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Securities & Exchange Board of India Versus M/s. Prebon Yamane (I) Ltd.

Entitled to “fee continuity” or exemption from payment of fees - Held that:- It is evident to us that as per Clause 4 of Schedule III, the Respondent was not an ‘entity’ as envisaged in the Regulations as would be entitled to “fee continuity” or exemption from payment of fees. The Regulation 4 clearly refers to a newly formed entity through conversion from either a sole proprietorship or a partnership to a limited Company, which alone has been bestowed the benefit of continuity. Given that the R .....

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02.

Thus, the Respondent has failed to prove that it believed it was granted fee continuity, in light of its letter to the Appellant requesting the same. Further, it appears to us that the Respondent was an entity quite distinct from Oracle, with the consequence that it would be bound to pay the fee in accordance with Schedule III, Clause (a) or (b) as the case may be, and would not be entitled to claim the advantage of Clause (c). In fact, this is the very understanding of the Respo .....

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ty) to continue to grant the Respondent the fee continuity benefit as was available to them before the NSE decided to permit segmental surrender of membership to its members. In response to the fee demanded by the Appellant, namely the Securities and Exchange Board of India (SEBI for short), the Respondent has paid, albeit under protest, the principal amount of ₹ 4,37,20,256/- together with ₹ 26,96,590/- being the interest accrued thereon. The factual matrix is that on 27.5.1994, Ora .....

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EM/CM segments whereupon Oracle forwarded a proposal in writing seeking the approval of NSE for the segregation of its Membership of WDM and of the EM/CM segments. By its letter dated 11.2.1999, NSE approved the proposal of Oracle for segregation but subject to certain conditions, inter alia, that if the trading member Oracle was desirous of surrendering its trading membership, both the entities viz. Oracle and the Respondent would have to surrender their respective memberships simultaneously. .....

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ding pattern. It seems facially obvious to us that even the NSE was alive to the possibility of Oracle hiving off or transferring its WDM operations to the Respondent without complying with all the applicable Rules and Regulations. NSE maintained this position even later on, as is evident from a perusal of its letter to the Respondent positing that both memberships, though vesting in separate parties, were treated as concomitant . It is also relevant to underscore that the Appellant was not priv .....

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contained in the letter dated 4.4.1999 are these - 2. d) It shall pay the amount fees for registration in the manner provided in the Securities and Exchange Board of India [Stock Brokers and Sub Brokers] Regulations, 1992; and 5. You are now, in terms of clause [d] of the conditions of grant of registration certificate, required to pay the fees in accordance with regulation 10[1] read with Schedule-III of the Securities and Exchange Board of India [Stock Brokers and Sub Brokers] Regulations, 19 .....

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a request to grant fee continuity benefit on the basis of the facts of the case. The Appellant has admitted that on receipt of this request from the Respondent, it recorded in its file notings that the two membership cards could be treated as composite and that the turnover of the two cards may be taken together for the purpose of turnover fees. It is not in dispute that till 2003 the Respondent had been availing of the benefits permissible under the fee continuity provisions. This position was .....

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returned the application and issued a provisional fee liability statement disclosing that after making the necessary adjustments of the amount paid with respect to its membership in the WDM Segment, there were unpaid dues in the name of the Respondent to the tune of ₹ 5,59,45,054 towards principal and interest. It was indicated that the application may be resubmitted only after payment of the outstanding fees. In its letter dated 23.8.2004 to the Respondent, NSE clarified that although seg .....

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7; 5,59,45,054, Respondent filed an Appeal on 8.11.2004 under Section 15T of the SEBI Act, 1992. This was contested by the Appellant before the Securities Appellate Tribunal (SAT), which observed that at the time that NSE had granted fee continuity to the Respondent, there was no provision for segmental surrender, as a result of which, subject to certain conditions, fee continuity was granted to Respondent despite it being a new entity. The SAT held that this letter did not have the effect of re .....

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amounts to the Respondent. Hence, the present Appeal. 6. Learned Senior Counsel for the Appellant has relied on Regulation 10 and Schedule III of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, which are reproduced for the facility of reference: 10. (1) Every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III or Schedule IIIA, as the case may be: Provided that the Board may on sufficient cause being shown permit the stock .....

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n the manner set out below : (a) where the annual turnover does not exceed rupees one crore during any financial year, a sum of rupees five thousand for each financial year; (b) where the annual turnover of 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; xxx xxx xxx (c) After the expiry of five financial years from the date of initial regist .....

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artnership member, as the case may be, has already paid the fees subject to the condition that the erstwhile individual or partner shall be the whole-time director of the corporate member so converted and such director will continue to hold a minimum of 40 per cent shares of the paid-up equity capital of the corporate entity for a period of at least three years from the date of such conversion. Explanation: It is clarified that the conversion of individual or partnership membership card of the e .....

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ined as per the provisions under Schedule III. Emphasis has been placed on Clause 4 of Schedule III (supra) as it provides the only exception to the payment of fees. Facially, it appears to us, this exception has been carved out only for the enablement of persons who are vulnerable to unlimited personal liability in respect of their business debts, to avail of the advantages of converting their mode of transacting business into a corporate structure, provided this conversion is not misused to es .....

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laced on letter dated 4.4.1999 issued by the Appellant to the Respondent, by which a certificate of registration was issued to the Respondent subject, inter alia, to condition (d) which provides that the Respondent and similarly situated entities shall pay the amount of fees for registration in the manner provided in SEBI (Brokers and Sub Brokers) Regulations, 1992. This letter also requested the Respondent to study the Rules and Regulations carefully. Learned Senior Counsel for the Appellant co .....

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pumps constitutes an order/decision binding on the DDA? 14. It is trite to state that notings in a departmental file do not have the sanction of law to be an effective order. A noting by an officer is an expression of his viewpoint on the subject. It is no more than an opinion by an officer for internal use and consideration of the other officials of the department and for the benefit of the final decision-making authority. Needless to add that internal notings are not meant for outside exposur .....

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g to the Article 166(1) of the Constitution, the Court held that order of the Minister could not amount to an order by the State Government unless it was expressed in the name of the Rajpramukh, as required by the said Article and was then communicated to the party concerned. The court observed that business of State is a complicated one and has necessarily to be conducted through the agency of a large number of officials and authorities. Before an action is taken by the authority concerned in t .....

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ate Government? It was held that opinion becomes a decision of the Government only when it is communicated to the person concerned. 16. To the like effect are the observations of this Court in Laxminarayan R. Bhattad and Ors. v. State of Maharashtra and Anr. 2003 (3) SCR 409, wherein it was said that a right created under an order of a statutory authority must be communicated to the person concerned so as to confer an enforceable right. 9. The manner in which the Respondent understood its role a .....

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t) We think it appropriate to reproduce the contents thereof as it is a summation of the case of the Respondent: The National Stock Exchange (NSE) was formed in 1993-94 with a view to promote the Debt Market and Capital Markets. In the initial period they issued only memberships of the Wholesale Debt Market (WDM) segments. M/s. Oracle Stocks and Shares Limited (Oracle) applied for and was granted registration of the WDM segment of the NSE. Subsequently, the NSE issued membership in the Equity Ma .....

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y for the EM segment. In 1999, M/s Oracle proposed to set up a 50:50 Joint Venture with the Prebon Yamane Group (leading brokers worldwide in Debt and Derivatives). Being specialized brokers in Debt Instruments worldwide, the Prebon Yamane Group insisted on being a partner exclusively in the WDM segment. Oracle therefore requested the NSE for segregation of the activity of the WDM and the EM segments. During that period, the NSE, as a matter of policy, was not issuing separate memberships for WD .....

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tively, the NSE did not collect the deposit of ₹ 15 million which it would normally have done for new WDM members. Instead, the NSE merely transferred (without refunding the amount to Oracle) a part of the total deposits of Oracle, amounting to ₹ 10 million, in favour of PYIndia. PYIndia did not bring in fresh deposits for the WDM membership of NSE. Thus, NSE segregated the quantum of deposits paid in 1994 to M/s Oracle and PYIndia to allow each of these entities to broke in Equity a .....

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Shares Ltd. to Prebon Yamane India Ltd. as a continuation of the original WDM membership that was granted to M/s Oracle Stocks & Shares Ltd. The view of the NSE in this regard, confirming that both the memberships are concomitant, is enclosed herewith. In view of the facts mentioned above and the NSE s view in this regard, we would request you to give the status of fee continuity to the composite membership taken by M/s Oracle and PYIndia. In other words, if Oracle has paid turnover fees fr .....

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r, had a 50% stake in the Respondent, in effect the Respondent was another manifestation or avatar of Oracle. Further, the Appellant had conducted inspections of the Respondent but had not raised any issue or recorded any objections at that time. Reliance has been placed on the letter dated 30.1.2002 issued by the NSE to the Respondent, which had stated that as per the policies of the NSE, segmental surrender of trading membership was not permitted, and therefore the assignment of WDM segment to .....

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event of a broker holding only one Registration Certificate but more than one card on any Exchange, registration fee would be payable on the registration certificate and not on the number of cards held by the broker, and the broker s turnover would be reckoned as the aggregate turnover of all cards. It appears that this provision had been relied upon in the Judgment dated 3.6.2010 in WP (C) No.17349/2004, which was struck down by the Delhi High Court in Association for Welfare of Delhi Stock Br .....

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omitant by it. The Appellant, based on the same, approved in the file that the two cards could be treated as composite for all practical purposes and the turnover of the two cards may be taken together for the purpose of ad-valorem fee. We have already noted that Sethi Auto Service Station enunciates that file notings cannot be relied upon with the intent of binding the concerned Authority or Department. 12. Counsel for the Appellant has pointed out that the Respondent has not paid fee as per Sc .....

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ception with regard to it not having been granted fee continuity , reference was made to two letters dated 4.2.2002 and 18.9.2003. Both these letters were applications seeking grant of fee continuity. Thus, the Respondent was never under an understanding that it had been granted fee continuity. 13. After considering the submissions of the learned Senior Counsel for both parties and appreciating the facts of the case, it is evident to us that as per Clause 4 of Schedule III, the Respondent was no .....

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