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VSE Stock Services Ltd. Versus S.E.B.I & Another

2015 (11) TMI 308 - SUPREME COURT

Entitlement to fee continuity benefit claimed under the provisions of Securities & Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 - whether the appellant is entitled to the fee continuity benefit in terms of the Regulations. Regulation 10 mandates that every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III. - Held that:- The facts of the case have been properly appreciated by SAT for coming to the conclus .....

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decision was effected through amalgamation. Such a situation cannot be treated as a compulsion of law for amalgamation.

Even if we accept the submission that the compulsion of law be given a liberal meaning so as to include orders and directions of the SEBI, in the present case it is not possible to accept that amalgamation was forced upon the appellant under orders or directions of the SEBI. Only because the appellant and the parent company Vadodara Stock Exchange Ltd. subsequently .....

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at merger/ amalgamation was on account of compulsion of law so as to attract the exemption assured by the SEBI under the circular dated 30.09.2002. The facts of this case even remotely do not suggest any such or similar situation. - Civil Appeal No. 4664 of 2006 - Dated:- 4-11-2015 - Vikramajit Sen And Shiva Kirti Singh, JJ. JUDGMENT Shiva Kirti Singh, J. 1. Challenge in this appeal is to order dated 18.5.2006 rendered by the Securities Appellate Tribunal, Mumbai (for short SAT ) whereby Appeal .....

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e that in terms of policy decision by respondent no.1, the Securities & Exchange Board of India (for brevity, the SEBI ) reflected in its circulars dated 26.11.1999 and 16.12.1999, the Vadodara Stock Exchange Ltd. incorporated a subsidiary company named as VSE Securities Ltd. on 24.12.1999. It got membership of Bombay Stock Exchange (BSE) as well as registration under the SEBI resulting in commencement of operation on BSE from 29.5.2000 but failed to get membership of National Stock Exchange .....

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NSE also permitted membership only to such a company and not to one limited by guarantee. Hence Vadodara Stock Exchange Ltd. incorporated another subsidiary company, the appellant herein, on 16.1.2002. Being limited by stocks, the appellant obtained membership of NSE on 16.4.2002. But SEBI refused to grant recognition to the appellant on the ground that as per its policy and circular dated 26.11.1999 only one subsidiary of Vadodara Stock Exchange Ltd. could claim registration as a broker. Such .....

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llant became a transferee company entitled to the assets and liabilities of the transferor company. Post amalgamation, the appellant obtained fresh registration from the SEBI in respect of its operation on BSE in the month of October 2003. On 30.04.2004, the SEBI granted registration for business on NSE on the usual conditions including payment of fees in the manner provided in the Regulations, particularly Regulation 10(1) read with Schedule III of the Regulations. The appellant paid the provis .....

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t every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III. For non-payment of requisite fees the SEBI may suspend the registration certificate and in that situation the stock broker shall cease to buy, sell or deal in securities as a stock broker. 5. The Central Government in exercise of the powers conferred by Section 29 of the Securities & Exchange Board of India Act, 1992 has made Rules called the Securities & Exchange Bo .....

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ions. Schedule III of the Regulations has undergone various amendments in 1995, 1998, 2000, 2002 and also in 2003. 6. By policy circular dated 30.09.2002 the SEBI issued several clarifications on the subject of fees payable by stock brokers. The circular declares that the clarification was pursuant to judgment of Hon ble Supreme Court in B.S.E. Brokers Forum v. Securities & Exchange Board of India (2001) 3 SCC 482 which necessitated amendments in the Regulations to implement the recommendati .....

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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 constitutes compulsion of law resulting in such merger/ amalgamations, for consideration of SEBI. 7. For deriving advantage from the afore-quoted clause 7 the appellant has the onerous task of showing that in its case the merger/ amalgamati .....

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operative during the relevant period. Another circular dated July 09, 2003 was issued to clarify what kind of changes in the status and constitution of the stock brokers shall have to be submitted to obtain prior approval of the SEBI under Rule 4(c) of the Rules. On and from 09.07.2003 prior approval is required, inter-alia, in respect of consolidation/ merger/ amalgamation of brokers and the remarks column shows that full fees along with interest as on the date of application for approval is r .....

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it had to ensure that in place of two subsidiary companies only one should exist otherwise the Vadodara Stock Exchange Ltd. could not get the benefit of membership of one of the major Exchanges, i.e., NSE. Hence the condition imposed by the SEBI to have only one subsidiary for the purpose amounts to compulsion of law which led to the scheme of amalgamation. The other contention is that the scheme of amalgamation in which appellant is the transferee company has been approved by the Gujarat High C .....

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ce he sought to distinguish that judgment by pointing out that in paragraph 11 of that judgment the Court noticed that the merger was with a view to have the benefit of enlarged business by entering the derivative markets. In the present case, according to him no such reason exists and the amalgamation was carried out only on account of compulsion explained above. According to learned counsel for the appellant for accepting a compulsion as one of law, the term law needs to be given a liberal int .....

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clusion that the amalgamation was not on account of any compulsion of law. The compulsion of the appellant was a business compulsion to do business as a broker with NSE. Initially the Vadodara Stock Exchange Ltd. had chosen to form another subsidiary company limited by guarantee ignoring the circular of the SEBI dated 16.12.1999 and also the bye rules of NSE laying down conditions for membership but later it decided to have a subsidiary company which could get registration as a broker with NSE. .....

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