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S.E.B.I. Versus Alliance Finstock Ltd. & Others Etc. Etc.

2015 (11) TMI 307 - SUPREME COURT

Denial of benefit of fee continuity in terms of paragraph 4 of Schedule III to the Securities & Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 - whether stock brokers who have converted their individual/partnership membership into a corporate entity prior to April 01, 1997 are entitled to the fee continuity benefit in terms of paragraph 4 of Schedule III - Held that:- 'Levy’ and ‘collection’ are not synonyms and generally they occur at different stages. In the present .....

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ffected by creation of legal liabilities and obligations for a period already bygone. In the present case the provisions do not create any obligation or liability. They only confer benefits by way of fee continuity on account of fees already paid by the earlier entity before its conversion into a new corporate entity.

Even if we were to apply the test of fairness, no exception can be taken to extention of the benefit of fee exemption as provided by the relevant provision in the Regula .....

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fined to conversions taking place after a particular date when no such date finds place in the Regulations. As a result, appeals preferred by SEBI are dismissed and the judgments and orders under appeal passed by SAT are upheld. - Civil Appeal No. 4493 of 2006, C. A. No. 4743 of 2006 - Dated:- 3-11-2015 - Vikramajit Sen And Shiva Kirti Singh, JJ. JUDGMENT Shiva Kirti Singh, J. 1. Both the appeals have been preferred under Section 15Z of the Securities & Exchange Board of India Act, 1992 (for .....

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nd Sub-Brokers) Regulations, 1992 [hereinafter called the Regulations ]. 2. The SAT formulated the issue falling for determination in the form of a question - whether stock brokers who have converted their individual/partnership membership into a corporate entity prior to April 01, 1997 are entitled to the fee continuity benefit in terms of paragraph 4 of Schedule III …. . Since the SAT answered the question in favour of the stock brokers (the respondents herein), SEBI is in appeal. 3. Th .....

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e entity. Undoubtedly, no stock broker or sub-broker can buy, sell or deal in securities unless it is granted Certificate of Registration by SEBI under the Regulations and for that, ordinarily the stock broker is required to pay the requisite fees in the manner provided in the Regulations. In particular, Regulation 10 provides that every applicant eligible for the grant of a certificate shall pay such fees and in such manner as is specified in Schedule III to the Regulations. 4. Although the con .....

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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 da .....

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ence to the annual turnover relating to the preceding financial year. 3. …… …… …… 4. Where a corporate entity has been formed by converting the individual or partnership membership card of the exchange, such corporate entity shall be exempted from payment of fee for the period for which the erstwhile individual or partnership member, as the case may be, has already paid the fees subject to the condition that the erstwhile individual or partner shall be t .....

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corporate entity for the period for which erstwhile entity has paid the fee as per the regulations. 4A. …… …… …… 5. If a stock broker fails to remit fees in accordance with Paragraphs 1 and 2, he shall be liable to pay interest at 15% per annum for each month of delay or part thereof. Provided that the liability to pay interest as aforesaid may be in addition to any other action which the Board, may take as deemed fit against the stock broker under the A .....

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which states in Para 2 that the amendment will be effective from the date of notification i.e, 21.1.98, the annual fee payable by registered brokers would remain unaffected for the earlier year ending 31.3.97 and it can at best be effected only in respect of fees payable for the year 1.4.97 onwards. On such premise it has been forcefully contended on behalf of the appellants that the SAT has erred in granting retrospectivity to the provisions of para 4 by granting the benefit of fee continuity .....

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be no interference. (5) Materials like press statement or letter cannot act as estoppel against the statutory provisions such as the Regulations. 7. In support of the first and second submission it has been pointed out that Section 30 of the SEBI Act vests the Board with the power to make regulations consistent with the Act and the rules made thereunder so as to carry out the purposes of the Act and there is nothing specific in this Section granting power to frame regulations with retrospective .....

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ticles 14 and 16. In Mohd. Rashid Ahmed the Court was dealing with service matter and was called upon to decide whether a particular rule could be given retrospective effect. Since the statute vested the State Government with power to frame rules even with retrospective effect, the relevant provision was held to be retrospective after reiterating an established rule of construction that retrospective operation is not to be given to a statute so as to impair an existing right or obligation other .....

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ve rights is to apply to pending legal proceedings, initiated prior to the commencement of the amending Act. The majority held that the intendment in such a situation must be in clear terms. In the case of C. Gupta v. Glaxo- Smithkline Pharmaceuticals Ltd., (2007) 7 SCC 171 the Court, in the context of benefits under the Workmen s Compensation Act, reiterated the well established law that an enactment in order to be read as retrospective, must have an express provision to that effect or same eff .....

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.4.1997. By relying upon some case laws such as in the case of National Council For Teacher Education v. Shri Shyam Shiksha Prashikshan Sansthan (2011) 3 SCC 238 it has been contended that appellant is entitled to fix a cut-off date such as 1.4.1997. It has been highlighted that fees are to be computed and paid for every financial year hence introduction of the concession under paragraph 4 w.e.f. beginning of a financial year 1997-1998 is reasonable and serves a purpose. Appellant emphasized the .....

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introducing paragraph 4 of Schedule III in the Regulations needs to be construed only as a prospective measure and not as one conferring benefit to even such entities who had acquired corporate entity prior to 1.4.1997. 10. In reply Mr. Shyam Divan, learned senior advocate appearing for some of the respondents used the same background facts to contend that in principle SEBI accepted the proposition that if the same entity had paid fees as a stock broker and it continues to do the same business b .....

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ng a fiscal levy are attracted in the present case and not the rules of interpretation governing other laws. According to him the plain language of paragraph 4 is decisive and that led to the decision under appeal against SEBI. According to him even if some amount of ambiguity is found in the relevant provision then the interpretation which is favourable to the brokers needs to be adopted. He further made a distinction between power to a levy duty or fee and the power of collection. According to .....

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articularly where it is plain and unambiguous. It is not permissible to add or substitute words for giving a meaning to such statutes for the purpose of serving the perceived spirit or intention of the Legislature. Reliance was also placed upon Somaiya Organics (India) Ltd. v. State of U.P. (2001) 5 SCC 519 for supporting the submission that in law there is a clear distinction between levy and collection of taxes. In the case of Somaiya Organics the Constitution Bench noted that Article 265 of t .....

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quent to the levy of the same. It is not necessary to multiply case laws cited on these points. 12. Respondents referred to a Press Release dated 28.12.2001 publicising the decisions that were taken in the meeting of the SEBI Board on that date. In subpara (e) of para 2 it is disclosed that the SEBI Board considered the representations made by the brokers in the light of relevant materials and decided the following : 2. Broker Fees - Amendment to SEBI (Stock Broker and Sub Broker) Regulations a. .....

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t SEBI has not collected fees from any such broking entity already. f. …. …. …. 13. It was also pointed out that Explanation of paragraph 4 to Schedule III of the Regulations was inserted through an amendment regulation of 2002 w.e.f. 20.2.2002 and submitted that the entire provision in the Explanation was to give statutory base to the decision contained in the Press Release highlighted above. The Explanation reads thus : Explanation : It is clarified that the conversion of .....

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66 in support of the submission that the Press Release may not be having statutory effect but it helps in understanding the intention of SEBI Board which issued the Release. In other words, the respondents sought to rely upon the principle of contemporanea expositio as propounded in the case of K.P. Varghese. In Indra Industries the circulars issued by the Income Tax Department were held to have binding effect upon the taxing authorities though it may not be binding on the courts or on the asse .....

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We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would .....

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was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here. The Court then concluded that In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. The Court also extracted relevant explanati .....

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safely be held that the provisions merely look at some past happenings but the benefits are to accrue to the eligible entities only in future and hence the provisions do not operate retrospectively. Further stand of the respondents is that SEBI itself cannot question the validity of the circulars and policy decisions declared by the SEBI Board and such circulars and declarations granting benefits even from a retrospective date cannot be held bad in law in view of law noticed and laid down in Va .....

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directing SEBI to amend the Regulations in light of recommendations of the R.S. Bhatt Committee report, SEBI had examined representations from the brokers and issued clarifications contained in part A of the circular. Part A, inter alia, contains a clarification in respect of applicability of the notification on exemption from fees on corporatization. The clarification reads thus the spirit behind notification dated 21.1.1998 was to give benefit of this amendment to stock brokers who have conve .....

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4 was no doubt inserted through an amendment with effect from 21.1.1998 but it does not disclose, either explicitly or even by necessary implication, that although possessing the required qualifications, a corporate entity formed earlier to 21.1.1998 would not be exempted from payment of fee for the period for which the erstwhile individual or partnership members has already paid the fees. In respect of a legislation of fiscal character such as the present provision which relates to fees, it wi .....

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partnership membership card into a corporate entity, the corporate entity shall be deemed to be a continuation of the entity in respect of collection of fees from the converted corporate entity. Further, an embargo has been created against collection of fees again from the converted corporate entity. This explanation is statutory in nature and like para 4 it also does not restrict the benefits of conversion to entities converted on or after any particular date. The explanation does not talk of .....

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