TMI Blog2004 (10) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that in Part A sub-para ( vi ), the clarification provides for fee payable by composite corporate members and require that where stock brokers hold more than one registration with SEBI, separate fee would be required to be paid for each registration with SEBI. The petitioners contend that this clarification is contrary to the Regulations itself and is thus liable to be quashed. 3. The reason for the issuance of the circular dated 28-3-2002 is set out in the circular itself which is as under: "Sub.: Fees payable by stock brokers SEBI has notified the SEBI (Stock Brokers and Sub-Brokers) Regulations in 1992, Schedule III of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 which deals in detail with the payment of the fees was challenged by the brokers of the stock exchanges in their individual and representative capacity. The Hon ble Supreme Court was pleased to deliver a judgment on February 1, 2001 on this issue inter alia directing SEBI to amend the regulations incorporating the recommendations of the R.S. Bhatt Committee Report. SEBI has amended the regulations on February 20, 2002 as per the judgment of the Hon ble Supreme Court incorporating the recomme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the previous approval of the Central Government consistent with the provisions of the Act. The said regulations were made in exercise of the powers conferred under section 30 of the said Act. 7. Regulations 3 to 10 form part of Chapter II dealing with registration of stock brokers. Regulation 3 provides for an application to be made by the stock brokers for grant of a certificate through the Stock Exchange or Stock Exchanges of which the stock broker was admitted as a member. Regulation 6 provides for a grant of a certificate in Form D to the stock broker and intimation to be sent to the Stock Exchange or Stock Exchanges. Regulation 9 provides that where a stock broker s application for grant of a certificate has been refused by the Board such stock broker cannot buy, sell or deal in securities as a stock broker. Regulation 10 provides for payment of fee as prescribed in Schedule III. Regulation 10 is as under: "10. Payment of fees and the consequences of failure to pay fees. (1) Every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III: Provided that the Board may on sufficient cause being shown permit the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of paragraphs 1, 2 and 3, annual turnover means the aggregate of the sale and purchase prices of securities received and receivable by the stock-broker on his own account as well as on account of his clients in respect of sale and purchase or dealing in securities during any financial year." 11. Learned senior counsel for the petitioner contended that once there is a concept of annual turnover as given in the explanation aforesaid and the same is the aggregate of the sale and purchase price of the securities during a financial year, what is envisaged is a single registration with SEBI and the aggregating of the turnover from different stock exchanges. This read with the Regulations, it was submitted clearly meant that only a single certificate had to be issued and the respondent was illegally collecting fee in terms of the impugned circular dated 28-3-2002 on the basis of such requirement of multiple registration. 12. Learned senior counsel for the petitioner emphasised that Schedule III itself envisages the date of initial registration and on the expiry of a period of five years from the date of such initial registration, the stock broker was required to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficate to be issued in Form D and intimation to be sent to stock exchange or stock exchanges and it was thus submitted that this implies that if the registration took place even with one, intimation would go to the others. The format of Form D itself provided that it was "certificate of registration" and was "a member of the... stock exchange(s)". 16. Lastly, learned counsel for the petitioner submitted that despite the provisions of section 2( h ) of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as the Securities Contract Act ) defining securities to include shares, scrips, stocks, bond, etc. still a requirement was being specified for separate registration. 17. Learned senior counsel for the respondent, on the other hand, submitted that this is a second round of litigation started by the petitioners having failed in their challenge to the provisions of the Regulations providing for imposition of fee. The Supreme Court upheld the imposition of the said fee in terms of the judgment in BSE Brokers Forum s case ( supra ). It was submitted that in view of the clear pronouncement of the Supreme Court in the said judgment, there was no doubt left a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be separate as it is part of the regulatory mechanism as emphasised by the Supreme Court in BSE Brokers Forum s case ( supra ). 21. Learned counsel for the respondent emphasised the fact that the Form A of Schedule I of the Regulations in which the application had to be filed itself calls for disclosures as to whether a stock broker is a member of one or more sock exchange and the names of such stock exchanges along with the SEBI Registration Number(s). It was thus submitted that what was envisaged was a membership of more than one stock exchange and grant of Registration Certificate in respect of more than one Stock Exchange. In so far as the reference to the initial date of registration in Appendix III is concerned, it was emphasised that the date of initial registration as stock broker implies the registration pertaining to the particular stock exchange only of which the stock broker is a member and in respect of which certification for registration has been granted. Not only this, even one stock exchange registration takes place for different entities for example equity segment, debt segment and even for the same separate fees are paid. 22. Learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 petition and the necessary changes to incorporate the recommenda-tions of the Bhatt Committee would be done after disposal of these petitions. We recorded this submission on behalf of the Board and direct that the said changes recommended by the Bhatt Committee be incorporated in the Regulations. Subject to the above, we are of the view that the challenge made to the levy based on the measure of turnover has to be rejected." (p. 510) 24. I have considered the submissions advanced by learned senior counsel for the parties. 25. It has to be appreciated that the initial challenge of the brokers was to the imposition of the fee in BSE Brokers Forum s case ( supra ). This challenge was repelled by the Supreme Court. It was held that this was not a turnover tax or tax on income. The R.S. Bhatt Committee Report which was approved by the Supreme Court had made certain recommendations for reduction of fee pertaining to specific transactions to be treated as part of the turnover. The recommendati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of fee under Regulation 10 read with Schedule III. It would be useful to reproduce some of the observations from the judgment of the Supreme Court. These are as under: "38. As noticed in the City Corpn. of Calicut v. Thachambalath Sadasivan [1985] 2 SCC 112, the traditional concept of quid pro quo in a fee has undergone considerable transformation. From a conspectus of the ratio of the above judgments, we find that so far as the regulatory fee is concerned, the service to be rendered is not a condition precedent and the same does not lose the character of a fee provided that fee so charged is not excessive. It is also not necessary that the service to be rendered by the collecting authority should be confined to the contributories alone. As held in Sirsilk Ltd. v. Textiles Committee 1989 Supp. (1) SCC 168, if the levy is for the benefit of the entire industry, there is sufficient quid pro quo between the levy recovered and services rendered to the industry as a whole. If we apply the test as laid down by this Court in the abovesaid judgments to the facts of the case in hand, it can be seen that the statute under section 11 of the Act requires the Board to underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation technology in its day-to-day functions. It is to be noticed that the Board has to control and regulate 23 stock exchanges all over India which have more than 10,000 listed companies, 9500 brokers, 5500 sub-brokers, 250 merchant brokers with similar number of registrars to the issue, share-transfer agents more than 300 depository participants and the other categories of intermediaries. From the material supplied by the Board, it is to be noticed that the total market capitalisation is over 8 lakh crores. Apart from this, it is the case of the Board that it has to regulate 39 mutual funds involving 300 schemes with a net asset value (NAV) of Rs. 1 lakh crores. The Board has also to deal with the entities which raise money through collective investment schemes at present involving 642 companies which have raised Rs. 2680 crores from the public. From the pleadings of the Board it is to be seen that a large number of cases to the tune of nearly 800 are pending in various courts in India which in due course are likely to increase thereby burdening the Board with heavy expenditure. That apart, it has the responsibility of protecting the interests of investors as well as undertake in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in City Corpn. of Calicut v. Thachambalath Sadasivan. Applying the said principle we are of the opinion that since the amount collected under the impugned levy is being spent; by the Board on various activities of the stock and securities market with which the petitioners are directly connected the fact that the entire benefit of the levy does not accrue to the contributories, i.e., the petitioners would not make the levy invalid. 41. to 44.****** 45. It cannot be disputed that the annual turnover of a broker is not the subject-matter of the levy but is only a measure of the levy. In other words, the fee is not being levied on the turnover as such but the fee is being levied on the brokers making their annual turnover as a measure of the levy which is a fee for regulating the activities of the securities market and for registration of the brokers and other intermediaries in the said market. Therefore it is futile to contend that such levy would be either a tax or a fee on the turnover. It is a settled principle in law that if the State has the authority to impose a levy then it has a wide discretion in choosing the measure of levy, provided of course, it withstands t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker registered with more than one stock exchange, the regulatory mechanism and supervision would be required for more than one stock exchange and for the trading of that person on multiple stock exchanges. 31. However in my considered view the impugned circular dated 28-3-2002 is intra vires the regulations and clarifies the mode and manner of calculation of the fee. It is in fact the result of the R.S. Bhatt Committee Report and the judgment of the Supreme Court in BSE Brokers Forum s case ( supra ). It appears that the present writ petition is only an attempt on part of the petitioners to further reduce the incidence of fee having failed to succeed in the challenge to the imposition of the fee etc. in BSE Brokers Forum s case ( supra ). This cannot be permitted in view of the clear pronouncement of the Supreme Court about the authority of the respondent to impose the fee and to determine its mode and manner. 32. In view of the aforesaid, I find no merit in the challenge to the impugned circular by the petitioners. 33. Dismissed leaving the parties to bear their own costs. 34. It is, however, clarified that in view of the aforesaid challenge pending the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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