2015 (12) TMI 369 - SC - Companies Law

Amended Regulations effective from 1.10.2006 introducing Schedule IIIA into the Regulations questioned - Interpretation of provisions of Securities and Exchange Board of India (Stock-brokers and sub-brokers) Regulations, 1992 (for short the Regulations) as amended from time to time including Schedule III and IIIA - Held that - We find ourselves in agreement with submissions advanced on behalf of the appellant that after 30th September, 2006 i.e. after Schedule IIIA admittedly became applicable to the appellant, no provisions in Schedule III could be applied to his case. We also find no merit in the contention advanced on behalf of SEBI that clause 4 of Schedule IIIA protects the demand raised by SEBI. Clause 4 of Schedule IIIA along with clause 3 occurs in Part B which relates to charge of fees. It reads as follows 4 Nothing in clause 3 shall affect the liability of any stock broker to pay fees under Schedule III, which accrued before this Schedule became applicable to him and such fees shall be paid as per the relevant provisions of Schedule III as if they had not ceased to be applicable to him. The aforesaid clause is clarificatory in nature. It clarifies that the liability to pay fees as per Schedule III which has already accrued and got fastened to a stock-broker before the Schedule IIIA became applicable, would remain payable as per the provisions of Schedule III even after they cease to be effective for subsequent period. This clause in our view does not affect the enforceability of Schedule IIIA from the date it became applicable to the appellant on account of option permitted by the relevant provisions. After Schedule IIIA became applicable, the Registration fee for any future period since 1.10.2006 could not be levied or demanded on the basis of Schedule III. It had to be calculated on the basis of monthly turnover and payable each month as per provisions in Schedule IIIA. Thus the impugned order of the SAT under appeal to be contrary to law. The same is accordingly set aside. The Appeal is allowed.

Summary

Issues:
Interpretation of Securities and Exchange Board of India Act, 1992 regarding the measure of fee for stock brokers under amended Regulations effective from 1.10.2006.

Detailed Analysis:

1. Interpretation of Regulations:
The dispute in this case arose from the introduction of Schedule IIIA into the Regulations, replacing the measure of fee for stock brokers from "turnover of the previous year" to monthly turnover. The main contention was whether the new measure would come into effect immediately or the previous measure would continue for a limited period until the turnover of the whole year is realized. The appellant argued that the SAT's view of demanding registration fee based on turnover earned after the previous year until the implementation of Schedule IIIA was impermissible, contrary to the specific provisions of the Regulations.

2. Legal Provisions and Obligations:
The appellant, a stock-broker, was required to be registered with SEBI under the Regulations, and the dispute revolved around the payment of registration fees based on turnover. The appellant paid fees based on the previous year's turnover until Schedule IIIA was introduced, after which he switched to paying fees based on monthly turnover. SEBI, however, claimed additional amounts for the period post-Schedule IIIA implementation, arguing that all turnover should be subject to registration fees.

3. SAT's Decision and Legal Interpretation:
The SAT's decision supported SEBI's demand for registration fees beyond the turnover of the previous year, considering clauses in Schedule III and IIIA. However, the Supreme Court found this interpretation to be illegal and contrary to the Regulations. The Court emphasized that the annual turnover is a measure of the levy, not the subject matter of the levy, as clarified in a previous judgment.

4. Clause Analysis and Conclusion:
The Supreme Court analyzed the relevant clauses in Schedule III and IIIA, particularly clause IV, which states that Schedule III provisions do not apply to stock brokers under Schedule IIIA. The Court concluded that after Schedule IIIA became applicable, no provisions from Schedule III could be enforced. The clause clarifying the liability to pay fees under Schedule III for the period before Schedule IIIA's applicability was deemed clarificatory and did not affect the enforceability of Schedule IIIA.

5. Judgment and Relief Granted:
In light of the legal provisions and interpretations, the Supreme Court set aside the SAT's order, allowing the appeal. The Court quashed the demand made by SEBI, directing the refund of the amount paid by the appellant with interest. The Court emphasized the enforceability of Schedule IIIA for calculating registration fees based on monthly turnover, thereby resolving the dispute in favor of the appellant.