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TMI Blog2022 (10) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... functions from several stock exchanges and, therefore, will have to pay the fee for the initial registration with SEBI and, accordingly, set aside paragraph (vi) of Part A of the Circular dated 28th March, 2002 issued by SEBI. Factual backdrop 2. SEBI has been established under provisions of the Act, 1992 with an object to protect the interest of investors in the securities market and to promote the development of, and to regulate the securities market. SEBI was created as a regulator to regulate the securities' market which includes dealing in shares, debentures, derivates, etc. in recognised stock exchanges. It may be relevant to note that before SEBI was formed, each stock exchange admitted members and the brokers/sub-brokers could deal in securities in accordance with bye-laws of each of such stock exchanges. The law that governed prior to the Act, 1992 was the Securities Contracts (Regulation) Act, 1956 read with Securities Contracts (Regulation) Rules, 1957. The Act and the Rules provide for recognition of the stock exchange and qualifications of members of the stock exchange. 3. After the formation of SEBI, the Central Government in exercise of power under Section 29 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees depending on nature of the transactions entered into. SEBI has accepted the recommendations of the R. S. Bhatt Committee and many brokers have paid fees in the past as per schedule III read down with the recommendations of the R. S. Bhatt Committee and such fees have been accepted by SEBI. Following the judgment of the Hon'ble Supreme Court, SEBI has received representations from the brokers in their individual capacities as well as their representative capacity. The issues have been examined by SEBI. Part A of this circular contains clarifications on the issues sought by the brokers. xxx xxx xxx PART A CLARIFICATIONS ON THE ISSUES ARISING OUT OF THE VARIOUS REPRESENTATIONS ON FEES TO BE PAID BY BROKERS TO SEBI. xxx xxx xxx vi. Fees payable by composite corporate members : It is clarified that Regulations require every broker who wants to receive a Certificate of registration from SEBI to make payment of fees to SEBI. This is irrespective of the number of cards which are held by the broker on the stock exchange. In case the broker has more than one registration certificate from SEBI on any stock exchange then he will be required to pay fees as per the Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he finding returned by the learned Single Judge, allowed the appeal by a judgment dated 7th November, 2005 and held that single registration of SEBI is required even if a stock broker has a membership and functions from several stock exchanges and will have to pay registration fee for the first initial registration with SEBI even if he operates in several other stock exchanges with a further direction that if any of the stock broker has paid fees to SEBI for any subsequent registration after his first initial registration, the said fee has to be refunded by SEBI forthwith and declared paragraph (vi) of Part A of the Circular dated 28th March, 2002 to be inconsistent with Section 12(1) of the Act 1992. That became the subject matter of challenge in appeal before us. 10. It may be noticed that the procedure of requiring registration with SEBI for each stock exchange separately continued till the year 2014 and by amending the Regulations, SEBI now requires a single registration for a stock broker with one registration number. The broker has to apply to individual stock exchanges for approval to trade in their exchange. Therefore, from 2014 onwards, the scheme requires one registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or plural expression and the High Court has completely overlooked the scheme of Regulations, 1992 and Form 'A' annexed to Reg.3 thereto and if the scheme of the Act, Rules and Regulations framed thereunder are examined in a holistic manner, it clearly manifests that the stock broker has to get the certificate of registration from SEBI for each of the stock exchange where he operates and accordingly the fee is to be paid pursuant to the Circular dated 28th March, 2002 which was only a clarification made, according to which the fee was payable by the composite corporate broker. 16. Learned counsel for the appellant further submits that the complaint of the association was only with respect to the fee payable under Schedule III and the computation of five years' period from the date of initial registration but the scheme of Regulations, 1992 makes it explicit that an application has to be made by the stock broker through each of the stock exchanges where he wishes to be a member and the respective stock exchange forwards the application with its recommendations to SEBI, who will consider the application under Reg. 5 and grant registration under Reg. 6 after the necessary requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or multiple registrations with each stock exchange, the payment of ad valorem fee will nonetheless happen only once, i.e., for five years from the first of such multiple registrations and further submits that there is no indication in the scheme i.e., the Act, Rules and Regulations, that a stock broker ought to register separately with respect to each stock exchange of which he is a member and even if multiple registrations are contemplated, still the ad valorem fee payable for five years can only be reckoned from the initial registration, i.e. the first of said multiple registrations with SEBI and on this premise at least the Circular dated 28th March, 2002 is ultra vires to the Act, 1992 insofar as it compels the stock brokers to pay ad valorem fee for multiple blocks of five years from the dates of their multiple registrations which is otherwise not legally permissible and this what the Division Bench has examined in light of expression 'a certificate' in Section 12(1) of the Act, 1992 which does not call for further interference. 21. We have heard the submissions of the learned counsel for the parties and with their assistance perused the material on record. 22. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sub-broker shall abide by and deal in securities unless he holds a certificate of registration granted by the Board. The Central Government has laid down the conditions of eligibility which the stock broker has to fulfil for the purpose of obtaining certificate of registration under the guiding principles prescribed under Rule 4 of Rules 1992. 26. That in exercise of power under Section 29 of the Act 1992, the Central Government framed the Rules for carrying out the purpose of this Act called the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992. 27. It will be apposite to take note of Rules 2(d), 2(e), 3 and 4 of the Rules, 1992 which have been extracted as under:- "2. In these rules, unless the context otherwise requires : (a) .................. (b) .................. (c) .................. (d) "stock exchange" means a stock exchange which is for the time being recognised by the Central Government under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (e) "stock broker" means a member of a stock exchange; (f) ............ (g) ............ Not to act as stock broker or sub-broker without regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... REGISTRATION OF STOCK BROKERS Application for registration of stock broker. 3. (1) An application by a stock broker for grant of a certificate shall be made in 'Form A' through the stock exchange or stock exchanges, as the case may be, of which he is admitted as a member. (2) The stock exchange shall forward the application form to the Board as early as possible but not later than thirty days from the date of its receipt. (3) Notwithstanding anything contained in sub-regulation (1), any application made by a stock broker prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in the 'Form A' shall be treated as an application made in pursuance of sub-regulation (1) and dealt with accordingly : Provided that the requirement of the payment of fees shall be the same as is referred to in sub-regulation (1) of regulation 10. Furnishing of information, clarification, etc. 4. ................ Consideration of application. 5. The Board shall take into account for considering the grant of a certificate all matters relating to buying, selling, or dealing in securities and in particular the following, namely, whether the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations, 1992 [Regulation 3] Application Form for Registration as Stock Brokers with Securities and Exchange Board of India Name of the Stock Exchange : 1. Name of Member with Code No. 2. Address of Member 3. Trade name of Member 4. Form of Organisation-Sole proprietorship, partnership, corporate body, financial institution. Please give names of proprietor/partners/directors. 5. Educational Qualifications. 6. Date of admission to membership. 7. Whether member of more than one Stock Exchange? If so, please give name(s) of the Stock Exchange(s) with Code Number(s). 8. Indicate Fax, Telex and Phone Number(s) of office and residence. 9. In the case of members admitted on any Stock Exchange after February 21, 1992, the copy of the information given to the Stock Exchange at the time of admission. I declare that the information given in this form is true to the best of my knowledge and belief. ........................................................... Dated..................... Signature Recommendation of the Stock Exchange This is to certify that..................is a member of this Exchange and is recommended for registration with the Secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale side of such transactions; (ii) in respect of transactions in Government securities, the bonds issued by any Public Sector Undertaking and the units traded in a similar manner, the fee payable shall be computed at the rate of one thousandth of one per cent of the turnover; (iii) in case of carry forward, renewal or badla transactions the fees shall be computed at the rate of one hundredth of one per cent of the turnover and the reverse off setting transactions shall not be counted as part of the turnover; (iv) if brokers are carrying out transactions in securities without reporting them to the stock exchange, those transactions shall be taken into account for the purpose of turnover and the fees shall be computed at the rate of one hundredth of one per cent of the turnover; (v) the trade put through on other stock exchanges shall be included in the turnover of that exchange if market for that security does not exist on the exchange of which he is a member and the fees shall be computed at the rate of one hundredth of one per cent of the turnover; (vi) activity such as underwriting and collection of deposits shall not be taken into account for the purpose of calculati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'A' annexed to Regulation 3 and if he holds multiple registrations with the Board in his basket, after expiry of five years of the certificate of registration from the initial registration in reference to the stock exchange of which he is a member, a fee has to be paid/deposited by him to keep his registration in force. In other words, each certificate of registration with SEBI remains co-terminus with the stock exchange(s) to which the stock broker is a member. 35. In the earlier round of litigation, the stock brokers through their brokers' forum challenged the validity of Regulation 10 read with Schedule III of the said regulations prescribing the fee to be charged for the purpose of obtaining certificate of registration with the Board. The objection was that the same is in the nature of a turnover tax but not a fee being charged by the Board for the purpose of obtaining certificate of registration. 36. This Court in B.S.E. Brokers' Forum, Bombay and Others(supra) held in paras 45 and 47 as under:- "45. It cannot be disputed that the annual turnover of a broker is not the subject matter of the levy but is only a measure of the levy. In other words, the fee is not being levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges have not been brought about by the Board in its Regulations. Consequently, to the extent of the recommendations made by the Expert Committee, we are of the opinion that the Board is bound to bring about corresponding changes so as to remove the anomalies pointed out by the Committee. This was pointed out to learned counsel for the respondents when it was submitted that the Board has accepted these recommendations and the proposed changes were not brought about because of the pendency of this petition and the necessary changes to incorporate the recommendations of the Bhatt Committee would be done after disposal of these petitions. We record this submission on behalf of the Board and direct that the said changes recommended by the Bhatt Committee will be incorporated in the Regulations. Subject to the above, we are of the view that the challenge made to the levy based on the measure of turnover has to be rejected." 37. This Court, in the earlier round of litigation, has approved the mechanism which was being followed by the Board in charging fees in terms of the procedure prescribed under Schedule III based on "annual turnover". 38. While accepting the anomalies pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI is required for a stock broker even if he is a member of multiple stock exchanges and accordingly directed the appellant to refund the fee which had been deposited by each of the stock broker for multiple registrations. 42. The High Court, in our view, appears to be influenced by the expression 'a certificate of registration' referred to under Section 12(1) of the Act, 1992 but has failed to notice that the expression 'a certificate' is not in reference to any number and it can be considered that the words in the singular shall include plural as well, and has failed to notice that certificate of registration has to be obtained from the Board in accordance with the regulations framed in exercise of power under Section 30 of the Act 1992. In this context, the very scheme of rules framed by the Central Government in exercise of power under Section 29 and regulations framed by the Board under Section 30 of the Act, 1992 has been completely misplaced which indeed has a statutory force. Although the scheme may be in the nature of subordinate legislation, the same has superior force and supplements a mechanism/ procedure according to which the member (stock broker) of the stock exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter should accept the non-rebuttable presumption that members of the legislative body sought to fulfil their constitutional duties in good faith. This formulation allows the interpreter to inquire not into the subjective intent of the author, but rather the intent the author would have had, had he or she acted reasonably." (Aharon Barak, Purposive Interpretation in Law, (2007) at p. 87.) 45. Francis Bennion in his book Statutory Interpretation described "purposive interpretation" as under: "A purposive construction of an enactment is one which gives effect to the legislative purpose by- (a) following the literal meaning of the enactment where that meaning is in accordance with the legislative purpose, or (b) applying a strained meaning where the literal meaning is not in accordance with the legislative purpose." 46. In Chief Justice of Andhra Pradesh and Others v. L.V.A. Dixitulu and Others (1979) 2 SCC 34, a Constitution Bench of this Court observed as under: "66. The primary principle of interpretation is that a constitutional or statutory provision should be construed 'according to the intent of they that made it' (Coke). Normally, such intent is gathered from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed under Schedule III annexed to Regulation 10 of the Regulations, 1992 is concerned, it has already been examined by this Court, in B.S.E. Brokers' Forum, Bombay and Others(supra) and needs no further deliberation of this Court. 50. During the course of arguments, and for our own clarification, we put a query to the learned counsel for the appellant that in consequence of refusal to grant certificate of registration to a stock broker in relation to one stock exchange, whether this disqualification will give adverse impact on registrations granted to the stock broker in other stock exchanges for the reason that the certificate of registration was granted based on membership of different stock exchanges, it has been contended by the appellant that certificate of registration was granted based on membership of different stock exchanges, and the applicant was to be admitted as member of different stock exchanges as per their own bye-laws, rules and regulations. However, in the case where stock broker is declared defaulter or disqualified to continue as a stock broker in reference to one of the stock exchanges, in terms of SEBI Circular SEBI/MIRSD/Master Cir-04/2010 dated 17th M ..... 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