IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.342/2004
In
the matter of:
Coram: ��������� Justice N. K. Sodhi, Presiding Officer ��������� R. N. Bhardwaj, Member Per:
Justice N. K. Sodhi, Presiding Officer(Oral) ����������� The
short question involved in this appeal is whether the appellant is entitled to
the fee continuity benefit in terms of Securities and Exchange Board of India
(Stock Brokers and Sub Brokers) Regulations, 1992 (for short the Regulations). ��������� VSE Securities Ltd., was incorporated
in the year 2000 as a company limited by guarantee under the provisions of the
Companies Act, 1956.� It was a wholly
owned subsidiary of Vadodara Stock Exchange Ltd.� It applied for membership of the Bombay Stock
Exchange (BSE) and the same was granted to it in February, 2000.� While working as a broker on the BSE it
wanted to carry on business in the cash and derivatives segment of the National
Stock Exchange as well.� It, therefore,
applied to the said exchange for approval.�
This approval was declined on the ground that the bye-laws of NSE did
not recognize companies limited by guarantee and that it grants approval only
to such companies which are limited by shares.�
On this refusal the Vadodara Stock Exchange floated another subsidiary
company under the name and style of VSE Stock Services Ltd. which is the
appellant before us.� This company was
incorporated in the year 2001 under the provisions of the Companies Act, 1956
and is limited by shares.� The appellant
then applied to the NSE for approval to carry on business in the cash and
derivatives segment on that exchange.� The
approval was granted and thereafter the appellant approached the Securities and
Exchange Board of India (for short the Board) for registration as a broker on
the NSE.� The Board by its order dated ��������� After the appellant had been denied registration
as a stock broker VSE Securities Ltd., decided to merge in the appellant and
accordingly approached the High Court of Gujarat to seek its approval for the
merger in accordance with the provisions of Sections 391 to 394 of the
Companies Act.� The merger of VSE
Securities Ltd. in the appellant was sanctioned by the High Court on ��������� We have heard the learned counsel for
the parties and are of the view that the appellant is not entitled to the
benefit of fee continuity as claimed by it.�
The� relevant part of paragraph 1
of Schedule III to the Regulations on which reliance has been placed reads as
under: ��������� I.
Fees to be paid by the Stock Broker. ��������� 1.
���� Every stock broker shall subject to
paragraph 2 and 3 of this Schedule pay registration fees in the manner set out
below: ����� � (a)�������� where the annual turnover does not
exceed rupees one crore during any financial year, a sum of rupees five
thousand for each financial year; (b)� ������������ where the annual turnover of the
stock-broker exceeds rupees one crore during any financial year, a sum of
rupees five thousand plus one hundredth of one per cent of the turnover
in excess of rupees one crore for each financial year; [(bb)��.. ��������� (c)��� after the expiry of five financial years
from the date of ������� initial �registration as a stock-broker, he shall pay a
sum �� of rupees five thousand 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.� A
reading of the aforesaid paragraph leaves no room for doubt that a stock broker
on being registered has to pay a sum of Rs.5,000/- for each financial year if
his annual turn over does not exceed Rs.1 crore during any financial year.� If the turn over exceeds Rs.1 crore then he
has to pay a sum of Rs.5,000/- plus one hundredth of 1% of the turn over in
excess of Rs.1 crore� for each financial
year.� Having paid this amount the broker
has to pay, after expiry of five financial years from the date of initial
registration, a sum of Rs.5,000/- 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.� The appellant was registered� as a broker only on ��������� Mergers/amalgamations ��������� �7.�
Where mergers/amalgamations are carried out as a ��������� result of compulsion of law, fees
would not have to be ��������� paid afresh by the resultant
transferee entity provided ��������� that majority shareholders of such
transferor entity ��������� continue to hold majority shareholding
in transferee ��������� entity.� The Exchange would have to enumerate what ��������� constitute �compulsion of law�
resulting in such merger/ ��������� amalgamations, for consideration of
SEBI.� A
reading of the aforesaid paragraph of the circular makes it abundantly clear that
where mergers/amalgamations are carried out as a result of compulsion of law,
registration fee would not be charged from the transferee entity, provided the
majority shareholders of the transferor�
entity continue to hold majority shares of the transferee entity.� Before the benefit of exemption can be
claimed in terms of this paragraph it is incumbent upon the appellant to show
which law compelled VSE Securities Ltd.�
to merge with it.� There is no
provision of law which compelled VSE Securities Ltd.� to merge and, therefore, we are of the view
that the benefit of paragraph 7 cannot be claimed by the appellant.� The reason why VSE Securities Ltd.� had merged in the appellant is that the Board
had refused registration to the appellant on the ground that Vadodara Stock
Exchange Ltd. had floated two subsidiary companies and the benefit could be
given to only one company.� In the light
of the observations made by the Board in its order dated December 31, 2002 VSE
Securities Ltd. decided to merge in the appellant so that the latter could get
registration as a broker with NSE.� It is
thus clear that there was no legal compulsion for VSE Securities Ltd.,� to merge with the appellant.� In this view of the matter the appellant
cannot claim benefit of paragraph 7 of the circular dated ��������� No other point has been raised. ��������� In the result, the appeal fails and
the same stands dismissed with no order as to�
costs. Sd/- Justice N. K. Sodhi ����������������������������������������������� ���������������������� Presiding Officer Sd/- R. N. Bhardwaj ����������������������������������������������� Member Smn/18/5 |
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