In the matter of

CIL Securities Limited                                             Appellant

Vs

Securities and Exchange Board of India               Respondent
 

Appearance:

Mr. K. Balakrishna
Advocate

Mr. K.K. Maheshwari
Director, CIL Securities Ltd                                  for Appellant

Mr. Ananta Barua
Jt. Legal Adviser, SEBI

Mr. Vinay Chauhan
Legal Officer, SEBI

Ms. Anita Kenkare
Legal Officer, SEBI                                              for Respondent
 

The Appellant Company is a member of the National Stock Exchange (NSE) carrying on business in the Capital Market Segment, since 1994. The Appellant had made an application seeking registration as a trading and clearing member in the Derivative Segment of NSE. The application is stated to have been submitted to NSE in February 2000. The Respondent is the competent authority to grant certificate of registration for the purpose, in terms of the provisions of the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992 (the Regulations), notified under the Securities and Exchange Board of India Act, 1992 (the Act). NSE forwarded the said application to the Respondent for the purpose. The Respondent vide its letter dated 17.8.2001 advised NSE to ask the Appellant to pay fees on the Capital Market Segment, as per the judgement of the Honourable Supreme Court in BSE Broker�s Forum�s case at the earliest, to consider the Appellant�s application. NSE, on 24.8.2001, in turn wrote to the Appellant as under:

Since the appeal was filed beyond the time limit prescribed in the Act, the Appellant has requested to condone the delay and take the appeal on record. According to the Appellant, the Respondent�s direction dated 17.8.2001 was addressed to NSE and the Exchange in turn informed the Appellant vide its letter dated 24.8.2001. The said communication reached the Appellant, on 25.8.2001 and thereafter the Appellant filed a reconsideration application before the Respondent and also met the Chairman of the Respondent on 9.11.2001 to persuade him to reconsider the decision. Since these efforts did not fructify, the appeal was filed on 19.11.2001. Taking into consideration the explanation given by the Appellant, and being satisfied that the delay was unintentional, few days delay involved in filing the appeal is condoned.

Shri Balakrishna, learned Counsel appearing for the Appellant explained the background of the case and in particular the credentials of the Appellant as a trader in the Capital Market Segment of NSE since 1994. According to him the Appellant made the application to NSE for membership in the Derivative Segment in February 2000 and the Exchange conferred provisional membership vide their letter dated 6.4.2000. Learned Counsel submitted that since the Respondent being the competent authority to grant certificate of registration for the purpose, an application dated 17.4.2000 was moved with the Respondent, which the Respondent did not consider on the sole ground that the Appellant had not paid the fees in the Capital Market Segment as per the judgement of the Honourable Supreme Court in BSE Broker�s case and demanded to pay the fees as per the said judgement to consider the application. Learned Counsel submitted that the Appellant, based on the legal opinion, had worked out Rs. 42, 697 as the fees payable by it, and paid the amount, as was done by about 300 other brokers, that in addition it also paid Rs.25, 000 towards registration fees in the Derivative Segment which the Respondent has already credited to its account. Shri Balakrishna submitted that the Appellant has been treated discriminately in this regard vis-a-vis other traders, by granting certificate of registration against the payment of fee calculated in the same manner as the Appellant did. By way of illustration he cited the case of one Gayatri Capital Limited. He submitted that the Appellant had applied for registration in April 2000 where as the Supreme Court Order is of 1.2.2001. According to him there is no justification to deny registration to the Appellant when similarly placed others were found eligible and granted registration.

Learned Counsel submitted that the Honourable Supreme Court has only held that the Respondent has authority to collect the turnover fee from the trading members and to give legitimacy to the levy, the Court directed the Respondent to amend the Regulations in tune with certain recommendations of the Bhatt Committee and that since the Regulations having not been amended so far the Respondent is not entitled to demand the fees in terms of the said judgement and reject the application for not having payed the fees which has no statutory recognition. He submitted that in the absence of any amendment to the Regulations as directed by the Honourable Supreme Court, the Respondent is not entitled to demand the fees as has been made.

Learned Counsel submitted that the Respondent being a public statutory authority should have uniform rules and transparency in its dealings that discriminating one member with other without assigning any proper reason is not proper. He further submitted that withholding the application without intimating the Appellant as provided under regulation 16E is not justifiable, that as per regulation 16E an application for grant of certificate of registration which does not fulfill the requirements specified in regulation 16C is liable to be rejected after giving the person concerned a reasonable opportunity of being heard. Learned Counsel submitted that in the Appellant�s case no such opportunity was given and arbitrarily the application was rejected.

Shri Balakrishna stated that in any case arrears of fees with reference to the Appellant�s activities in the Capital Market Segment, can not be a ground to deny registration to carry out business in the Derivative Segment. He submitted that the Appellant is still carrying on business in the Capital Market Segment and the Respondent has also recognised the position and therefore the Appellant can�t be disqualified for grant of certificate of registration in the Derivative Segment, which is independent of the Capital Market Segment.

Referring to the Respondent�s version of the pending complaint against the Appellant, learned Counsel submitted that this is a new ground now raised by the Respondent to justify its action, as its letter dated 17.8.2001 does not refer to any such pending complaint that had there been such a complaint under consideration, the Respondent should have sought the views of the Appellant and the Appellant in that event would have explained the position to the satisfaction of the Respondent. He submitted that one company namely SPG Associates Pvt. Ltd. had made a complaint to NSE claiming some amount from the Appellant and the Appellant had contested the claim but agreed to submit to the investor grievances procedure followed by NSE and also requested NSE to keep apart the claim amount of Rs. 3. 58 lakhs from the Appellant�s credit balance of about Rs. 45 lakhs with it, to meet the complainant�s claim, incase they succeed in proving the same, that there are no complaints pending against the Appellant much less any disciplinary proceeding, as alleged.

Shri Balakrishna referred to regulations 16A to 16E of the Regulations and submitted that collection of fees, that too the fees relatable to the business in an unrelated area, is not a prerequisite to grant certificate of registration for trading in the Derivative Segment. He also submitted that requirements of Chapter III A are independent of the requirements Chapter II and III dealing with the registration of Brokers and Sub-brokers respectively. In this context he also referred to schedule III and IV of the Regulations and stated that the fees required to be paid by the trading or clearing member of Derivative Segment is as per Schedule IV and the Respondent is bringing extraneous matters to deny registration to the Appellant. Learned Counsel submitted that the Appellant is ready to pay the fees as required under the Regulations, that even the Respondent is not sure of the manner in which the fee is to be calculated as is evident from the fact that even after 1 year of the Court�s order, it has not amended the Regulations and has failed to give clarity to the mode of calculation.

Learned Counsel submitted that as a result of the unreasonable and unjustifiable view taken by the Respondent the Appellant is put to suffer, as it is being denied of its right to do business in the Derivative Segment, that the fact that NSE has given provisional membership to the Appellant goes to prove that the Appellant is eligible to carry on business in the Derivative Segment. He submitted that the Respondent has granted certificate of registration to many persons to carry on business in the Derivative Segment in 2000 and now it is taking an entirely different stand though the applicable legal provisions remain unchanged even today.

Shri Ananta Barua, learned Representative of the Respondent refuted the charge of discrimination levelled against the Respondent in granting certificate of registration to the Appellant to do business in the Derivative Segment. He stated that the Appellant in its appeal Memorandum has made certain vague allegations of discriminatory treatment without stating the relevant facts and as a result the Respondent could not effectively counter the said allegations in its reply, that the Appellant has chosen to mention the case of one Gayatri Capitals Ltd, in its rejoinder little bothering to verify the actual factual position. He submitted that, though the application from the Appellant and the said Gayatri Capitals were received in 2000, decision on the Appellant�s application was deffered on knowing about a pending complaint against it, where as the cases of Gayatri Capitals and others against whom there were no complaints were cleared and the fee payable as calculated in the manner required by SEBI, in the pre-BSE Broker case decision scenario was demanded from them.

Shri Barua stated that the Respondent has not rejected the application, but only wanted the Appellant to pay the fees as per the Honourable Supreme Court�s judgement to consider the application. Application received without adequate fees is not required to be considered. Payment of fees is a pre-condition to consider the application for registration and that only on receipt of the fee the application will be considered. He submitted that there is no provision in the Regulations enabling stock exchanges to grant provisional registration to the applicants seeking certificate of registration under section 12 of the Act.

Shri Barua submitted that the liability of the Appellant in respect of registration fees payable in the Capital Market Segment in NSE as per the total turnover figures furnished by the Exchange was Rs. 1, 09, 18, 100 as principal and Rs. 44,28,082 as interest, that against the same the Appellant had paid only Rs. 67, 697 and as such there was huge liability in respect of payment of fees. Shri Barua submitted that subsequent to the Honourable Supreme Court�s judgement in BSE Brokers case pronounced on 1.2.2001, a decision has been taken by the Respondent that applicants in the Derivatives Segment, who are also members in the Capital Market Segment would have to pay the registration fees as per the Honourable Supreme Court decision and allow to do so on self assessment basis. He further stated that the Respondent has infact taken a lenient view that registration to the applicants in the Derivative Segment may be granted, if the applicants paid atleast 50% of the arrears in the Capital Market Segment on the concerned Exchange and furnishes a specific undertaking to pay the balance amount with interest on the entire principal @ 15% from 16.12.98 as per SEBI regulations with in one year, Shri Barua submitted that since the Appellant did not pay the required fees NSE was advised vide letter dated 17.8.2001 to inform the Appellant to pay the fees payable in the Capital Market Segment as per the judgement of the Honourbale Supreme Court at the earliest to consider the application. Shri Barua submitted that the Regulations have not been amended to incorporate the revised fees scheme, but that does not in any way take away the authority underlying the Respondent�s instruction to pay the fees. In this context he cited the Honourable Supreme Court in V.T. Khanzode V Reserve Bank of India (AIR 1982 SC 9171) and Surender Singh V Central Government (AIR 1986 SC 2166) to show that framing of regulation could not be condition precedent for the exercise of power, that the Respondent is vested with the power to levy the fees under Section 11(2)(k) and Section 12(2) of the Act. Shri Barua refuted the Appellant�s contention that since no notification has been issued by the Respondent so far, the Appellant cannot be asked to pay the fees and submitted that the Appellant ought to have paid the fees on self assessment basis based on the Hon�ble Court�s judgement.

Shri Barua stated that in terms of Rule 4 of the SEBI (StockBrokers and Sub Brokers) Rules, 1992, one of the conditions for grant of certificate of registration to Stock broker is that he shall pay the amount of fees for registration in the manner provided in the regulations. Shri Barua referred to chapter III A of the Regulations and submitted that in the absence of compliance of the requirements of the Regulations, the applicants are not entitled to get registration. He submitted that in terms of regulation 16 A applicants seeking registration in the Derivative Segment are required to apply through the concerned derivatives exchange or Derivative Segment of a stock exchange of which he is a member with requisite fees as required by regulation 16 G; that regulation 16 C prescribes the broad parameters for considering the grant of certificate of registration that in terms of clause (c) thereto the Respondent, has to consider whether the applicant is subjected to disciplinary proceedings under the rules, regulations and bye laws of any stock exchange with reference to his business as Stock Broker, member of a derivative exchange etc., that in terms of regulation 16D the certificate is required to be issued only if the Respondent is satisfied that the applicant is eligible. Shri Barua submitted that in the instant case not only the Appellant failed to pay the fee in terms of regulation 16G but it was also noticed that the Appellant was subjected to disciplinary proceeding in the wake of the complaint of SPG Associates Pvt. Ltd. According to him the appeal has no merit and deserve to be dismissed

I have very carefully considered the pleadings and the oral submissions made by the parties.

The Respondent has approved phased introduction of derivatives trading in India beginning with stock Index Futures. Those Exchanges fulfilling the eligibility criteria prescribed by the Respondent are granted recognition to do derivative trading. As per the requirements prescribed the clearing and settlement of derivatives trade shall be through a Clearing Corporation/ House recognised by the Respondent. Derivative Brokers/ dealers and clearing members are required to seek registration from the Respondent; in addition to their registration as brokers of existing exchanges. Registration for the purpose is granted under the SEBI (StockBrokers and Sub-Brokers) Regulations, 1992. The said Regulation was amended with effect from 14.3.2000 so as to meet the requirements of registration of trading and clearing members in the derivatives exchange/ Segment.

According to the Regulation 2 (ga) �trading member� means a member of the derivatives exchange or Derivative Segment of a stock exchange and who settles the trade in the clearing corporation or clearing house through a clearing member. A new chapter IIIA containing regulations 10 A to 16 I dealing with "Registration of Trading and Clearing members" has been incorporated in the Regulations with effect from 14.3.2000. In terms of section 12 of the Act, registration with the Respondent is mandatory to carry on certain activities including dealing in securities and for that purpose applications in such manner with "such fees as may be determined by regulations" is required to be made. "Derivative" being a security, as defined in the Securities Contracts (Regulation) Act adopted for the purpose of the Act, the requirement of registration for carrying on derivatives �trading�, provided by the Respondent is legally tenable. As stated above, matters regarding registration and payment of fees etc., in this regard have been specifically prescribed in the Regulations as under:

Regulation 16A stipulates that "an application for grant of certificate of registration by a trading member of a derivatives exchange or derivatives segment of a stock exchange shall be made" in the prescribed form "through the concerned derivatives exchanges or derivatives segment of a stock exchange of which he is a member". In terms of regulation 16G "Every applicant eligible for grant of a certificate as a trading or clearing member or self clearing member shall pay such fee and in such manner as specified in schedule IV".(emphasis supplied) For ready reference, text of Schedule IV is extracted below:
 
 

FEES TO BE PAID BY THE TRADING OR CLEARING MEMBER OR SELF CLEARING MEMBER OF DERIVATIVES EXCHANGE/ DERIVATIVES SEGMENT/ CLEARING CORPORATION/ CLEARING HOUSE
 

1. A clearing member shall pay a fee of Rs. 25, 000 every year till his registration is in force, in the manner specified below:-

(a) for the first financial year along with the application for registration;

(b) for the subsequent financial years before 1^st June of that financial year.

2. A trading member shall pay every year a fee till his registration is in force, in the manner specified below:

(a) Where the annual turnover does not exceed Rs. 500 crore in the financial year, a sum of Rs. 10, 000 for each financial year; and

(b) Where the annual turnover exceeds Rs. 500 crores in the financial year, a sum of Rs.10,000 plus 10paise per Rs. 1, 00, 000 of turnover, for the turnover in excess of Rs. 500 crore in the financial year.

Explanation: For the purpose of clause 2 the expression �annual turnover� shall mean the aggregate value of all trades executed by the trading member on the derivatives exchange or the derivatives segment shall also include the value of trades settled on the expirations of derivatives contract. However, for option contract, the �annual turnover� shall be computed on the basis of the premium traded for the option contracts and in case where the option is exercised/ assigned, the �actual turnover' shall be computed on the basis of the notional value of the option contracts exercised/ assigned, in addition to the �annual turnover� computed on the basis of premium traded.

2A. The "self-clearing member" shall pay every year a fee as specified in clauses 1& 2. The provisions of clauses 3 to 6 shall be applicable mututis mutandis to a self-clearing member

3. Every remittance of fees by a trading member as specified in clause 2 shall be made every financial year as under:-

(a) For the first financial year in which certificate of registration is granted a sum of Rs. 10, 000 shall be paid along with the application for registration.

(b) For the subsequent financial years form the initial registration:

(c) A sum of Rs. 10,000 shall be paid before 1^st June of that financial year; and

(d) A balance fee of the preceding financial year for the turnover in excess of Rs. 500 crores shall be paid before the 1^st June of the financial year.

(c) The remittances shall be accompanied by a certificate authenticating the turnover by the concerned derivatives exchange or derivatives segment.

4. A trading member who also acts as a clearing member shall pay the annual fee separately, as applicable to each category as specified in clauses 2 and 3 above.

5. The fees indicated above shall be paid by draft in favour of �Securities and Exchange Board of India, Mumbai�. Such draft shall be forwarded to the Board through the concerned derivatives exchanges or derivatives segment or clearing corporation or clearing house.

6. The financial year shall mean the year commencing from 1^st April and ending on 31^st March of the following year.

Regulation 16 (c) requires the Respondent to take into account certain aspects while considering the application for grant certificate of registration. Regulation 16C reads as under:
 

"16C. (1) The Board shall take into account for considering the grant of a certificate all matters relating to dealing and settlement in derivatives and in particular the following, namely whether the applicant-

(a) is eligible to be admitted as a trading member of a derivatives exchange and/or a clearing member of a derivatives exchange or derivatives segment of a stock exchange or clearing corporation or house;

(b) has the necessary infrastructure like adequate office place, equipment and manpower to effectively undertake his activities;

(c) is subject to disciplinary proceedings under the rules, and regulations and bye-laws of any stock exchange with respect to his business as a stock broker or member of a derivatives exchange or segment or member of clearing house or corporation involving either himself or any of his partners, directors or employees.

(2) An applicant who desires to act as a trading member, in addition to complying with the requirements of sub-regulation (1), shall have a net worth as may be specified by the derivatives exchange or segment form time to time and the approved user and sales personnel of the trading member have passed a certification programme approved by the Board.

(3) An applicant who desires to act as a clearing member, in addition to complying with the requirements of sub-regulation (1), shall have a minimum net worth of Rs. 300 lacs and shall deposit at least a sum of Rs. 50 lacs or higher amount with the clearing corporation or clearing house of the derivatives exchange or derivatives segment in the form specified from time to time.

(4) An applicant who desires to act as a self-clearing member, in addition to complying with the requirements of sub-regulation (1), shall have a minimum net worth of Rs. 100 lacs and shall deposit at least a sum of Rs. 50 lacs or higher amount with the clearing corporation or clearing house of the derivatives exchange or derivative segment in the form specified from time to time.

Explanation: For the purpose of sub-regulations (2), (3) and (4), the expression �net worth shall mean paid up capital and free reserves and other securities approved by the Board from time to time (but does not include fixed assets, pledged securities, value of member�s card, non-allowable securities (unlisted securities), bad deliveries, doubtful debts and advances (debts or advances overdue for more than three months or debts or advances given to the associate persons of the member), prepaid expenses, losses, intangible assets and 30% value of marketable securities)."

Regulation 16 E prescribes the procedure required to be followed by the Respondent if registration is not granted, Regulation reads as under:

"16E. (1) Where an application for the grant of a certificate under regulation 16A does not fulfil the requirements specified in regulation 16C of the Regulations, the Board may reject the application of the applicant after giving a reasonable opportunity of being heard.

(2) The refusal to grant the certificate of registration shall be communicated by the Board within 30 days of such refusal to the concerned segment of the stock exchange, or clearing house or corporation and to the applicant stating therein the grounds on which the application has been rejected.

(3) An applicant may, if aggrieved by the decision of the Board under sub-regulation (2) apply within a period of thirty days from the date of receipt if such information to the Board for reconsideration of its decision.

(4) The Board shall reconsider an application made under sub-regulation (3) and communicate its decision as soon as possible in writing to the applicant and to the concerned segment of the Stock Exchange or clearing house or corporation."

The allegation that the Respondent did not directly inform the Appellant of its decision and thereby flouted the requirements of the regulation is unsustainable in view of the provisions of the regulation. As already stated, in terms of regulation 16A application for grant of registration is required to be submitted through the concerned derivatives exchange or derivative segment of a stock exchange of which the applicant is a member. In the instant case the Appellant itself has admitted that it had applied through NSE. In terms of regulation 16E(2) only the refusal to grant the certificate of registration is required to be communicated with in 30 days of such refusal to the concerned segment of the stock exchange or clearing house or corporation and to the applicant stating there in the grounds on which the application has been rejected. Requirements of regulation 16 E (2) are attracted only in the event of refusal to grant certificate of registration and not at the intermediary stage. What the Respondent has conveyed vide its letter dated 17.8.2001 is not the decision of rejection as could be seen from the letter addressed to NSE. The letter simply says that "The member has not paid the fees as per the judgement of the Honourable Supreme Court. You are advised to inform the member concerned to pay fees on the cash market as per the judgement of the Honourable Supreme Court at the earliest to consider their application"(emphasis supplied).

Requirements of regulations 16C, 16D and 16E come into the picture only on compliance of the requirements of regulations 16A and 16G. An application in the prescribed format submitted in the manner provided in regulation 16A accompanied by the fees as provided in Schedule IV alone becomes eligible to be considered. If the requirements of the said two regulations are not complied with, the question of considering the application on merits does not arise. In the instant case the Respondent�s version is that the Appellant did not pay the requisite fees and having taken such a view NSE was advised to ask the Appellant to pay the fees to consider the application. Since the Respondent has not taken any final decision on the application, the Appellant�s allegation that Respondent failed to dispose of the application with in the prescribed time limit and that grant of registration certificate was denied unilaterally without following the rules of natural justice is untenable.

Shri Barua, had also stated that the Appellant was subjected to disciplinary proceeding and hence ineligible, little realising that receipt of a complaint by itself will not trigger of any disciplinary proceeding. In any case this is not a ground which the Respondent had raised in its communications dated 17.8.2001 with reference to the application seeking grant of registration certificate for trading in the Derivative Segment of NSE.

At this stage what is required to be considered is as to whether the Respondent can insist the applicants seeking grant of registration for trading in the derivatives exchange or Derivative Segment of a stock exchange, to pay the fees payable by them in the Capital Market Segment as per the judgement of the Honourable supreme Court in BSE Broker�s case. According to the Appellant since Chapter III A exclusively deals with the requirements of registration of trading and clearing members in the derivative market and the fees required to be paid for the purpose in terms of regulation 16G is the fees prescribed in Schedule IV thereto, the Respondent cannot insist the Appellant to pay the fees relatable to its activities in the Capital Market Segment, and even if it is admitted for argument sake that the Respondent is entitled to do so, still it cannot insist the Appellant to remit the fees "as per the judgement of the Honourble Supreme Court" as the Court has not given any such direction, but only asked the Respondent to amend the existing regulation suitably, which the Respondent has not done till date despite the fact that the Court passed the order 1.2.2001. However according to the learned Representative of the Respondent it is entitled to insist for payment of fees by the Appellant relatable to its business in the Capital Market Segment pending notification of the amendment to the Schedule prescribing the fees payable, that a trading membership in the Derivative Segment will be available only to those who are already registered as a broker with the Respondent.

On a perusal of the Regulations it is clear that for registration as a trading member in the Derivative Segment one has to be a member of the Exchange. Chapter III A is a self contained one exclusively devoted to matters relating to registration of trading and clearing members in the Derivative Segment. The fees required to be paid for the purpose has also been specifically prescribed vide regulation 16 G and Schedule IV. During the arguments the learned Counsel for the Appellant, on a query from the Tribunal had stated that unless a person holds membership in the Capital Market Segment of NSE, he will not be eligible to carry on the activities of a trading member in the Derivative Segment and that the Appellant is continuing as a member in the Capital Market Segment even now. In this context it is difficult to agree to the Respondent�s submission that since the Appellant has to pay the fees in the Capital Market Segment in accordance with the Courts order in BSE Brokers case, and till such time the dues are paid, the application for registration for carrying on the business in the Derivative Segment cannot be considered. If there is a failure to pay the requisite fees, by the Appellant as Share Broker, the Respondent in terms of Regulation 26(viii) is empowered to suspend that registration. I have carefully gone through the provisions of the rules and regulations and find no support to the Respondent�s argument that unless the applicant clears the dues if any payable with reference to his broking activities in the Capital Market Segment, his application for grant of registration in the Derivative Segment cannot be considered. The Appellant�s statement that it is still permitted to carry on trading activities in the Capital Market Segment and there is no disqualification on account of non payment of the turnover fee in the said Segment but he is disqualified to get a certificate of registration to carry on business in the Derivative Segment, which is a totally independent Segment is untenable cannot be said to be illogical. It is to be noted that grant of registration certificate is to be considered as per the provisions of Chapter III A of the Regulations. There is not even an implied requirement to clear the arrears of fees, relatable to the Capital Market Segment in Chapter IIIA, by the applicants. It is also to be noted that the Capital Market Segment and Derivative Segment are two distinct segments. It is a requirement put by the Respondent, while granting approval to the Exchange to commence derivative trading, and settlement in the approved derivatives contracts that Derivative Segment of the Exchange and its clearing house should appoint (i) Governing Board of Derivative Exchange / Segment (which shall include Governing Council/ Executive committee) (ii) Clearing Council (which shall include the Clearing Council / Executive Committee of Derivatives clearing House/Clearing Corporation), (iii) Chief Executive Officer of the Derivatives Exchange /Segment. (iv) Chief Executive Officer of Derivatives Clearing House /Corporation and (v) Statutory Committees such as Disciplinary Action Committee, Arbitration committee and Defaults Committee. Thus it is clear that Derivative Segment management and Capital Market Segment management are independent. The nature of business activities carried on in these two segments are also distinct. The Regulations also do not stipulate that any person from whom fees is due in the Capital Market Segment, should clear those dues first to be eligible for grant of certificate of registration in the Derivative Segment. In these circumstances, it is not possible to uphold the Respondent�s view that unless the fees relatable to the Capital Market Segment is paid, the Appellant�s application for grant of registration certificate in the Derivative Segment cannot be considered.

Shri Barua had advanced an argument that the Appellant is required to remit "the fee as per the judgement of the Honourable Supreme Court in BSE Broker�s case", thereby suggesting that there is a direction from the Honourble Court, requiring the Appellant to remit such fee. In the BSE Brokers case the main question for consideration of the Court was as to the validity of regulation 10 read with Schedule III of the Regulations as also letters dated 7.11.1992 and 7.1.1993 issued by the Respondent with reference to levy of fees on the brokers based on their annual turnover. Honourable Court dismissed the challenge and up held the Respondent�s power to levy fees based on the annual turnover. The following observation made by the Hounourable Court explains the position:

"While we accept the levy based on annual turnover of the brokers as valid, we have to notice that the expert Committee appointed by the Board has in its report held that there should be certain changes brought about in the definition of �annual turnover� as also in the quantum of the levy pertaining to certain specific transactions which are treated as part of the turnover. It has recommended that for "jobbing transactions" the scale of fees may be reduced to One Two hundredth of 1 per cent, and in regard to carry forward, renewal or badla transactions, the off- setting entries made by the Exchange, may not be counted as part of the turnover, and further on Government Securities, PSU Bonds and Units, the turnover will have to be calculated separately and a fee of one thousandth of one per cent may be charged on such turnover than the present scale of one hundred of one per cent. It has also recommended that the activities such as underwriting and collection of deposits should not be taken into account for the purpose of calculating the turnover of the brokers. These recommendations of the Committee were, as a matter of fact, accepted by the Government of India also but as on date, the necessary changes have not been brought about by the Board in its Regulations. Consequently, to the extent of the recommendations made by the Expert Committee, we are of the opinion that the Board is bound to bring about corresponding changes so as to remove the anomalies pointed out by the Committee. This was pointed out to learned counsel for the respondents when it was submitted that the Board has accepted these recommendations and the proposed changes were not brought about because of the pendency of this position and the necessary changes to incorporate the recommendations of the Bhatt Committee would be done after disposal of these petitions. We record this submission on behalf of the Board and direct that the said changes recommended by the Bhatt Committee will be incorporated in the regulations. Subject to the above, we are of the view that the challenge made of the levy based on the measure of turnover has to be rejected". (emphasis supplied)

The failure to pay the dues relating to the business activities in the Capital Market Segment, cannot be a ground not to consider the application from the Appellant, in the absence of any specific regulation prescribing such a requirement. Respondent is at liberty to put such a requirement in the Regulations if it so desires. Regulation making power is available to the Respondent.

For the reasons, stated above the Appellant�s application is required to be considered on receipt of the fees payable in terms of regulation 15 G read with Schedule IV. On receipt of the quantum of fees for the purpose as specifically provided in Chapter III A of the Regulations from the Appellant, the Respondent may consider the application and decide the same on merits.

Shri Barua�s submission that in the light of the two decisions of the Honourable Supreme Court in V.T. Khanzode and Surender Singh, pending amendment to the Regulations, the Respondent is entitled demand the fees, is not tenable for the simple reason that the Honourable Supreme Court itself has directed the Respondent to amend the Regulations, which the Respondent has not done even after one year of the order.

Since the appeal can be disposed of on the sole ground discussed above, it is felt not necessary to consider other grounds on which the impugned order has been assailed.

For the reasons stated above, I set aside the impugned order and remand the matter to the Respondent with the direction that the Respondent will consider the Appellant�s application, on receipt of the fees required to be paid in terms of regulation 16G read with Schedule IV from the Appellant, and pass appropriate orders, without any undue delay.

It is made clear that this order should not be construed as a direction to the Respondent to grant certificate of registration to the Appellant. Whether certificate of registration should be granted or not is a matter to be decided by the Respondent on being satisfied about the eligibility of the Appellant, based on the material facts.
 

Appeal allowed by way of remand