On 13th October 2022, the Supreme Court in a division bench comprising of Justice Ajay Rastogi and Justice B.V. Nagarathna observed that stock broker has to obtain certificate of registration from SEBI for each stock exchange he operates and has to pay ad valorem fee prescribed in terms of Part III annexed to Regulation 10 of the Regulations, 1992. (Securities And Exchange Board Of India V. National Stock Exchange Members Association And Anr.)
Facts of the Case:
Respondent no.1 is an association of the trading members of the National Stock Exchange and as alleged, its members deal in sale and purchase of shares and securities in India and each stock broker has been registered under the Act, 1992 and pay fee for registration in accordance with the Regulations, 1992. The association of trading members challenged the Circular dated 28th March, 2002 to the extent that paragraph (vi) of Part A provides the fees payable by a composite corporate member and requires that the stock broker who held more than one registration with SEBI, structured fee would be required to be paid for each registration. It was contended that even if a stock broker has more than one registration from SEBI, he was required to pay fees only with respect to the initial registration with SEBI irrespective of the number of cards held by the broker from the stock exchange and accordingly it was prayed that the clarification made by SEBI under its Circular dated 28th March, 2002 of which a reference has been made, is in contravention to the scheme of the Act, 1992 and deserves to be set aside. A petition was filed by the respondent 1 which was dismissed holding that scheme of Regulations and the Circular only determines the mode and manner of the calculation. Aggrieved by the same the respondent filed a letters patent appeal which was allowed and declared paragraph (vi) of Part A of the Circular dated 28th March, 2002 to be inconsistent with Section 12(1) of the Act 1992. Aggrieved by the judgement, the appellant has filed present appeal.
Contentions of the Appellant:
The counsel for the Appellant submitted that “this is the second round of litigation initiated by the respondents having failed in their challenge to the validity of Regulation 10 read with Schedule III of the Regulations providing for imposition of fee, which was upheld in BSE Brokers’ Forum, Bombay and Others and the Circular dated 28th March, 2002 is nothing but a clarification and in terms thereof, the fee is to be paid by the stock broker which is in conformity with the scheme of Regulations 1992. Scheme of the securities contracts clearly postulates that the application is to be made through a stock exchange for registration with SEBI and each stock exchange is separately registered under the Act. Emphasis that has been laid by the Division Bench of the High Court on the expression “a certificate” as referred to under Section 12(1) of the Act appears to be a misnomer for the reason that the same term can be used for singular or plural expression and the High Court has completely overlooked the scheme of Regulations, 1992 and Form ‘A’ annexed to Reg.3 thereto.”
Contentions of the Respondents:
The counsel for the Respondents submitted that “the scheme of the Act and the Regulations framed thereunder nowhere suggest that separate registration is required with respect to each of the stock exchanges and has referred to certain provisions of the scheme of Regulations and Rules, 1992 and submits that only a semblance of a suggestion of multiple registrations can be found in Schedule III, wherein paragraph 1(1)(c), the word “initial registration” has been employed to indicate the starting point for the reckoning of five years for which ad valorem fees has to be paid. There is no indication in the scheme i.e., the Act, Rules and Regulations, that a stock broker ought to register separately with respect to each stock exchange of which he is a member and even if multiple registrations are contemplated, still the ad valorem fee payable for five years can only be reckoned from the initial registration, i.e., the first of said multiple registrations with SEBI and on this premise at least the Circular dated 28th March, 2002 is ultra vires to the Act, 1992”
Observations and Judgement of the Court:
The hon’ble court observed that “the conjoint reading of the expression “a certificate” as referred to in Section 12(1) of the Act read with the scheme of Rules, 1992 and Regulations 1992, leads to an inevitable conclusion that the stock broker not only has to obtain a certificate of registration from SEBI for each of the stock exchange where he operates, at the same time, has to pay ad valorem fee prescribed in terms of Part III annexed to Regulation 10 of the Regulations, 1992 in reference to each certificate of registration from SEBI in terms of the computation prescribed under Circular dated 28th March, 2002 and fee is to be paid as a guiding principle by the stock broker which is in conformity with the scheme of Regulations 1992. So far as the emphasis which was made to the expression ‘date of initial registration’ as referred to in Schedule III(I)(1)(c) is concerned, it is in relation to a certificate of registration which has been obtained by the stock broker from SEBI, which in turn is in relation to the stock exchange of which he is a member. After the expiry of five financial years from the date of initial registration, in reference to the stock exchange, the fee has to be deposited for the purpose of sixth financial year to keep his registration in force. Insofar as the procedure of charging fees as prescribed under Schedule III annexed to Regulation 10 of the Regulations, 1992 is concerned, it has already been examined by this Court, in B.S.E. Brokers’ Forum, Bombay and Others.”
The appeal was allowed and the judgement and order passed by the Division Bench of the HC was quashed and set aside.
Case: Securities And Exchange Board Of India V. National Stock Exchange Members Association And Anr.
Citation: Civil Appeal No(S). 435 Of 2007, Civil Appeal No.5076 Of 2007 And Civil Appeal No.3003 Of 2011
Bench: Justice Ajay Rastogi and Justice B.V. Nagarathna
Date: October 13, 2022
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