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TMI Blog2010 (6) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... h breakup of the members of the Petitioner No . 1 Association which has been furnished to the SEBI by the Delhi Stock Exchange Association Limited ( DSEAL ) ( Respondent No . 3 herein ) till the expiry of the regularization period on 15th November 2004 . The second prayer is that the Petitioners should be allowed the benefit of the reduced rate of fees prescribed by Clause ( bb ) of Schedule III of the said SILRS while participating therein to avail the benefit of the 80 % waiver of interest liability . 2 . A third prayer is for a writ of mandamus directing the SEBI to forthwith consider and accept the turnover data with breakup of the members of the Petitioner No . 1 Association and submitted to the SEBI through the DSEAL in the prescribed format before the commencement of the regularization period for the purposes of calculations of the outstanding registration fees and interest thereon strictly in terms of the SEBI ( Stock Brokers and Sub Brokers ) Regulations, 1992 and the concessions allowed under the SILRS . 3 . The fourth prayer is that the SEBI should be directed to correct / revise the Fee Liability Statements issued under the SILRS in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the first five years for the date of initial registration . Thereafter they are expected to pay a flat fee of Rs . 5,000 /- only for every block of five years . According to the Petitioners, therefore, the annual turnover of the brokers is relevant only for the purposes of computation of this SEBI registration fees liability and is, therefore, relevant only for the first five years from the date of registration with SEBI and not thereafter . Following the various representations against the circulars, the amended regulations, SEBI constituted a Committee under the Chairmanship of Shri R . S . Bhatt, the then Chairman of Unit Trust of India . 7 . The registration fee requirement was challenged by several stock brokers through writ petitions in different High Courts . One of those writ petitions was transferred to the Supreme Court . It was disposed of by the judgment in B . S . E . Brokers Forum, Bombay v . Securities Exchange Board of India 2001 ( 3 ) SCC 482 . While upholding the levy based on the annual turnover of the brokers, the Supreme Court observed that there should be changes brought about in the definition of annual turnover and also in the qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m for the enforcement of the SEBI fees regime . 9 . Pursuant to the amendment brought about in the said Regulations on 20th February 2002 in the form of insertion of Clause ( bb ) , the SEBI came out with a circular bearing Ref . No . SMD / POLICY / Cir - 07 / 2002 dated 28th March 2002 which apart from giving various clarifications relating to the fees to be paid by the stock brokers, also for the first time indicated the details of various components of the turnover as per the amended regulations that was required to be furnished by the respective stock brokers duly supported by Auditor s Certificate and even the format of such Auditor s Certificate was prescribed in the circular dated 28th March 2002 . It is pertinent to note that the turnover data in the said circular, duly certified by their auditors, was to be furnished by the stock brokers not directly to the SEBI, but to the DSEAL which was obliged to recompile the same in the prescribed format and forward it to the SEBI . 10 . According to the Petitioner, a reading of the above circular dated 28th March 2002 showed that it was solely for the purpose of streamlining the process of the administration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r data to SEBI on as is basis . Consequently, DSEAL was unable to meet its obligation of sending SEBI the turnover data . In the circumstances, DSEAL was left with no option to seek the help of an outside agency . Consequent upon a decision of the Board of Directors, DSEAL by a letter dated 29th March 2004 hired the services of M / s . K . C . Khanna Company to compile the members turnover data and their fee liability in accordance with various circulars of the SEBI including the circular dated 28th March 2002 . It was emphasized that the exercises had to be completed before the end of May 2004 itself . It is stated that M / s . K . C . Khanna Company while compiling the turnover data acted contrary to the instructions contained in the letter dated 29th March 2004 and completely ignored the requirements of the SEBI circular dated 28th March 2002 . Consequently, the turnover data was forwarded to SEBI by the DSEAL on 9th July 2004 without complying the essential requirements of the circular dated 28th March 2002 . Even SEBI pointed out apparent mistakes in the turnover data as sent by the DSEAL . It is stated that issue was discussed in a meeting of the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is stated that the members of the Petitioner No . 1 Association were surprised to find that the liability for fees as shown in the said statement was based upon their gross turnover data and not on their turnover data with breakup duly certified, by their auditors and furnished to SEBI . In other words, the benefit of the concessional rates of fee on different components on the turnover as prescribed in Clause ( bb ) of Part 1 of the Schedule to the Regulations was not accorded to the members of the Association . Further, those who had converted from individual to corporate memberships understood that they would be accorded fee continuity benefit . They found that they were being charged fees on their entire turnover at the highest rates without being given any opportunity to submit the auditor certified turnover data with the breakup . Further it was found that the provisional fee liability statement did not account for some of the payments made by the individual brokers on account of registration fees from time to time . Thereafter, the members of the Petitioner No . 1 Association approached the DSEAL, they were informed of the lapses of M / s . K . C . Khann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, 1992 . The Court did not extend the benefit of the Scheme after the cut off date, especially because, extensions had been given by SEBI, whereby a large number of stock - brokers of Ahmedabad Stock Exchange had already availed the benefit of the Scheme . The Court refused to extend the cut - off date in this case . However, the facts of the present case are different because, in this case the individual stock brokers have not defaulted in providing the necessary data, but it is DSEAL which has failed to effectively submit the data in the prescribed format . 23 . The Respondent also referred to certain interim orders passed on 2nd December 2005 by the Division Bench of the Gujarat High Court in LPA No . 1553 of 2005 in the case of Ajay Sarabhai v . Union of India . In this case, the SEBI assessed the registration fee on the basis of the data earlier given by the petitioners to the stock exchange without breakup of the turnover data and SEBI did not give remission of 80 % interest on delayed payment of registration fee as per the provision of SEBI Scheme, 2004, as the stock brokers of the Ahmedabad Stock Exchange did not submit turnover data with breakup of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees become due . ( 2 ) Where a stock - broker fails to pay the fees as provided in regulation 10, the Board may suspend the registration certificate, whereupon the stock - broker shall cease to buy, sell or deal in securities as a stock - broker . Schedule III 2 . Fees referred to in clauses ( a ) and ( b ) of paragraph 1 above shall be paid ( a ) xxx ( b ) in respect of the financial year beginning on the 1st day of April, 1993 and the following financial years on or before the first day of October of the financial year to which such payment relates, and such fees shall be computed with reference to the annual turnover relating to the preceding financial year . 26 . It is further stated that under the SILRS which came into effect 15th July 2004, no revision of data was permissible whereas the present case was one of data revision . Since the regularization had already come to an end on 30th November 2004, no relief could be granted to the Petitioners . Mr . Sanjay Jain, learned Senior counsel appearing for the SEBI submits that M / s . Doogar and Associates while re - submitting revised data stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of the recommendations made by the Expert Committee, we are of the opinion that the Board is bound to bring about corresponding changes so as to remove the anomalies pointed out by the Committee . This was pointed out to learned counsel for the respondents when it was submitted that the Board has accepted these recommendations and the proposed changes were not brought about because of the pendency of this petition and the necessary changes to incorporate the recommendations of the Bhatt Committee would be done after disposal of these petitions . We recorded this submission on behalf of the Board and direct that the said changes recommended by the Bhatt Committee will be incorporated in the Regulations . Subject to the above, we are of the view that the challenge made to the levy based on the measure of turnover has to be rejected . 28 . Clause ( bb ) which was inserted in the Regulations consequent upon the judgment indicates the methodology for determining the levy and mode of payment of the registration fee by the stock brokers to the SEBI . This was a first - time exercise for both the SEBI and various stock exchanges . The manner of calculation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific provision that permits the SEBI to resort to Clause ( b ) in the event of the failure to submit information relevant to Clause ( bb ) , the aforementioned clause in the circular dated 10th October 2003 was unsustainable in law . 31 . We next come to the SILRS 2004 Part I, Clauses 2 and 3 . While the necessity for the introduction of the SILRS has been explained by the SEBI, and indeed it was beneficial to the brokers, the refusal to accept the revised data after the date of announcement of the scheme but before the final deadline for regularization i . e . 15th November 2004 does not appear to this Court to be rational or reasonable . 32 . As far as the particular clause which is objected to by the Petitioners it is Clause 3 of Part II of SILRS 2004 which reads as under : 3 . In accordance with the above policy, the Board has been receiving turnover data from the Exchanges and taking them on record . No further data revisions would, therefore, be permitted even if a stock broker wishes to submit an auditor certificate at this late stage, or, if the Exchange desires to revise its own data . This measure is absolutely necessary to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, this court finds merit in submission of the learned counsel for the Petitioners that SEBI has not acted reasonably in rejecting the data submitted with the certification of M / s . Doogar Associates and in denying them the benefit of para 2 . 0 of Part I of the SILRS 2004 . 35 . Accordingly, a direction is issued to the SEBI to compute the fee liability of the individual stock brokers of the Petitioner No . 1 Association by accepting the turnover data as certified by M / s . Doogar Associate and giving them the benefit of para 2 . 0 of Part I of the SILRS 2004 . SEBI will in the above terms correct / revise the Fee Liability Statements issued under the SILRS in relation to the members of the Petitioner No . 1 Association and give them credit of the payments already made by them on account of SEBI registration fees in the said Fee Liability Statements . If there is any amount owing to the members of the petitioner No . 1 Association as a result of the above revision of the Fee Liability Statement, the said amount can be adjusted against the future dues of such stock brokers . It is made clear that this would be a onetime measure, which is not to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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