2023 (3) TMI 1078 - SC - SEBI

Exemption from payment of fees for the period for which the erstwhile individual Srikant Mantri has paid to the Board cannot be converted to the corporate entity MFL - Stock broker which requires multiple registrations to operate on more than one stock exchange(s) or a single registration will suffice for all the stock exchanges - HELD THAT - As decided by this Court in Securities and Exchange Board of India Vs. National Stock Exchange Members Association and Another 2022 (10) TMI 526 - SUPREME COURT and remains no more res integra in view of the judgment of this Court wherein it has been held that stock broker not only has to obtain a certificate of registration from SEBI for each of the stock exchange where he operates, at the same time, has to pay ad valorem fee prescribed in terms of Part III annexed to Regulation 10 of the 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. Whether the appellant Company is entitled to fee continuity benefits under Para 4 of Schedule III of the Regulations 1992? - When Srikant Mantri transferred his membership card of CSE to the Company, he was not a whole time Director but was only a Director. Neither CSE nor its internal auditors, were clear of the exact date on which Srikant Mantri had acquired 40% shareholding in the appellant Company. As was informed by the Board to the CSE vide letter dated 18th March, 1998 that Srikant Mantri was holding less than 40% of the paidup capital of the corporate entity. It was also recorded by the Tribunal that from the true copies of annual returns provided by the appellant Company, it was revealed that the details of the Directors provided by them nowhere indicate Srikant Mantri as a whole time Director for any of the relevant years. The designation of Srikant Mantri has been indicated as Director in all the relevant years Annual Return. It was also established from the copy retrieved from ROC s office in respect of AGM dated 28th April, 1997 and 19th May, 1999. Appellant Company was granted registration after para 4 was put in place by notification dated 21st January, 1998 and the appellant Company failed to satisfy that it fulfilled the conditions of para 4 to Schedule III pursuant to which the appellant has claimed his entitlement of fee continuity benefits. We are satisfied that the appellant Company failed to fulfil the conditions as referred to under Para 4 of Schedule III appended to the Regulations of which a reference has been made.

Summary

Issues Involved:
1. Whether a stock broker requires multiple registrations to operate on more than one stock exchange(s) or a single registration will suffice for all the stock exchanges.
2. Whether the appellant Company is entitled to fee continuity benefits provided under para 4 of Schedule III.

Issue 1: Multiple Registrations for Stock Brokers

The Tribunal held that a single registration with the Securities and Exchange Board of India (SEBI) is sufficient even if the stock broker has multiple memberships and functions from several stock exchanges. The Tribunal set aside the impugned order and remitted the matter to SEBI for fresh computation of the registration fee payable by the Company based on its registration from 17th October, 1995. The Supreme Court affirmed this view, referencing the case "Securities and Exchange Board of India Vs. National Stock Exchange Members Association and Another 2022 SCCOnline SC 1392," which concluded that a stock broker must obtain a certificate of registration from SEBI for each stock exchange where they operate and pay the ad valorem fee accordingly.

Issue 2: Fee Continuity Benefits

The appellant Company claimed exemption from payment of registration fees for the period already paid by Srikant Mantri, arguing that all conditions under para 4 of Schedule III were satisfied. However, SEBI rejected the claim, stating that Srikant Mantri was not a whole-time Director in the Company during the relevant period, which is a condition for exemption under para 4. The Tribunal upheld this decision, noting that Srikant Mantri transferred his membership card to an existing company and became a Director, rather than converting himself into a corporate entity. The Supreme Court also upheld this view, confirming that the appellant Company did not meet the conditions of para 4 of Schedule III, particularly the requirement for the erstwhile individual to be a whole-time Director and hold a minimum of 40% shares for at least three years post-conversion.

Conclusion:

The Supreme Court dismissed the appeal filed by the appellant Company, affirming that the conditions under para 4 of Schedule III were not satisfied, and thus, the Company was not entitled to fee continuity benefits. The appeal by SEBI was allowed, reinforcing the requirement for multiple registrations and fee payments for stock brokers operating on multiple stock exchanges.