Whether stock brokers who have converted partnership membership into a corporate entity prior to April 01, 1997 are entitled to fee continuity benefit on retrospective basis under SEBI Regulations, 1992 – YES: SC
BY TIOL News Service
NEW DELHI, NOV 05, 2015: THE issue before the Apex Court is - Whether stock brokers who have converted their individual/partnership membership into a corporate entity prior to April 01, 1997 are entitled to the fee continuity benefit on retrospective basis under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. YES is the answer.
Facts of the case
The respondent was a broker and member of the Bombay Stock Exchange (BSE) in its individual capacity or as a partnership firm. The respondent opted to form a corporate entity under the provisions of the Companies Act 1956, prior to April 01, 1997 and carried on the brokers' business under the name and style of new corporate entity by getting its membership converted through approval of BSE leading to registration by the SEBI as a corporate entity. Stock brokers could not deal in securities unless they were granted Certificate by SEBI on payment of requisite fees in the manner provided in the relevant regulations. Paragraph 4 in Schedule III to the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, was introduced via notification dated 21.1.98, which allowed fee continuity benefit on the annual fee payable by registered brokers. The respondent converted the status to corporate entity before April 1, 1997. SEBI denied the benefit of fee continuity to the respondent. According to SEBI amendment in law, would remain unaffected for the earlier year ending 31.3.97 and it would be effected only in respect of fees payable for the year 1.4.97 onwards. Matter on appeal reached to SAT, who passed order in favour of the respondent. SEBI filed appeal before the Supreme Court and submitted that it could not make retrospective Regulations and rules and regulations were generally prospective unless explicitly made retrospective.
Decision
The Supreme Court held it would not be proper or permissible to read into or delete words which did not exist in the amended regulations. Further even if there was any scope of doubt, the benefit of such doubt would go to the subject i.e., the stock brokers and not to authority, i.e. SEBI. As a result, appeals preferred by SEBI was dismissed and the judgments and orders under appeal passed by SAT were upheld.
Reasoning
1. Although the amending notification introducing para 4 of Schedule III was effective from 21.1.1998, on the plea of convenience and logic the appellant had itself clarified that the provisions of para 4 would be effective from an earlier date, viz., 1.4.1997 though this cut off date was no where mentioned in the notification.
2. The fee was a fiscal levy and, therefore, principles applicable to interpretation of legal provisions governing a fiscal levy were attracted in the present case and not the rules of interpretation governing other laws. Though some amount of ambiguity was found in the relevant provision then the interpretation which was favourable to the brokers need to be adopted.
3. SEBI itself cannot question the validity of the circulars and policy decisions declared by the SEBI Board and such circulars and declarations granting benefits even from a retrospective date cannot be held bad in law.
4. It was noticed that explanation to para 4 introduced with effect from 20.2.2002 takes complete care of any doubt, if at all it could exist, by providing a deeming fiction that in the case of conversion of entities having individual or partnership membership card into acorporate entity, the corporate entity shall be deemed to be a continuation of the entity in respect of collection of fees from the converted corporate entity. Further, an embargo has been created against collection of fees again from the converted corporate entity. This explanation is statutory in nature and like para 4 it also does not restrict the benefits of conversion to entities converted on or after any particular date. The explanation does not talk of making any refund nor does it render the initial levy or assessment of fee as bad but forbids the collection of such fees if the converted corporate entity is entitled to fee continuation benefit in terms of paragraph 4 of Schedule III to the Regulations.
5. Since the policy behind grant of benefits is to encourage corporatization of individual or partnership members of a stock exchange, the action of extending such benefits without any curb on the basis of date of conversions cannot be held as unfair.
(See 2015-TIOL-265-SC-SEBI)
