IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

 

Appeal No: 166 of 2004

 

Date of Decision

15/06/2006

 

 

 

1. VNS Finance & Capital Services Ltd.
2. Vijay Kumar Singhania		�..Appellants
Versus
1. Securities & Exchange Board of India
2. National Stock Exchange		�.Respondents

 

 

Mr.� Somasekhar Sundaresan, Advocate with Mr. Bharat Merchant, Advocate for the appellants.

 

Mr. Dipan Merchant, Sr. Advocate with Mr. U.N. Das, Advocate for the respondent.

 

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 order will dispose of a bunch of four appeals nos. 166, 192, 216 and 396 of 2004 in which common questions of law and fact arise. For the sake of convenience we are taking the facts from appeal no. 166 of 2004 in which the main arguments have been addressed.

2.                  Sewa Mercantile Company Limited (for short �Sewa�) is a company incorporated under the provisions of the Companies Act, 1956.� It is a finance company and is therefore carrying on business other than that of securities.� It became a member of the National Stock Exchange on 01/11/1994 and started broking business.� Rule 8(1)(f) of the Securities Contracts (Regulation) Rules, 1957 (for short �the Rules�) debars a person from becoming a member of a stock exchange if he is carrying on business other than that of securities.� The rule provides that no person shall be eligible to be elected as a member of a stock exchange if he is engaged in any business other than that of securities except as a broker unless he undertakes on admission to severe his connection with such business. In view of the bar contained in Rule 8(1)(f) of the Rules, Sewa could not continue the fund business together with the broking business. It had an option either to continue its fund based business or give up that business and continue with its broking business.� It took a conscious decision to continue with its fund based business and decided to give up the broking business. In view of this decision, Sewa transferred its membership of the stock exchange in favour of the appellant which was incorporated on 09/06/1995 as a subsidiary of Sewa. It is not in dispute that the membership card was transferred in favour of the appellant and that it got itself registered as a broker with the Securities and Exchange Board of India (for short �the Board�) on 13/05/1997.� Having become a member of the stock exchange on transfer of membership from Sewa, the appellant claimed that it was entitled to the benefit of the registration fee which Sewa had paid to the Board at the time of its initial registration.� We do not think that this claim of the appellant is tenable.� The Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992 (hereinafter called the �1992 Rules�) provide that no stock broker shall buy, sell or deal in securities unless he holds a certificate granted by the Board under the Regulations. Rule 4 of the 1992 Rules lays down the conditions for the grant of certificate to the stock brokers and one of the conditions is that he shall pay the amount of fee for registration in the manner provided in the Regulations. The Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (for short �the Regulations�) have been framed by the Board regulating the payment of registration fees. There is no provision in the Regulations which exempts a transferee from paying the registration fee at the time of registration.� Regulation 10 provides that every applicant eligible for grant of certificate shall pay such fees and in such manner as specified in Schedule III. As already observed, there is no provision in Schedule III exempting the transferee from the payment of fee. The learned counsel for the appellant, however, placed reliance on a circular dated September 30, 2002 issued by the Board. The relevant clause of this circular reads as under:

�TRANSFER OF MEMBERSHIP TO 100% SUBSIDIARY, GROUP COMPANY, HOLDING COMPANY, ETC.

Where brokers are forced by compulsion of law to transfer their membership to :-

100% subsidiary company or

group company or

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.�

A reading of the aforesaid circular makes it clear that where the brokers are forced by compulsion of law to transfer their membership to a subsidiary company then the latter shall not be required to pay fees afresh.� We do not think that there was any compulsion of law when Sewa transferred its membership to the appellant. It was a voluntary act on the part of Sewa. As already observed, Sewa could have continued with its broking business and severed its connection with fund based activities.� Instead of that, Sewa decided to give up the broking business and continue with fund based activities.� In this view of the matter it has to be held that there was no compulsion of law which required Sewa to transfer its membership and therefore the circular relied upon will not come to the aid of the appellant. A similar view has been taken by us in KJMC Capital Market Services Limited and another v. Securities and Exchange Board of India and another, appeal no. 241 of 2004 decided on 30/05/2006.

3.                  No other point was raised.

4.                  In appeal no. 192 of 2004 learned counsel for the appellant contended that the transferor had issued a prospectus for the issue of 36,66,600 equity shares of Rs. 10/- each and that in the prospectus it was made clear that the fund based activities had to be segregated from the non-fund based activities and for that purpose it would promote a new company to which the membership of the stock exchange shall be transferred. The argument is that in view of this clause in the prospectus which has been approved by the Board the latter should be held bound to grant the benefit of fee continuity to the transferee company. We are unable to accept this contention. The mere fact that there is a recital in the prospectus that a new company would be formed to which the membership would be transferred does not bring about any compulsion of law and the act of transfer still remains a voluntary act. The learned counsel also referred to the letter dated May 20, 2003 addressed by the National Stock Exchange (for short �NSE�) to the appellant whereby it did not levy transfer charges at the time of transfer of the membership.� This letter also does not advance the case of the appellant. Merely because NSE did not levy transfer charges does not mean that the Board is debarred from levying registration fees at the time of registering the transferee company as a broker. As already stated above the broker can be exempted from the payment of fee only if the Regulations provide for such exemption and not otherwise.� Since no provision has been pointed out under which such an exemption could be granted we are of the view that the appellant is not entitled to the exemption claimed by it.

5.                  In the result, the appeals fail and the same stand dismissed. No order as to costs.

sd/-

� Justice N.K. Sodhi Presiding Officer
	sd/-
R.N.Bhardwaj �������������������������������������������������������������������������������������������������������� Member

*/as