TaxTMI 
TaxTMI 
2022 (10) TMI 526
X X X X Extracts X X X X
X X X X Extracts X X X X
....he stock broker has various memberships and 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 Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s has been reduced by the R. S. Bhatt Committee. R. S. Bhatt Committee has suggested different rates of payment of fees 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom several stock exchanges in the country and was primarily influenced by the expression 'a certificate' as referred to in Section 12(1) of the Act, 1992 and while setting aside the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision Bench of the High Court on the expression "a certificate" as referred to under Section 12(1) of the Act appears to be a misnomer for the reason that the same term can be used for singular 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 resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income Tax Officer, Ernakulam and Another (1981) 4 SCC 173. 20. Learned counsel for the respondents further submits that irrespective of whether a stock broker is required to hold a single registration 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....change has to obtain recognition by the Central Government under Section 4 of the Securities Contracts (Regulation) Act, 1956 and the scheme contemplates/ recognises such of the stock brokers who are members of the stock exchange. No stock broker 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re considered by the Board in terms of the conditions of eligibility prescribed under Reg. 5 and after following the procedure for registration, as referred to under Reg. 6, the stock broker becomes eligible for grant of certificate of registration with the Board. The relevant extract of the provision of Regulations, 1992 is reproduced hereunder:- "CHAPTER II 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e stock broker for seeking registration with the Board. Apart from the details which the stock broker has to indicate, recommendation has to be made by the stock exchange of which he is a member and through whom the application is processed/forwarded to the Board for the purpose of registration. After the compliance is made, the certificate of registration is issued to the stock broker in Form 'D' annexed to Reg. 6. "SCHEDULE I FORMS FORM A Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 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 Fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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; [(bb) Notwithstanding anything contained in clause (b) it is clarified that the fee shall be recoverable as computed as under : (i) in respect of jobbing transactions that is to say all transactions which are squared off during the same day which have not been undertaken by the broker on behalf of clients, the fees shall be computed at the rate of one two hundredth of one per cent in respect of the 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e deposited by the stock broker; not only the initial registration fee but also the fee which has to be paid by the stock broker for renewal of his registration. 34. Clause 1(1)(c) of Schedule III to Regulation 10 postulates that after expiry of five financial years from the 'date of initial registration', a stock broker, for the sixth financial year, after the grant of initial registration, has to pay the prescribed fee to retain registration in force. In reference to the expression 'date of initial registration' to which emphasis been made, it leaves no ambiguity that if more than one registration is permissible in terms of the scheme of rules/regulations framed by the Central Government/Board, as the case may be, the stock broker has to comply with the conditions prescribed in Form '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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for jobbing transactions the scale of fees may be reduced to One Two hundredth of 1 per cent, and in regard to carry forward, renewal or badla transactions, the off-setting entries made by the Exchange, may not be counted as part of the turnover, and further on Government securities, PSU Bonds and Units, the turnover will have to be calculated separately and a fee of one thousandth of one per cent may be charged on such turnover than the present scale of one hundredth of one per cent. It has also recommended that the activities such as underwriting and collection of deposits should not be taken into account for the purpose of calculating the turnover of the brokers. These recommendations of the Committee were, as a matter of fact, accepted by the Government of India also but as on date, the necessary changes 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 Boar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Judge of the High Court upheld the Circular dated 28th March, 2002. 41. The Division Bench of the High Court was primarily persuaded with the expression 'a certificate' as referred to under Section 12(1) of the Act, 1992 and arrived at a conclusion that the expression 'a certificate' signifies a single certificate of registration irrespective of the fact that a stock broker is a member of various stock exchanges and the rules/regulations which are being framed either by the Central Government or the Board in exercise of power under Sections 29 and 30 of the Act, 1992 have to be in conformity with the mandate of the Act, 1992 and that will prevail over the subordinate legislation. Proceeding on the said premise, the Division Bench of the High Court arrived at the conclusion that only initial registration with SEBI 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 A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etation aside. Thus, while interpreting the statutory provisions, the Court is always supposed to keep in mind the object or purpose for which the statute has been enacted. 44. Barak in his exhaustive work on "Purposive Construction" explains various meanings attributed to the term "purpose". It would be in the fitness of discussion to refer to "Purposive Construction" in Barak's words: "Hart and Sachs also appear to treat 'purpose' as a subjective concept. I say 'appear' because, although Hart and Sachs claim that the interpreter should imagine himself or herself in the legislator's shoes, they introduce two elements of objectivity : First, the interpreter should assume that the legislature is composed of reasonable people seeking to achieve reasonable goals in a reasonable manner; and second, the interpreter 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Regulations, 1992 in reference to each certificate of registration from SEBI in terms of the computation prescribed under Circular dated 28th March, 2002 and fee is to be paid as a guiding principle by the stock broker which is in conformity with the scheme of Regulations 1992. 48. So far as the emphasis which was made to the expression 'date of initial registration' as referred to in Schedule III(I)(1)(c) is concerned, it is in relation to a certificate of registration which has been obtained by the stock broker from SEBI, which in turn is in relation to the stock exchange of which he is a member. After the expiry of five financial years from the date of initial registration, in reference to the stock exchange, the fee has to be deposited for the purpose of sixth financial year to keep his registration in force. 49. Insofar as the procedure of charging 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(supra) and needs no further deliberation of this Court. 50. During the course of arguments, and for our own clarification, we put a que....