2001 (2) TMI 957 - SC - Companies Law

Whether the respondents have the necessary statutory authority for levying a fee of the nature which is impugned in this petition? Whether this fee is, as a matter of fact, a tax in the guise of fee and is so excessive as to lose the character of a fee as contended by the petitioners? Held that - Appeal dismissed. Once the levy is in public interest and connected with the larger trade in which the contributories are involved then confining the services only to the contributories does not arise. Since the Amount collected under the impugned levy is being spent by the Board on various activities of the stock and securities market with which the petitioners are directly connected, the fact that the entire benefit of the levy does not accrue to contributories, i.e., the petitioners would not make the levy invalid. 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.Therefore, it would be futile to contend that the impugned fee merely because it is levied on the basis of the turnover of brokers would either amount to a turnover tax or a tax on income

Summary

Issues Involved:
1. Validity of Regulation 10 of the Securities & Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992.
2. Legislative competence to levy the impugned fee.
3. Nature of the fee as regulatory or tax.
4. Reasonableness and quantum of the fee.
5. Classification of brokers and intermediaries for fee imposition.
6. Basis of fee calculation on annual turnover.
7. Inclusion of trading members of the National Stock Exchange within the ambit of the levy.

Detailed Analysis:

1. Validity of Regulation 10:
The petitioners challenged the validity of Regulation 10 read with Schedule III of the Securities & Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992, arguing that the registration fee demanded was excessive, arbitrary, and ultra vires the Act. The court consolidated various writ petitions and stayed other proceedings, directing that the writ petition pending before the Bombay High Court be transferred to the Supreme Court.

2. Legislative Competence:
The court examined whether SEBI had the statutory authority to levy the impugned fee. It was established that the Securities & Exchange Board of India Act, 1992, empowered SEBI to collect fees under sections 11(2)(k) and 12(2) for carrying out its regulatory functions and for registration purposes. The court concluded that SEBI had the necessary competence to collect a cumulative fee for both regulatory and registration purposes.

3. Nature of the Fee:
The petitioners contended that the fee was a tax in the guise of a fee, violating Article 265 of the Constitution. The court distinguished between a tax and a fee, stating that a fee is a payment for specific services rendered by the government agency. The court held that the impugned fee was a regulatory-cum-registration fee, and the element of quid pro quo was minimal. The fee was justified as it was used for regulatory activities benefiting the securities market as a whole.

4. Reasonableness and Quantum of the Fee:
The petitioners argued that the fee was excessive and not commensurate with the services rendered by SEBI. The court noted that SEBI's multifarious duties required substantial funds, and the fee was necessary to meet these obligations. The court found that SEBI's projected expenses were reasonable and justified the quantum of the fee, dismissing the argument that the fee was excessive.

5. Classification of Brokers and Intermediaries:
The petitioners argued that brokers were subjected to hostile discrimination as they were required to pay fees based on annual turnover, while other intermediaries paid a flat rate. The court held that brokers formed a distinct class with a direct bearing on SEBI's regulatory expenses, justifying the classification and the differential fee structure.

6. Basis of Fee Calculation on Annual Turnover:
The petitioners contended that the fee based on annual turnover was arbitrary and led to multiple transactions being taxed. The court upheld the measure of annual turnover as a valid basis for the fee, noting that it was a reasonable method used in other jurisdictions as well. The court directed SEBI to implement the recommendations of the Bhatt Committee to address anomalies in the definition of annual turnover.

7. Inclusion of Trading Members of the National Stock Exchange:
The petitioners argued that trading members of the NSE were not full-fledged members and should not be subject to the fee. The court rejected this argument, stating that trading members were recognized as members of the stock exchange under NSE's bye-laws and were liable to pay the impugned fee.

Conclusion:
The Supreme Court upheld the validity of Regulation 10 and the impugned fee, subject to the implementation of the Bhatt Committee's recommendations. The court dismissed the transferred case and the writ petition, affirming SEBI's authority to levy the fee and the reasonableness of its quantum.