TMI Blog2022 (10) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained from the Board in accordance with the regulations framed in exercise of power under Section 30 of the Act 1992. 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 exchange has to obtain certificate of registration from the Board and issuance of certificate of registration from SEBI remain co-terminus with the stock exchange to which the stock broker is a member and that being the reason, Reg. 10 read with Schedule III lays down the procedure according to which the fees has to be paid/deposited by the stock broker in obtaining certificate of registration from SEBI in reference to the stock exchange and for its renewal at a later stage for keeping its registration in force. When the law has to be applied in a given case, it is for the Court to ascertain the facts and then interpret the law to apply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees as prescribed 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 [ 2001 (2) TMI 957 - SUPREME COURT] and needs no further deliberation of this Court. As 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 March, 2010, it has been notified that such stock exchange shall immediately inform all other stock exchange(s) the details of the defaulter member such as name of the member, the names of the proprietors/partners/ promoters/dominant shareholders, as applicable. This may be a mechanism according to which if the stock broker who is a member of the stock exchange commits default, or on being disqualified to continue as a member, consequential actions could be taken against him pursuant to the circular to which a reference has been made. However, this is not a question to be examined by this Court in the instant proceedings. Consequently, the appeal deserves to succeed and is accordingly allowed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck Brokers and Sub-Brokers) Rules, 1992 and in exercise of powers conferred under Section 30, the Board framed Securities and Exchange Board of India(Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as Regulations 1992 ). 4. When SEBI levied the fees on the stock brokers in terms of Regulation 10 read with Schedule III, it was challenged before this Court in BSE Brokers Forum, Bombay and Others v. Securities and Exchange Board of India and Others (2001) 3 SCC 482 . This Court upheld the validity of Regulation 10 read with Schedule III to the Regulations, 1992 and further held that the fees charged by SEBI is not a tax but is a fee and that is regulatory in nature and the element of quid pro quo is not strictly necessary. This Court passed further directions requiring SEBI to amend Regulations to incorporate the recommendations of the R.S. Bhatt Committee. 5. That keeping in view the directions of this Court in the afore-stated judgment, SEBI issued a Circular dated 28th March, 2002 clarifying that every stock broker who has a certificate of registration has to pay the fees prescribed in Schedule III for each and every certificate of registration th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach and every certificate that he holds. In case the broker holds only one registration certificate and more than one card on any exchange it is clarified that registration fees are payable on the registration certificate and not on the number of cards held by the broker. The brokers turnover will be the aggregate turnover of all cards. (Emphasis supplied) 6. Respondent no.1 is an association of the trading members of the National Stock Exchange and as alleged, its members deal in sale and purchase of shares and securities in India and each stock broker has been registered under the Act, 1992 and pay fee for registration in accordance with the Regulations, 1992. 7. The association of trading members challenged the Circular dated 28th March, 2002 to the extent that paragraph (vi) of Part A provides the fees payable by a composite corporate member and requires that the stock broker who held more than one registration with SEBI, structured fee would be required to be paid for each registration. It was contended by the association that even if a stock broker has more than one registration from SEBI, he was required to pay fees only with respect to the initial registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration for multiple approvals from individual stock exchanges. 11. Learned counsel for the appellant submits that this is the second round of litigation initiated by the respondents having failed in their challenge to the validity of Regulation 10 read with Schedule III of the Regulations providing for imposition of fee, which was upheld in BSE Brokers Forum, Bombay and Others(supra) and the Circular dated 28th March, 2002 is nothing but a clarification and in terms thereof, the fee is to be paid by the stock broker which is in conformity with the scheme of Regulations 1992. 12. Learned counsel for the appellant further submits that the imposition is held to be a fee and not a tax and being a levy which is also regulatory in nature, in view of various activities of SEBI to regulate the business of the securities market mentioned in Section 11 of the Act, quid pro quo was not held to be a condition precedent for levy to constitute fee. 13. Learned counsel further submits that the scheme of the securities contracts clearly postulates that the application is to be made through a stock exchange for registration with SEBI and each stock exchange is separately registered u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e necessary requirements are satisfied and an intimation of registration is to be sent to the individual stock exchanges, that enabled broker/sub-broker to apply to SEBI for reconsideration of his case of registration for a particular exchange, if refused. 17. Learned counsel further submits that a stock broker who had been a member of the Madras, Calcutta and Bombay Stock Exchanges, has to get himself separately registered with SEBI in respect of each of such stock exchanges and a certificate of registration may be applicable to each of such stock exchanges and it has been wrongly claimed by the respondents that one certificate of registration is required which is applicable to multiple stock exchanges. 18. Per contra, learned counsel for the respondents, on the other hand, while supporting the finding recorded by the Division Bench of the High Court under the judgment impugned submits that the scheme of the Act and the Regulations framed thereunder nowhere suggest that separate registration is required with respect to each of the stock exchanges and has referred to certain provisions of the scheme of Regulations and Rules, 1992 and submits that only a semblance of a suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record. 22. From the arguments advanced before us, the following two questions arise for our consideration:- (i) Whether under the Act 1992, a stock broker has to obtain a certificate of registration from SEBI for each of the stock exchanges where he operates or whether a single certificate of registration from SEBI is sufficient and the same would enable him to trade in all other stock exchanges? (1) Whether the ad valorem fee to be paid for an initial period of five years will recur with every such registration? 23. Before we proceed to examine the questions that emerge for our consideration, it will be apposite to first have a bird s eye view of the scheme of the Act and the rules/regulations framed thereunder that will facilitate this Court to appreciate the submissions made by the parties. 24. The Board has been established under Section 3 of the Act, 1992 and it has various functions to discharge. The primary duty of the Board is to protect the interests of the investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. Section 11 provides various functions of the Board, includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or sub-broker without registration. 3. No stock broker or sub-broker shall buy, sell, deal in securities, unless he holds a certificate granted by the Board under the Regulations : Provided that such person may continue to buy sell or deal in securities if he has made an application for such registration till the disposal of such application. Conditions for grant of certificate to stock broker. 4. The Board may grant a certificate to a stock-broker subject to the following conditions namely :- (a) he holds the membership of any stock exchange; (b) he shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member; (c) In case of any change in the status and constitution, the stock broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; (d) He shall pay the amount of fees for registration in the manner provided in the regulations; and (e) He shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, selling, or dealing in securities and in particular the following, namely, whether the stock broker- (a) is eligible to be admitted as a member of a stock exchange; (b) has the necessary infrastructure like adequate office space, equipments and man power to effectively discharge his activities; (c) has any past experience in the business of buying, selling or dealing in securities; (d) is subjected to disciplinary proceedings under the rules, regulations and byelaws of a stock exchange with respect to his business as a stock-broker involving either himself or any of his partners, directors or employees; (e) is a fit and proper person.] Procedure for registration. 6. The Board on being satisfied that the stock-broker is eligible, shall grant a certificate in Form D to the stock-broker and send an intimation to that effect to the stock exchange or stock exchanges as the case may be. Effect of refusal of certificate of registration. 9. A stock-broker, whose application for grant of a certificate has been refused by the Board, shall not, on and from the date of the receipt of the communication under sub-regulation (2) of regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted..................... Signature Recommendation of the Stock Exchange This is to certify that..................is a member of this Exchange and is recommended for registration with the Securities and Exchange Board of India. Signature Name Designation FORM D Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 [Regulation 6] Certificate of Registration In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder, the Board hereby grants a certificate of registration to....................a member of the................Stock Exchange(s) as a Stock Broker for carrying on the activities of buying, selling or dealing in securities and carrying on such other activities as are permitted by such Stock Exchange(s) subject to conditions prescribed in the rules and in accordance with the regulations. Registration number allotted is as under : ............................................................................................................ This certificate shall be valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 calculating the turnover;] (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 date of grant of initial registration to keep his registration in force. [Emphasis supplied] 32. It is not disputed that the rules and the regulations have been notified with the previous approval of the Competent Authority in the Official Gazette, of which a reference has been made above. Before a certificate of registration is issued as referred to under Section 12 of the Act 1992, the procedure has been prescribed for a stock broker who indeed to be a member of the stock exchange as defined/codified under Rule 2(e) of Rules 1992. The stock broker not only has to comply with the conditions for grant of certificate und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning 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 levied on the turnover as such but the fee is being levied on the brokers making their annual turnover as a measure of the levy which is a fee for regulating the activities of the securities market and for registration of the brokers and other intermediaries in the said market. Therefore, it is futile to contend that such levy would be either a tax or a fee on turnover. It is a settled principle in law that if the State has the authority to impose a levy then it has a wide discretion in choosing the measure of levy provided, of course, it withstands the test of reasonableness. Many levies may have a similar measure but by such similarity in the measure, the levies do not become the same. Therefore, if the impugned levy adopts a measure which is either similar to the one adopted while levying turnover tax or income-tax, the impugned levy ipso facto by adoption of such meas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 the R.S. Bhatt committee, this Court was of the view that the Board may make certain corresponding changes so as to remove those anomalies pointed out by the Committee and directed to incorporate the conditions/recommendations with regard to the levy based on the turnover. 39. In furtherance of the judgment of this Court in B.S.E. Brokers Forum, Bombay and Others(supra), the appellant came out with a circular dated 28th March, 2002 providing the procedure according to which the structure for obtaining the certificate of registration has been laid down providing the fees to be deposited by the stock broker based on the annual turnover . 40. The grievance of the respondents was in reference to paragraph (vi) of Part A to the Circular dated 28th March, 2002 which prescribed the fees payable by composite corporate members. It only clarifies that every st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exchange has to obtain certificate of registration from the Board and issuance of certificate of registration from SEBI remain co-terminus with the stock exchange to which the stock broker is a member and that being the reason, Reg. 10 read with Schedule III lays down the procedure according to which the fees has to be paid/deposited by the stock broker in obtaining certificate of registration from SEBI in reference to the stock exchange and for its renewal at a later stage for keeping its registration in force. 43. When the law has to be applied in a given case, it is for the Court to ascertain the facts and then interpret the law to apply on such facts. Interpretation, indeed, cannot be in a vacuum or in relation to hypothetical facts. It is always the function of the legislature to say what shall be the law and it is only the Court to say what the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the language of the provision. If the language or the phraseology employed by the legislation is precise and plain and thus by itself proclaims the legislative intent in unequivocal terms, the same must be given effect to, regardless of the consequences that may follow. But if the words used in the provision are imprecise, protean or evocative or can reasonably bear meanings more than one, the rule of strict grammatical construction ceases to be a sure guide to reach at the real legislative intent. In such a case, in order to ascertain the true meaning of the terms and phrases employed, it is legitimate for the court to go beyond the arid literal confines of the provision and to call in aid other well-recognised rules of construction, such as its legislative history, the basic scheme and framework of the statute as a whole, ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 March, 2010, it has been notified that such stock exchange shall immediately inform all other stock exchange(s) the details of the defaulter member such as name of the member, the names of the proprietors/partners/ promoters/dominant shareholders, as applicable. This may be a mechanism according to which if the stock broker who is a member of the stock exchange commits default, or on being disqualified to continue as a member, consequential actions could be taken against him pursuant to the circular to which a reference has been made. However, this is not a question to be examined by this Court in the instant proceedings. 51. Consequently, the appeal deserves to succeed and is accordingly allowed and the judgment and order passed by the Division Bench of the High Court is hereby quashed and set aside. No costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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