2015 (11) TMI 382 - SC - Companies Law

Court denies fee continuity benefits to joint venture entity under SEBI regulations. Appeal allowed, interim order revoked.

The Court held that the Respondent was not entitled to fee continuity benefits as per SEBI regulations. The Court found that the Respondent, formed ... 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 Respondent is barred by the provisions, the Appellant’s internal file notings are of no consequence and the Appellant is not estopped from coming to a contrary conclusion. The Respondent’s argument that the Appellant experienced a change of heart after the issuance of the Circular dated 28.3.2002 is untenable, because if that was indeed what the Respondent believed, it would not have written a letter requesting fee continuity on 4.2.2002, a date prior to the issuance of the circular dated 28.3.2002. 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 Respondent since fees were deposited by them under Clause (a) in sharp contradistinction of Clause (c). Issues Involved:1. Fee continuity benefit.2. Applicability of SEBI Regulations.3. Interpretation of internal file notings.4. Validity of fee demands by SEBI.5. Distinction between entities for fee continuity.Detailed Analysis:1. Fee Continuity Benefit:The core issue revolves around the Securities Appellate Tribunal's (SAT) directive to the National Stock Exchange (NSE) and the Securities and Exchange Board of India (SEBI) to continue granting the 'fee continuity benefit' to the Respondent. The Respondent had paid a significant amount under protest, and the factual matrix shows that Oracle Stocks and Shares Ltd. (Oracle) was initially registered as a trading member in both the Wholesale Debt Market (WDM) and Equity Market/Capital Market (EM/CM) segments. When Oracle entered a joint venture with Prebon Holdings B.V., forming Prebon Yamane (India) Ltd. (the Respondent), the NSE advised segregation of memberships, treating both memberships as 'concomitant.'2. Applicability of SEBI Regulations:SEBI's letter dated 4.4.1999 granted registration to the Respondent as a stockbroker, conditional upon the payment of fees as per the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992. The Respondent continued to avail fee continuity benefits until 2003, when SEBI issued a provisional fee liability statement indicating unpaid dues. The Respondent contested this demand, leading to the SAT's observation that fee continuity was initially granted despite the Respondent being a new entity.3. Interpretation of Internal File Notings:The Appellant argued that internal file notings, which indicated the two membership cards could be treated as composite, could not be relied upon to claim fee continuity. The legal principle that estoppel has no efficacy against a statute was emphasized, citing precedents like Sethi Auto Service Station vs. Delhi Development Authority, which clarified that internal notings do not constitute an enforceable order unless approved by the final decision-making authority.4. Validity of Fee Demands by SEBI:The Appellant relied on Regulation 10 and Schedule III of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, which mandate fee payment by stockbrokers. The only exception to this rule is for entities formed by converting individual or partnership memberships into corporate entities, provided certain conditions are met. The Appellant contended that these regulations were upheld in B.S.E. Brokers Forum vs. SEBI.5. Distinction Between Entities for Fee Continuity:The Respondent argued that since Oracle held a 50% stake in the Respondent, it was essentially a continuation of Oracle. However, the Court found that the Respondent was a distinct entity from Oracle and thus not entitled to fee continuity under Clause 4 of Schedule III, which applies only to conversions from sole proprietorships or partnerships to corporate entities. The Respondent's letters requesting fee continuity further undermined its claim of having been granted such continuity.Conclusion:The Court concluded that the Respondent was not entitled to fee continuity benefits as per the SEBI regulations. The amounts deposited by the Respondent were properly calculated, and no refund was warranted. The Appeal was allowed, and the interim order was recalled.