2007 (10) TMI 395 - SC - Indian Laws

Whether the appellants were entitled to the benefit of fee continuity under para 7 of Circular dated 30-9-2002 issued by SEBI? Whether RCML, on amalgamation, duly sanctioned by Calcutta High Court, was entitled to claim the benefit of Fee Continuity? Whether the demand made by SEBI imposing fresh turnover/registration fees on the merged entity (RCML) constituted an act in derogation of the provisions of any other law for the time being in force in terms of section 32 of the said 1992 Act? Held that - Held that - Appeal dismissed. After the merger of RSL into RCML a new entity has emerged. In the circumstances, SEBI was entitled to charge the stipulated fees.

Issues Involved:
1. Entitlement to the benefit of fee continuity under para 7 of SEBI Circular dated 30-9-2002.
2. Validity of SEBI's demand for fresh registration fees post-merger.
3. Interpretation of "compulsion of law" in the context of mergers.
4. Consistency of SEBI's application of fee continuity benefits.

Detailed Analysis:

1. Entitlement to the Benefit of Fee Continuity:
The primary issue was whether the appellants, post-merger, were entitled to the benefit of fee continuity under para 7 of SEBI Circular dated 30-9-2002. The appellants argued that the merger was a result of legal compulsion due to the SEBI's adoption of the Gupta Committee recommendations, which required a minimum net worth of rupees three crores for brokers in the derivative segment. The merger was sanctioned by the Calcutta High Court, transferring all rights and liabilities from RSL to RCML. The appellants contended that this constituted a transfer by operation of law, thus entitling them to the fee continuity benefit.

2. Validity of SEBI's Demand for Fresh Registration Fees:
SEBI demanded fresh registration fees on a turnover basis from RCML post-merger. The Court noted that under the SEBI (Stock-brokers and Sub-brokers) Regulations, 1992, and the 1992 Act, SEBI is entitled to charge registration fees to regulate the securities market. The Court emphasized the distinction between the functions of stock exchanges and SEBI, with SEBI being responsible for regulating trade and ensuring investor protection. The Court held that the emergence of a new entity (RCML) post-merger necessitated the payment of fresh registration fees, as RCML was not entitled to the benefit of continuity of fees paid by RSL.

3. Interpretation of "Compulsion of Law":
The Court examined the term "compulsion of law" as mentioned in the SEBI Circular dated 30-9-2002. It was argued that the merger was compelled by the legal requirement of a minimum net worth for entering the derivative market. However, the Court found no merit in this argument, stating that a scheme under section 391 of the Companies Act is generally an alternative to liquidation and not every merger constitutes a legal compulsion. The Court concluded that the merger in question was undertaken to increase the net worth and reserves of the company, not as a compulsion of law.

4. Consistency of SEBI's Application of Fee Continuity Benefits:
The appellants pointed out that SEBI had previously granted fee continuity benefits to other companies in similar situations. However, the Court stated it was not aware of the specifics of those cases and emphasized that the legal position must be upheld. The Court reiterated that the appellants were not entitled to the fee continuity benefit under the circumstances of their case.

Conclusion:
The Supreme Court dismissed the civil appeals, affirming the decisions of the Securities Appellate Tribunal, Mumbai. The Court held that RCML was not entitled to the benefit of fee continuity and that SEBI was justified in demanding fresh registration fees post-merger. The merger did not constitute a compulsion of law, and the appellants' arguments regarding SEBI's inconsistent application of fee continuity benefits were not sufficient to warrant interference with the impugned orders.

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