Jun 15, 2006
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Orders :
Orders of SAT
IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 144 of 2005
Date of Decision 15/06/2006
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1. Jelem Securities Pvt. Ltd.
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2. Ketan M. Parekh
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…..Appellants
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Versus
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1. Securities & Exchange Board of India
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2. The Stock Exchange Mumbi
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….Respondents
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Mr. C.D. Mehta, Advocate for the appellants.
Mr. Dipan Merchant, Sr. Advocate with Mr. U.N. Das, Advocate for the respondent.
None respondent no.2
CORAM
Justice N.K. Sodhi, Presiding Officer
R.N. Bhardwaj, Member
Per: Justice N.K. Sodhi, Presiding Officer (Oral)
The only ground on which the fee continuity benefit has been denied to appellant no.1 is that Shri Ketan M. Parekh having transferred his shareholding in the corporate entity had reduced the same to 1.63% within 3 years from the date of conversion. It may be mentioned that Ketan M. Parekh was carrying on the business as a stock broker in his individual capacity as a sole proprietor. He along with his wife formed a company and carried on the business under the name and style of Jelem Securities Pvt. Ltd. Para 4 of Schedule III to the Securities and Exchange Board of India (Brokers and Sub-Brokers) Regulations, 1992 provides that where an individual membership card of a stock broker has been converted into a corporate entity, the latter be exempted from payment of fee for a period for which the erstwhile individual has already paid the fees subject to the condition that the individual shall be a wholetime director of the corporate entity so converted and will continue to hold minimum 40% shares of paid up equity capital of the corporate entity for at least three years from the date of such conversion. What happened in the present case is that after incorporating the company Shri Ketan M Parekh held more than 50% shares in the corporate entity but before the three years period from the date of conversion could expire he transferred the shareholding in the name of his wife thereby reducing his own shareholding to 1.63%. Since his shareholding was reduced to less than 40% the Bombay Stock Exchange (for short “BSE”) informed Securities and Exchange Board of India (for short “the Board”) that since the shareholding of Shri Parekh had been reduced to less than 40% in the corporate entity, the company was not entitled to the benefit of fee continuity. The Board accepted the plea of BSE and issued a fee liability statement thereby denying the benefit of the fee paid by the erstwhile individual. It is this action of the Board which is now under challenge in this appeal filed under Section 15T of the Act.
2. We have heard the learned counsel for the parties and are of the view that no fault can be found with the action of the Board. Paragraph 4 of Schedule III to the Regulations clearly stipulates that on conversion of the individual membership card into a corporate entity, the latter shall be exempted from payment of fee only if the erstwhile individual is a wholetime director and holds at least 40% shares of the paid up equity capital in the corporate entity for at least a period of three years from the date of conversion. In the case before us Shri Ketan M Parekh who was the erstwhile individual carrying on stock broking business became a wholetime director in the corporate entity but did not hold 40% shares for a period of three years from the date of conversion. It is the appellant’s own case that he transferred his shareholding in favour of his wife before the expiry of three years. In this view of the matter the conditions stipulated in paragraph 4 granting exemption to a corporate entity are not satisfied and therefore the Board was right in denying the benefit to appellant no.1.
3. Having failed on the aforesaid issue the learned counsel for the appellant then referred to the fee liability statement as furnished by the Board and pointed out that registration fee had been charged twice for the same period. We have perused the statement and it shows that fee had been charged twice for the fee years 1997-98 and 1998-99. When this was pointed out to the learned senior counsel appearing for the Board he sought instructions from the departmental representatives who are present in the court and stated that the amount of fee payable by the appellant shall be recomputed and that the impugned fee liability statement be treated as withdrawn.
4. The learned counsel for the appellant also contended that his client was entitled to the benefit of Securities and Exchange Board of India (Interest Liability Regularisation) Scheme, 2004. It is not necessary for us to decide this issue. Let the appellants raise this plea before the Board when their fee liability will be recomputed. If such a plea is raised the Board shall decide the same in accordance with law.
5. The appeal is disposed of above.
6. The appellants through their counsel have been directed to appear before the Board on June 28, 2006 for further proceedings. No order as to costs.
Sd/-
Justice N.K. Sodhi
Presiding Officer
Sd/-
R.N.Bhardwaj
Member