IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI

 

 

Appeal No. 417 of 2004

 

Date of Decision

2.7.2007

 

Canny Securities Ltd.	……	Appellant
Versus
Securities & Exchange Board of India	……	Respondent

 

Present :  None for the appellant

 Mr. U.N. Das, Advocate for the respondent

 

Coram:

 Justice N.K. Sodhi, Presiding Officer

 Arun Bhargava, Member

 Utpal Bhattacharya, Member

 

 

Per: Justice N.K. Sodhi, Presiding Officer (oral)

 

 

 The dispute herein is in regard to the registration fee which the appellant as a stock broker is liable to pay. The appeal deserves to be allowed on the short ground that the basis on which the fee liability of the appellant has been worked out in the fee liability statement furnished to the appellant through the National Stock Exchange is not in accordance with law and the basis of the calculations is contrary to the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter called the Regulations). Facts, in so far as they are relevant, may first be noticed.

   2.            The appellant herein was incorporated under the Companies Act, 1956 as a private limited company on 21.7.1995. It became a member of the National Stock Exchange of India Ltd. in the year 1996 and was registered as a stock broker with the Securities and Exchange Board of India (for short the Board) on 27.2.1996 and since then it is carrying on its business as a stock broker. There were some changes in the shareholding pattern of the appellant in the year 2000 when the Chairman acquired the shares of a large number of shareholders in his own name and in the name of his son. This change in the shareholding pattern was reported to the Board in terms of clause (c) of Rule 4 of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Rules, 1992 (for short the Rules). It appears that while reporting the change in the constitution and shareholding pattern of the appellant company, the promoters thereof applied to the Board as per its practice (for which there is no warrant under the law) for a fresh registration as a stock broker. In pursuance to this application another certificate of registration was granted to the appellant on 7.1.2002 with a different registration number as is clear from the impugned fee liability statement which is Annexure F on the record. The certificate granted on 27.2.96 is also continuing. One of the conditions for the grant of certificate to a broker is that he/it shall pay the amount of fees for registration in the manner provided in the Regulations. Regulation 10 provides that every applicant eligible for a grant of certificate shall pay such fees and in such manner as is specified in Schedule III to the Regulations. When we look at Schedule III it is clear that a stock broker whose annual turnover does not exceed rupees one crore during any financial year has to pay a sum of Rs. 5000/- for each financial year and where his annual turnover exceeds rupees one crore during any financial year, he has to pay a sum of rupees five thousand plus one hundredth of one percent of the turnover in excess of rupees one crore for each financial year. The Schedule further provides that on the expiry of five financial years from the date of initial registration as a stock broker, he shall pay a sum of Rs. 5000 for every block of five financial years commencing from the sixth financial year after the date of grant of initial registration to keep his registration in force. It is, thus, clear that once a stock broker is registered he becomes entitled to the benefit of the block period of five years from the sixth financial year by paying a nominal fees of Rs. 5000/- for such period.

   3.            We have perused the impugned fee liability statement and find that the benefit of the block period of 5 years has been given to the appellant with effect from the financial year commencing on 1.4.2000 because the appellant was registered as a broker on 27.2.1996 i.e. in the year 1995-96. Having given this benefit the Board has again levied turnover fee for the year 2001-02 because the appellant had been granted fresh registration on 7.1.2002 and thereafter for each of the succeeding financial years turnover fee has been levied. This in our opinion is not permissible. Since the appellant was first registered on 27.2.1996 it has to be given the benefit of the block period for all the subsequent years commencing from 1.4.2000. When there was change in the constitution of the appellant company in the year 2000 and the same was reported to the Board, the former was not liable to be registered afresh. The purpose of reporting such changes to the Board is to seek its permission to continue to buy, sell or deal in securities in any stock exchange. The object of seeking permission is to ensure that the stock broker does not while brining about the changes in its constitution include a person who may not be “a fit and proper person”. As a matter of fact, the law does not require the same broker to be registered again for the second time. Section 12 of the Securities and Exchange Board of India Act, 1992 (for short the Act) mandates that no stock broker shall buy, sell or deal in securities except under and in accordance with the conditions of “a certificate of registration” obtained from the Board in accordance with the Regulations made under the Act. The words “a certificate” clearly indicate that there has to be only one certificate of registration no matter the said broker may have membership of any number of stock exchanges. This aspect of the law was considered at length by a Division Bench of the Delhi High Court in National Stock Exchange Members’ Association vs. Union of India & Ors. (2006) 133 Comp.Cas 504. Since the impugned fee liability statement has not been prepared strictly in accordance with the provisions of Schedule III to the Regulations, the same deserves to be quashed. Since we are setting aside the impugned fee liability statement on this ground it is not necessary to deal with the other grounds raised in the memorandum of appeal.

   4.            In the result, the appeal is allowed, the impugned fee liability statement set aside and a direction issued to the Board to prepare a fresh fee liability statement of the appellant in accordance with law and in accordance with the observations made herein above and recover the fee, if any, that may become payable. It goes without saying that in case the amount found due is less than the amount already paid by the appellant, the excess shall be refunded. No order as to costs.

 

 

 

2.7.2007

 

 

//SR/RHN