IN THE SECURITIES APPELLATE TRIBUNALMUMBAI
Appeal No.267/2004
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 that arises for our consideration in this appeal filed under section 15T of the Securities and Exchange Board of India Act, 1992 (for short the Act)is whether the appellant is entitled to the benefit of fee continuity under paragraph 7 of the circular dated 30th September, 2002 issued by the Securities and Exchange Board of India (for short the Board). Facts giving rise to this appeal are as under: Ratnabali Securities Ltd.(RSL) was a company incorporated under the provisions of the Companies Act and had been registered as a broker with the National Stock Exchange (NSE) and it was also registered with the Board. It is not in dispute that the net worth of this company was less than Rs.3 crores. Ratnabali Capital Markets Ltd. (RCML), the appellant herein is a listed company on the Bombay Exchange and had been carrying on business as a finance company. RSL and RCML have common shareholders and both these companies decided to merge. It is common case of the parties that the procedure prescribed by sections 391 to 394 of the Companies Act, 1956 was followed and after the requisite resolutions were passed by both the companies their merger was approved by the High Court of Calcutta on 9/2/2000. RSL merged in RCML and after merger RCML is carrying on the business of stock broking on the basis of a fresh certificate of registration granted to it by the Board pursuant to the merger. It is the admitted case of both the parties that after merger of RSL in RCML the former has ceased to exist. RCML now claims that it is entitled to the benefit of the registration fee which RSL had paid from time to time as a broker. Whether this claim is tenable or not is the question before us. The Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Rules 1992 (hereinafter called the Rules) provide that no stock broker or sub broker shall buy, sell, deal in securities unless he holds a certificate granted by the Board under the Regulations. The Board may grant a certificate to a broker subject to the conditions referred to in Rule 4 and one of those conditions is that he shall pay the amount of fees for registration in the manner provided in the Regulations. Regulation 10 of the Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Regulations, 1992 (for short the Regulations) provides that every applicant eligible for the grant of a certificate shall pay such fees and in such manner as specified in Schedule III. When we look at Schedule III, it provides that every stock broker whose annual turn over does not exceed Rs.1 crore during any financial year has to pay a sum of Rs.5,000/- as registration fee for each financial year. Where the annual turn over of the broker exceeds Rs.1 crore during any financial year, he has to pay a sum of Rs.5,000/- plus one hundredth of one per cent of the turn over in excess of Rs.1 crore for each financial year. Clause (c ) of paragraph 1 of the IIIrd Schedule which is relevant for our purpose is reproduced hereunder: “(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 provision makes it clear that where the stock broker has paid registration fee either under clause (a) or under clause (b), as the case may be, he shall have to pay a sum of Rs.5,000/- for every block of 5 financial years commencing from the sixth financial year after the date of initial registration to keep his registration in force and this amount shall be paid after the expiry of five financial years from the date when he was initially registered. What RCML is now claiming is the benefit of the initial registration of RSL as a stock broker. We do not think that the claim of RCML is tenable. It is common case of the parties that after RSL merged in RCML, the latter was registered afresh as a broker. This being so, how could it claim the benefit of the initial registration which was granted to RSL which has ceased to be an entity after its merger in RCML. There is no provision in the IIIrd Schedule to the Regulations which grants the benefit of fee continuity to RCML. We specifically asked the learned counsel for the appellant to point out any provision of law which could give the benefit of fee continuity to RCML in such circumstances. He could not point out any provision in the IIIrd Schedule to the Regulations. He has however, placed reliance on paragraph 7 of the Circular dated 30th September, 2002 issued by the Board which reads as under: 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.” When we read the aforesaid paragraph 7 it becomes clear that where mergers/amalgamations are carried out as a result of any compulsion of law, then fees would not have to be paid afresh by the resultant transferee entity provided that majority of shareholders of such transferor entity continue to hold majority shareholding in the transferee entity. One of the conditions enumerated in paragraph 7 is that merger should have been carried out as a result of compulsion of law. We specifically put it to the learned counsel for the appellant as to which law compelled RSL to merge in RCML. He could not point any such law. On the other hand, what he contented was that RSL was a stock broker and wanted to carry on business in derivatives which was possible only if its net worth was more than Rs.3 crores as per the circular of the Board dated 16th June, 1998 and, therefore, it decided to merge in RCML. This according to the learned counsel for the appellant was the compulsion to merge. We are unable to accept this plea. If RSL wanted to carry on business in derivatives it would not have merged in RCML and instead it should have been the other way around. RCML then should have merged in RSL so as to raise its net worth. After merger RSL has ceased to exist and how could it then carry on the business of derivatives with increased net worth of more than Rs.3 crores. It is RCML after merger which is carrying on the business of stock broking. In this view of the matter we do not find that there was any compulsion of law whatsoever for RSL to merge itself in RCML and, therefore, the first condition enumerated in paragraph 7 of the circular dated 30th September, 2002 is not satisfied. In the result, it has to be held that RCML is not entitled to the benefit of paragraph 7 even though the majority shareholders of RSL are the majority shareholders in RCML as well.
For the reasons recorded, there is no merit in the appeal and the same stands dismissed with no order as to costs.
sd/- 18th May, 2006. Smn/18/5
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