearing the learned counsel for the appellant was not present and since reliance had been placed in the grounds of appeal on paragraph 7 of the circular dated September 30, 2002 issued by the Securities and Exchange Board of India (for short “the Board”), we dealt with the same and came to the conclusion that the applicants were not entitled to the benefit of fee exemption in terms thereof. The learned counsel for the applicants now contends that they were entitled to the benefit of exemption in terms of paragraph 2 of that circular. Paragraph 2 of the circular which deals with transfer of membership to 100% subsidiary, group company, holding company, etc. on which reliance is now sought to be placed reads as under:
“2. Transfer of membership to 100% subsidiary, group company, holding company, etc.
Where brokers are forced by compulsion of law to transfer their membership to:–
i. 100% subsidiary company, or
ii. group company, or
iii. holding company,
they shall not be required to pay fees afresh. In such cases, the Exchange would have to enumerate the circumstances under law resulting in the said transfer to 100% subsidiary/ group/ holding company for consideration by SEBI.”
4. What is contended by the learned counsel for the applicants is that applicant no.2 is the holding company and applicant no.1 is the subsidiary company and that the transfer of membership card was from the holding company to its subsidiary company and therefore the applicants were entitled to claim exemption from registration fee in terms of this circular. We are unable to accept this contention. A reading of the aforesaid paragraph of the circular makes it clear that the benefit of fee exemption would be available only where brokers are forced “by compulsion of law” to transfer their membership. We enquired from the learned counsel as to what was the compulsion of law which forced applicant no.2 to transfer its membership card to first applicant. He referred to Rule 8(1)(f) of the Securities Contracts (Regulation) Rules, 1957 (hereinafter called “the Rules”). This rule reads as under:
“8. Qualifications
The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that:
(1) No person shall be eligible to be elected as a member if -
(a) ………
(b) ……….
(c) ……….
(d) ……….
(e) ………..
(f) he is engaged as principal or employee in any business other than that of securities or commodity derivatives except as a broker or agent not involving any personal financial liability unless he undertakes on admission to severe his connection with such business.
………”
5. It is clear from this Rule that no person is eligible to be a member of a stock exchange if he is engaged in any business other than that of securities or commodity derivatives unless he undertakes to severe his connections with such business. In other words, a member of a stock exchange can carry on business only in securities or commodity derivatives. We are not concerned with commodity derivatives in this case. It is the applicants’ own case that the applicant no.2 was carrying on business in securities and also in fund based activities. In order to retain its membership of the National Stock Exchange it had to give up fund based activities or else it could have given up its membership of the stock exchange and continue with its fund based activities. The applicant no.2 had a clear choice before it either to carry on business in securities and continue with its membership or to continue with fund based activities which option it exercised and took a conscious decision to transfer its business in securities to applicant no.1 which is its subsidiary company and continue with its fund based activities. As already observed, it could have exercised its option to carry on its securities business and give up the fund based activities which option it did not exercise. Having exercised the option of transferring the securities business to applicant no.1, the latter cannot contend that this transfer was under any compulsion of law. The transfer was a voluntary act and a conscious decision taken by applicant no.2 to retain the business of securities with its subsidiary company. We have therefore no hesitation in holding that there was no compulsion of law which forced applicant no.2 to transfer its securities business to applicant no.1 and therefore they are not entitled to exemption from payment of registration fee when applicant no.1 got itself registered afresh with the Board. In this view of the matter, even if we examine the issue in the light of paragraph 2 of the circular referred to herein above the claim of the applicants must fail.
In the result, the application for review fails and the same stands dismissed.
Sd/-
Justice N.K. Sodhi
Presiding Officer
Sd/-
R.N.Bhardwaj
Member