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2019 (11) TMI 847 - AT - SEBIClaim of fee continuity benefit - what constitutes annual turnover for the purpose of SEBI registration fee ? - HELD THAT - On a complete perusal of all the facts and the provisions in various Circulars/ Regulations more particularly stated in Circular / Press Note dated August 28, 2003 issued under SEBI (Broker Regulations) Rules, 1992 we cannot agree with the contentions of the appellant that they are entitled for fee continuity benefit treating the initial registration granted to Pennar on August 6, 1994. The correspondences and the relevant regulations make it very clear that the appellant has been rightly treated as a fresh registration with effect from the date of granting the new registration on October 20, 2000 and thereafter cannot indefinitely continue to claim that it is case of transferring some portion of equity to Garban and the original legal entity continues. It is a fact that original legal entity as a company continues but the question to be answered is whether for the purpose of granting registration as a broker is it the same entity. Incorporation as a company and registration as a SEBI intermediary are two different and distinct processes where there are additional rules and regulations to be adhered to. This is a case of a complete takeover of a brokerage by a new entity Garban and the new registration granted by SEBI is in the name of Garban. Both the NSE and SEBI have categorically stated to the appellant through multiple correspondences that the appellant cannot claim fee continuity benefit only on the ground that the appellant has been seeking the same through their earlier correspondences. Those claims were put to rest the day SEBI granted a fresh registration number and from that date it has to be treated as a separate broker distinct from the original Pennar as far as its business is concerned. Accordingly, the orders relied on by the appellant relating to a Company is a legal entity in perpetuity, though correct, is not relevant in the context. The date of initial registration of the appellant is to be treated as October 20, 2000, the date of granting the fresh registration by SEBI and all fee liabilities arising from its turnover have to be recalculated with effect from this date. Since rate of interest of 15% per annum has been implemented on delayed payment by SEBI from December 16, 1998 interest, if any, on the registration fee / turnover fee @ 15% per annum also is due from the appellant on any delay in depositing/ paying the principal amount of fee. Rate of turnover fee applicable to the appellant - we do not agree with the submissions of respondent SEBI. It is on record that the appellant did give an auditor s certificate. The turnover proforma produced by SEBI before us consists of two parts; its upper part showing the turnover table and lower part showing fee computation table. What is argued before us is that the auditor certificate provided by the appellant consisted of only the upper portion of the relevant proforma giving the turnover table and that too for part of the period i.e. 1999-2000 to 2002-2003; not the full five years period from October 2000 October 2005. The latter argument has no meaning since in 2003 the appellant could not have provided turnover data upto 2005. When it is a fact that the appellant was dealing only in WDM segment and the turnover fee applicable to WDM segment was only 0.001% it was not appropriate for SEBI to impose a turnover fee at the rate of 0.01% thereby imposing such a huge burden on the appellant without any legal basis; which is highly arbitrary. If SEBI had any doubt regarding the turnover figures, being the regulator those doubts should have been removed before passing an order, particularly when the order imposes a very heavy burden on the appellant. When SEBI could calculate the fee liability based on the figures given by the appellant it was incumbent on SEBI to apply the applicable rate of fee based on the admitted position of the appellant trading only in the WDM segment. Therefore, we set aside the imposition of fee on the appellant @ 0.01% of its turnover. In conclusion, we pass the following directions - (a) Appellant s claim of fee continuity benefit is devoid of any merit and is dismissed. (b) SEBI shall recalculate the turnover fee liability from October 20, 2000 for a period of five years at the rate of 0.001% of the turnover of the appellant. (c) After adjusting the deposits / payments already made by the appellant, if any outstanding amount of principal is due from the appellant SEBI is at liberty to impose simple interest on such outstanding payment at the rate of 15% per annum. (d) Appellant shall submit the turnover data in the prescribed proforma for the five year period from October 20, 2000 within one month from the date of this order and SEBI shall compute the fee liability and communicated to the appellant within a period of one month thereafter. Payment arising from the revised calculations, from either of the parties, shall be completed within one month thereafter.
Issues Involved:
1. Applicability of fee continuity benefit. 2. Rate of turnover fee applicable. 3. Interest on delayed payment of fees. 4. Refund of excess fees paid, if any. Detailed Analysis: 1. Applicability of Fee Continuity Benefit: The appellant contended that the transfer of membership should not be considered as new membership and that the date of 'initial registration' should be August 6, 1994, when the original registration was granted to Pennar. They argued that the corporate form remains the same, and only the shareholding has changed, which does not alter the legal status of the entity. However, the Tribunal concluded that the appellant has been rightly treated as a fresh registration with effect from October 20, 2000, the date of granting the new registration by SEBI. The Tribunal emphasized that incorporation as a company and registration as a SEBI intermediary are distinct processes. The new registration granted by SEBI in the name of Garban indicated a complete takeover, and hence, the appellant cannot claim fee continuity benefit from the original registration date. 2. Rate of Turnover Fee Applicable: The appellant argued that the turnover fee applicable to the WDM segment is only 0.001% of the annual turnover, while SEBI applied a general turnover fee of 0.01%. The Tribunal found SEBI's approach arbitrary and without legal basis, noting that it was an admitted fact that the appellant operated only in the WDM segment. The Tribunal directed SEBI to recalculate the turnover fee liability from October 20, 2000, for a period of five years at the rate of 0.001% of the turnover. 3. Interest on Delayed Payment of Fees: The appellant contended that the fee liability towards SEBI crystallized only from February 20, 2002, when the Regulations were amended, and hence, interest should only be charged from that date. SEBI, however, argued that the Bhatt Committee recommendations were adopted on January 7, 1993, and interest on delayed payment of fees was implemented at the rate of 15% per annum from December 16, 1998. The Tribunal upheld SEBI's stance, stating that interest, if any, on the registration fee/turnover fee at 15% per annum is due from the appellant on any delay in payment. 4. Refund of Excess Fees Paid, If Any: The Tribunal directed that after recalculating the turnover fee liability and adjusting the deposits/payments already made by the appellant, SEBI should impose simple interest on any outstanding payment at the rate of 15% per annum. The appellant was instructed to submit the turnover data in the prescribed proforma for the five-year period from October 20, 2000, within one month, and SEBI was to compute the fee liability and communicate it to the appellant within one month thereafter. Any payment arising from the revised calculations, from either party, was to be completed within one month thereafter. Conclusion: The appeal was partly allowed. The appellant's claim for fee continuity benefit was dismissed, but SEBI was directed to recalculate the turnover fee at the rate applicable to the WDM segment. Interest on delayed payments was upheld, and the Tribunal provided a structured timeline for recalculating and settling the fee liability. No orders on costs were issued.
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