TMI Blog2015 (11) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... ities during the financial year. The view taken by the SAT that since in the wholesale debt market segment the broker has a limited role as per the RBI circular and since the broker does not receive the sale or purchase price because the payment is directly made to the seller, the broker will be saved from inclusion of the sale and purchase prices in his annual turnover, suffers from an apparent error. The error lies in not appreciating that the component of aggregate of sale and purchase prices which is receivable by the stock broker even on account of his clients is included in the annual turnover. Such sale and purchase price receivable by the stock broker on account of his clients, under the directions of the RBI through the circular dated June 20, 1992 presently goes directly to the seller but it is of no significance. Even if such sale and purchase price had actually been received by the stock broker not on his own account but on account of his clients, it could not belong to the broker and had to be passed on to the seller because such amount was receivable clearly on account of his clients in contradistinction to any part of sale and purchase price received or receivable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose 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. 3. The factual matrix may be noted only in brief. The respondent is a stock broker in the wholesale debt market segment of the National Stock Exchange and deals in debt market securities. The stand of the respondent is that the price of the dealt with securities would not form part of the concerned broker's `annual turnover' and the same cannot be the basis for computing the registration fee of stock brokers like the respondent. This stand is based on a circular of Reserve Bank of India (for brevity, `RBI') dated June 20, 1992, issued with a view to regulate the wholesale debt market. The dispute in respect of quantum of registration fee demanded by the SEBI was brought before the SAT by way of challenge to SEBI's order dated November 28, 2003 directing the respondent to pay ₹ 33,51,45,620/- towards principal and ₹ 3,78,29,623/- towards interest as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the value of brokerage earned by the stock brokers like the respondent. According to Mr. C.U. Singh, learned senior counsel for the SEBI the respondent is bound by the provisions of the SEBI Act, the rules framed thereunder as well as the Regulations. The law does not permit any one to act as a stock broker either in respect of shares in the equities segment or the Government securities in the wholesale debt segment until he is registered with the SEBI. Such registered broker has to pay the prescribed fee as per Schedule III of the Regulations. He highlighted clause 1(bb)(ii) of Schedule III which was inserted by the Amendment Regulations of 2002 w.e.f. February 20, 2002. It is the case of the appellant that clause 1(bb)(ii) was introduced in the Regulations because the SEBI accepted the Bhatt Committee's recommendations for fixing a lower rate of fees for transactions in bonds and securities. The lower rate for transactions in bonds and Government securities was on account of comparative higher value of such transactions leading to higher turnover and that justified imposition of lower rate of fees. The grievance of the appellant is that the SAT did not consider such clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of clause 1(bb) because the respondent did not disclose details of its different transactions. 7. On behalf of appellant reliance was placed upon judgment of this Court in the case of K.P. Varghese v. Income-tax Officer, Ernakulam (1981) 4 SCC 173 to highlight various principles relating to interpretation of statutes. In particular, reliance was placed upon the principle that plain meaning or literal construction may not be relied upon if it results in absurdity, injustice and unconstitutionality. In such a situation Court should construe the real meaning having regard to the object and purpose behind enacting the provision as well as the context of the setting in which it occurs and with a view to suppress the mischief sought to be remedied by the Legislature. 8. In reply Mr. Jayant Bhushan, learned senior advocate submitted that in the case of B.S.E. Brokers' Forum this Court upheld the validity of the registration fees levied by the SEBI but there was no occasion in that case to interpret the term `turnover' as defined through the Explanation. He also referred to an Explanation to clause 2 of Schedule IV of the Regulations only for comparing the two Explanations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verns fees to be paid by the stock broker or sub-broker, Schedule IV relates to Regulation 16G(1) which governs fees to be paid by the Trading or Clearing Member or Self Clearing Member of Derivatives Exchange/ Derivatives Segment/ Clearing Corporation/ Clearing House. In such a situation, in our view, the term `annual turnover' has to be understood only in the light of Schedule III and its contents including the relevant Explanation. 12. On a careful analysis of the Explanation occurring after paragraph 3 of Schedule III and the definition of `annual turnover' contained therein as also the reasonings in the impugned order we are constrained to hold that the SAT has erred in limiting the annual turnover of the respondent only to the amount of brokerage earned by it. The earning by way of brokerage represents only the part of price of securities received by the stock broker on his own account. The other and more significant part of the `annual turnover' as per the Explanation is the aggregate of the sale and purchase prices of securities, received or receivable by the stock broker on account of his clients in respect of sale and purchase or dealing in securities durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not to `regulate' such market cannot cut any ice because the provisions relating to registration fee by the SEBI have already been held valid and in the present proceedings there is no challenge to the relevant provisions including those in Schedule III of the Regulations. As already noted, in the case of B.S.E. Brokers' Forum this Court directed the SEBI to incorporate the relevant recommendations of the Bhatt Committee in the Regulations and as a result the rate of fee on Government securities etc. dealt in the wholesale debt market was lowered and pegged at 1/10th in comparison to fees payable by the stock brokers in other segment. 15. In view of the above discussions and the interpretation of the term `annual turnover' indicated by us earlier, we are constrained to hold the impugned order passed by the SAT as erroneous in law. It is accordingly set aside. There is a consensus that in case the impugned judgment and order is set aside, the matter deserves to be remanded back so that other grounds earlier raised by the respondent may now be considered by the SAT in accordance with law. For that purpose the matter is remitted back to the SAT for deciding the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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