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TMI Blog2007 (10) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... l Markets Ltd. ("RCML") which are as under. 6. In 1995 Ratnabali Securities Ltd. ("RSL") was registered as a broker with National Stock Exchange ("NSE") . In terms of Schedule III of SEBI (Stock-brokers and Sub-brokers) Regulations, 1992 ("the Regulations"), RSL had paid initial registration fees for the first year and thereafter it had paid fees on turnover basis for subsequent four years. No further fees on turnover basis was paid by RSL under the said Regulations for continuation of registration except a fee of rupees five thousand for a block of next five years. RSL operated in cash and spot market. 7. SEBI adopted recommendations of Gupta Committee stating that no company whose net worth was less than rupees three crores would be allowed to trade as a broker in the derivative segment of the Stock Exchange. To meet this net worth criteria, RSL and RCML merged under the Scheme of Amalgamation sanctioned by the order of the Calcutta High Court. Under that order, all rights, licences, assets, properties and registrations of RSL stood transferred by operation of law to RCML. 8. On 30-9-2002 SEBI issued a circular stating that in the case of merger carried out as a result of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compulsion or compulsion in law. According to RCML, in the case of merger, which takes place after complying with the procedure prescribed by sections 391 to 394 of the Companies Act, duly approved by the High Court, the assets and liabilities of the transferor company comes into the hands of RCML on account of legal compulsion. There is nothing voluntary in such cases of merger. According to RCML, the registration fees once paid by RSL should be given the benefit of continuity vide para 7 of Circular dated 30-9-2002 issued by SEBI. In other words, RCML now claims that it is entitled to the benefit of registration fees which RSL had paid from time to time as a broker in the cash and spot market. This claim of RCML has been rejected by the impugned decision. Hence, this civil appeal. 11. In the present case, the two companies merged because after 2000, derivative markets opened out. RSL basically operated under the licences in cash and spot markets. They did not operate in the derivative markets. When the two companies merged, a new entity emerged. That entity was RCML. At this stage, it is important to bear in mind that licence from NSE/BSE only provided a platform to RSL/RCML to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-9-2002 issued by SEBI. Under the said Circular, mergers/amalgamations carried out as a result of compulsion of law stood excluded from payment of fees afresh. 12. We quote hereinbelow the said provision, which reads as under : "Merger/Amalgamations - Where mergers/amalgamations are carried out as a result of compulsion of law, fees would not have to be paid afresh to hold majority shareholding in transferee entity. The Exchange would have to enumerate what constitutes "compulsion of law" resulting in such merger/amalgamations, for consideration of SEBI." 13. Placing reliance on the aforesaid clause, RCML contended that, in the present case, RSL had merged into RCML on account of compulsion of law and, therefore, they were entitled to the benefit of continuity of fees earlier paid by RSL. According to RCML, but for the recommendations of Gupta Committee, RSL would not have merged into RCML. According to RCML, because of Gupta Committee prescribing the net worth of rupees three crores for entering into derivative market, RSL had to merge in RCML, which, according to the appellant, constituted legal compulsion. 14. We do not find any merit in the above arguments. Two points ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme of arrangement is an alternative mode of winding up and, therefore, such powers as the High Court possesses under section 45D of the Banking Companies Act, 1949, will also entitle it to exercise the same powers for enforcement of the scheme of arrangement etc. He has rested his argument on three decisions in Madan Gopal v. Peoples Bank of Northern India Ltd. AIR 1935 Lah. 779 (SB), Motilal Kanji & Co. v. Natwarlal M. Jhaveri AIR 1932 Bom. 78, Travancore National & Quilon Bank Ltd., In re AIR 1939 Mad. 318. In AIR 1935 Lah. 779 (SB), Tek Chand J. said : 'Section 153, Companies Act, makes provision not merely for schemes for the "resuscitation" or "re-organisation" of companies, but it also provides for "schemes of arrangement", which in the words of Vaughan Williams J. (used in reference to the corresponding section of the English Act) provide an alternative mode of liquidation, which the law allows the statutory majority of creditors to substitute for winding-up whether voluntary or under the Court. London Chartered Bank of Australia, In re (1893) 3 Ch. 540 at p. 546.' On the strength of these decisions, it was argued that the scheme of arrangement was an alternative mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in every matter that the scheme under section 391 would constitute an alternative to liquidation. Therefore, it would depend on the facts of each case. Under Circular dated 30-9-2002 what SEBI intends to say is that fresh turnover/registration fees would not be payable by a company which goes for amalgamation/merger as an alternative to liquidation. In other words, if the company's net worth is negative and if that company is on the brink of liquidation, which compels it to go for a scheme under section 391, then in such cases SEBI exempts such companies from payment of fresh turnover/registration fees. Such is not the case herein. On the contrary, in the present case, amalgamation has taken place in order to increase the "reserves" component of the net worth. The difference between the amount recorded as fresh share capital issued by the transferee-company on amalgamation and the amount of share capital of the transferor-company to be reflected in the Revenue Reserve(s) of the transferee-company was the sole object behind amalgamation, (see page 429 of Vol. II in civil appeal No. 3674/07). Therefore, SEBI was right, in the present case, in refusing to give the benefit of exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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