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TMI Blog2007 (10) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... Kapadia, J. - Delay condoned. 2. Admit. 3. The above two civil appeals are directed against the decisions dated 18-5-2006 and 4-5-2007 delivered by the Securities Appellate Tribunal, Mumbai in appeal Nos. 267/04 and 245/04 respectively. 4. The short question that arises for our consideration in these civil appeals filed under section 15Z of the Securities and Exchange Board of India Act, 1992 (for short the 1992 Act ) is whether the appellants were entitled to the benefit of fee continuity under para 7 of Circular dated 30-9-2002 issued by SEBI. 5. For the sake of convenience, we may mention hereinafter the facts in the case of Ratnabali Capital Markets Ltd. ("RCML") which are as under. 6. In 1995 Ratnabali Securities Ltd. ("RSL") was registered as a broker with National Stock Exchange ("NSE") . In terms of Schedule III of SEBI (Stock-brokers and Sub-brokers) Regulations, 1992 ("the Regulations"), RSL had paid initial registration fees for the first year and thereafter it had paid fees on turnover basis for subsequent four years. No further fees on turnover basis was paid by RSL under the said Regulations for continuation of registration except a fee of rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve thousand for every block of five financial years commencing from the sixth financial year after the date of initial registration in order to keep his registration in force. 10. What RCML is now claiming is the benefit of initial registration of RSL as a stock-broker. According to RCML, when the above two companies stood merged on 9-2-2000, which merger was approved by Calcutta High Court, all assets and liabilities, including benefits in the form of licences obtained by RSL, stood transferred by operation of law in the hands of RCML. According to RCML, the concept of merger constitutes transfer by operation of law. According to RCML, the concept of merger operates on account of legal compulsion or compulsion in law. According to RCML, in the case of merger, which takes place after complying with the procedure prescribed by sections 391 to 394 of the Companies Act, duly approved by the High Court, the assets and liabilities of the transferor company comes into the hands of RCML on account of legal compulsion. There is nothing voluntary in such cases of merger. According to RCML, the registration fees once paid by RSL should be given the benefit of continuity vide para 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinuity of fees deposited earlier by RSL, which got merged into RCML. According to RCML, the two companies were required to merge because of acceptance of recommendations of Gupta Committee by SEBI. According to the report of the said Committee, if a broker desires to enter derivative market then he is required to have a net worth of at least rupees three crores. According to RCML, the said requirement constituted a pre-condition for entering the derivative market. According to RCML, this pre-condition of possessing net worth of rupees three crores constituted compulsion of law, which made RSL merged into RCML and, in the circumstances, the appellants were entitled to the benefit of Circular dated 30-9-2002 issued by SEBI. Under the said Circular, mergers/amalgamations carried out as a result of compulsion of law stood excluded from payment of fees afresh. 12. We quote hereinbelow the said provision, which reads as under : " Merger/Amalgamations - Where mergers/amalgamations are carried out as a result of compulsion of law, fees would not have to be paid afresh to hold majority shareholding in transferee entity. The Exchange would have to enumerate what constitutes "compuls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 of the Banking Companies Act which provides that the High Court may on the application of a banking company which is temporarily unable to meet its obligations make an order staying commencement or continuance of all actions and proceedings against the company for a fixed period of time on such terms and conditions as it shall think fit and proper. The High Court is empowered under section 37(3) to appoint a special officer who is required to take into custody or control the assets, books etc., including actionable claims to which the banking company may be entitled. Section 38 empowers the High Court to order the winding up of banking company if it is unable to pay its debts. Mr. D.N. Avasthy also maintains that the scheme of arrangement is an alternative mode of winding up and, therefore, such powers as the High Court possesses under section 45D of the Banking Companies Act, 1949, will also entitle it to exercise the same powers for enforcement of the scheme of arrangement etc. He has rested his argument on three decisions in Madan Gopal v. Peoples Bank of Northern India Ltd. AIR 1935 Lah. 779 (SB), Motilal Kanji Co. v. Natwarlal M. Jhaveri AIR 1932 Bom. 78, Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Court, just as the Bankruptcy Act, 1869, allowed the creditors the substituted liquidation by arrangement under section 125, or composition under section 126, of that Act, for a pending bankruptcy . . . . In view of this, I am not persuaded by this argument of the learned counsel for the bank, that the scheme of arrangement should be treated as a specie of liquidation. I am, therefore, satisfied that this Court has jurisdiction to entertain the petition and to pass appropriate order in view of the provisions of section 392 of the Companies Act read with section 391." (p. 551) 17. We make it clear that it would depend on the facts of each case whether a scheme under section 391 could be construed as an alternative to liquidation. It is not in every matter that the scheme under section 391 would constitute an alternative to liquidation. Therefore, it would depend on the facts of each case. Under Circular dated 30-9-2002 what SEBI intends to say is that fresh turnover/registration fees would not be payable by a company which goes for amalgamation/merger as an alternative to liquidation. In other words, if the company s net worth is negative and if that company is on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of SEBI is to regulate the trade which takes place in the securities market and for that purpose it is entitled to charge registration fees. In the present case, we are concerned with merger of two distinct independent companies. In the present case, we are not concerned with merger of firms. In the present case, we are not concerned with joint ventures. After the merger of RSL into RCML a new entity has emerged. In the circumstances, SEBI was entitled to charge the stipulated fees. For the aforestated reasons, we find no merit in these two civil appeals. 18. Before concluding, we may note that, according to the appellants, in the past SEBI has not charged registration charges at the rates prescribed in case of two other companies. According to the appellants, SKP Securities Ltd. and BNK Securities Pvt. Ltd. were given in the past the benefit of fee continuity under para 7 of Circular dated 30-9-2002 whereas the said benefit has been denied to RCML. We do not know all the facts of those transactions. Be that as it may, we are concerned with the position in law. We reiterate that there is no merit in these civil appeals. 19. For the aforestated reasons, we see no reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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