Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 2402 OF 2008
GPSK CAPITAL PRIVATE LIMITED ….APPELLANT(S)
(FORMERLY KNOWN AS MANTRI
FINANCE LIMITED)
VERSUS
THE SECURITIES AND EXCHANGE
BOARD OF INDIA ….RESPONDENT(S)
WITH
CIVIL APPEAL NO(S). 5636 OF 2007
J U D G M E N T
Rastogi, J.
Civil Appeal No(s). 2402 of 2008
Signature Not Verified
Digitally signed by
Ashwani Kumar
Date: 2023.03.20
16:00:02 IST
Reason:
1. The instant appeal has been filed under Section 15(Z) of the
Securities and Exchange Board of India Act, 1992(hereinafter being
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referred to as the “Act 1992”) assailing the judgment and order
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dated 9 August, 2007 passed by the Securities Appellate
Tribunal(hereinafter being referred to as the “Tribunal”) affirming
the order of the Securities and Exchange Board of India,
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Mumbai(hereinafter being referred to as the “Board”) dated 7 May,
2007 holding that the appellant did not satisfy the conditions of
clause (4) of Schedule III of the Securities and Exchange Board of
India(Stock Brokers and SubBrokers) Regulations,
1992(hereinafter being referred to as the “Regulations”) hence the
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.
2. The brief facts of the case culled out are that one Srikant
Mantri became a member of the Calcutta Stock
Exchange(hereinafter being referred to as the “CSE”) and was
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granted registration as a stock broker on 30 November, 1992.
Sometime in the year 1997, he decided to transfer his membership
card of CSE in favour of Mantri Finance Ltd.the appellant
herein(hereinafter being referred to as the “Company”). It is not in
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dispute that the company was registered with the Registrar of
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Companies, Calcutta on 27 December, 1998 under the name and
style of Ushagram Properties and Finance Ltd. Later, it changed its
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name to Mantri Finance Ltd. on 13 November, 1992. The
Company had started the business of stock broking in 1995 and
became a member of NSE and thereafter sought registration with
the Board as a stock broker and obtained membership of NSE as a
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stock broker on 17 October, 1995. Thereafter, when the
membership card of Srikant Mantri was transferred in the name of
the Company, the latter became a member of CSE and was
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registered as a stock broker of CSE on 1 April, 1998.
3. After obtaining the membership of CSE on transfer of the card
from Srikant Mantri, the appellant Company claimed that it should
be exempted from payment of registration fee for the period for
which Srikant Mantri had already paid the fees. In other words, it
claimed the benefit of exemption of the fee already paid by Srikant
Mantri. At the same time, also claimed that all the conditions
prescribed under para 4 of Schedule III to the Regulations were
satisfied and, therefore, it was entitled to claim exemption.
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4. The claim of the Company was rejected by the Board by its
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Order dated 7 May, 2007 holding that Srikant Mantri was only a
Director in the Company during the three years period after the
transfer of his membership and since he was not the whole time
Director, the conditions prescribed under para 4 of Schedule III are
not satisfied and accordingly, was not entitled to claim exemption
as prayed for by the appellant.
5. The appellant Company filed appeal against order of the Board
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dated 7 May, 2007 before the Tribunal on following two issues:
(i) Whether the 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.
(ii)Whether the appellant Company is entitled to fee continuity
benefits provided under para 4 of Schedule III.
6. In regard to issue no. (i), the learned Tribunal held that the
single registration with the Board is sufficient even if the stock
broker has multiple memberships and functions from several stock
exchanges and therefore, will have to pay the fee for initial
registration with the Board and set aside the impugned order and
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remitted the matter to the Board for a fresh computation of the
registration fee payable by the Company on the basis of its
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registration with effect from 17 October, 1995.
7. So far as issue no. (ii) is concerned, learned Tribunal held that
the appellant Company has failed to satisfy the conditions of clause
(4) of Schedule III to the Regulations and was not eligible to claim
exemption from payment of fee over the period for which the
erstwhile individual Srikant Mantri has paid the fees.
8. Hence, appeals have been preferred by the appellant Company
as well as by the Board against the selfsame impugned judgment of
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the Tribunal dated 9 August, 2007.
9. The main thrust of submissions advanced by learned counsel
for the appellant is that Srikant Mantri, in the first instance, was
the sole proprietor of the firm M/s. Govind Prasad Shrikant & Co.
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which was registered with the Board since 30 January, 1992.
Under Para 4 to Schedule III, it applies for conversion of
membership to a corporate entity and membership of the old entity,
i.e., M/s. Govind Prasad Shrikant & Co. (SEBI Registration No.
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INB030054715) was converted into a corporate entity w.e.f. 1
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April, 1998. Accordingly, the appellant fulfils the preconditions as
indicated in para 4 of Schedule III annexed to the Regulations and
this is the apparent error which has been committed by the Board
in the first instance and the factual matrix has not been
appreciated by the Tribunal as well.
10. Learned counsel further submits that para 4 was added to
Schedule III pursuant to Board’s policy to corporatize individual
stock brokers, and to institutionalize the stock broking activity and
further submits that the interpretation ought to be in consonance
with the intent and purport of the policy to which para 4 was added
to Schedule III.
11. Learned counsel further submits that in the case of
conversion, the individual registration has been converted into a
corporate registration and, therefore, the exemption for the payment
of fees is available and further submits that para 4 to Schedule III
does not contemplate two registrations. The Explanation to para 4,
by a deeming fiction, mandates a continuity from the erstwhile
membership to the converted membership qua the payment of fees
and further submits that the law, therefore, mandates that in a
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case of conversion, no fresh fee will be collected from the converted
corporate entity. In the facts and circumstances, the finding
returned by the Tribunal needs to be interfered with by this Court.
12. Per contra, learned counsel for the respondent, while
supporting the finding returned by the Board and affirmed by the
Tribunal submits that the material which has come on record has
been appreciated at two stages by the Board as well as by the
Tribunal. It remains uncontroverted that Srikant Mantri
transferred his membership card of CSE to the appellant Company
and he was not a whole time Director therein but only a Director
and the corporate entity is entitled to claim exemption from the
payment of registration fee only if the individual or partnership
membership had been converted into a corporate entity. However,
in the instant case, Srikant Mantri did not convert himself into a
corporate entity, instead transferred his membership card of CSE to
an existing company and became a Director therein.
13. Accordingly, it has rightly been held by the Board and
confirmed by the Tribunal in the order impugned holding that the
appellant was not entitled to claim exemption invoking Para 4 of
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Schedule III to the Regulations and no evidence has been placed by
the appellant on record even in rebuttal before this Court. In the
given circumstances, there appears no reason or justification to
disturb the concurrent finding of fact in the appeal filed at the
instance of the appellant Company.
14. We have heard learned counsel for the parties and with their
assistance perused the material available on record.
15. So far as issue no. (i) in reference to 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 is concerned, it has been decided by this Court in
Securities and Exchange Board of India Vs. National Stock
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Exchange Members Association and Another and remains no
more res integra in view of the judgment of this Court wherein it
has been held as under:
“ 47 . Thus, in our considered view, the conjoint reading of the
expression “a certificate” as referred to in Section 12(1) of the Act
read with the scheme of Rules, 1992 and Regulations 1992, leads
to an inevitable conclusion that the 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
1 2022 SCCOnline SC 1392
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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
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under Circular dated 28 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.”
16. The issue involved in the instant appeal confines as to whether
the appellant Company is entitled to fee continuity benefits under
Para 4 of Schedule III of the Regulations 1992.
17. To examine the said issue no. (ii), it will be apposite to first
take note of para 4 of Schedule III of Regulations, 1992 which is as
follows:
“Where a corporate entity has been formed by converting such
individual or partnership membership card of the exchange, such
corporate entity shall be exempted from payment of fee for the
period for which the erstwhile individual or partnership member,
as the case may be, has already paid the fees subject to the
condition that the erstwhile individual or partner shall be the
whole time director of the corporate member so converted and
such director will continue to hold minimum 40 per cent shares of
the paid up equity capital of the corporate entity for a person of at
least three years from the date of such conversion.
Explanation It is clarified that the conversion of individual or
partnership membership card of the exchange into corporate entity
shall be deemed to be in continuation of the old entity and no fee
shall be collected again from the converted entity for the period for
which the erstwhile entity has paid the fee as per the regulations.”
18. The Board, in the first instance, after appraisal of the evidence
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placed on record under its Order dated 7 May, 2007, and taking
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into consideration para 4 of Schedule III of the Regulations, 1992
returned its finding as follows:
“3.11 Exemption from payment of fees confers a benefit to the
corporate entity. For granting such benefit, the conditions subject
to which such benefit is available need to be established beyond
doubt. From the true copy of Annual Returns for the relevant
period provided by MFL, it appears that Shri Shrikant Mantri was
a director, but, not a whole time director during the relevant
period. This fact has also been established from the copy retrieved
from ROC’s office in respect of AGM dates April 28, 1997 and May
19, 1999. MFL was granted registration after the issue of
notification dated January 21, 1998 i.e. after the conditions
subject to which exemption can be granted to a converted
corporate entity were in place. It is clear from the above that MFL
did not satisfy at least one of the conditions of clause I (4) of
Schedule III of the Regulations. Hence, MFL cannot become eligible
for exemption from payment of fees for the period for which the
erstwhile individual Shri Shrikant Mantri has already paid the
fees.”
19. On appeal being preferred by the appellant Company, the
Board, on reappreciating the evidence on record confirmed the
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finding under its Order impugned dated 9 August, 2007 as
follows:
“…. The Board adopted a policy to encourage the brokers to
corporatize themselves so that their working becomes more
transparent as corporate entities have more and better regulatory
controls as compared to individuals and partnerships. With this
object in view, the Board introduced paragraph 4 in Schedule III to
the Regulations with effect from 21.1.1998 and it decided to give
the benefit of the fee already paid by the individual or partnership
prior to its becoming a corporate entity. In the case before us the
Board has found that when Srikant Mantri transferred his
membership card of CSE to the company, he was not a whole time
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director therein but was only a director. This fact is being disputed
by the appellant before us. It is not necessary for us to record a
finding in this regard because we are of the view that the company
is not entitled to the benefit under paragraph 4 of the Schedule
because there is no continuity. As already noticed, the corporate
entity is not entitled to claim exemption from the payment of
registration fee only if the individual or partnership had been
converted into a corporate entity. In the instant case, Srikant
Mantri did not convert himself into a corporate entity but instead,
transferred his membership card of CSE to an existing company
and became a director therein. The Regulations do not provide for
exemption in such cases. The company before us was an existing
company and therefore, when it became a member of CSE on the
transfer to membership card from Srikant Mantri it could not
claim the benefit under paragraph 4. It could claim such a benefit
only if Srikant Mantri had formed himself into a company and
continued his broking business. Since that was not the case, we
are clearly of the view that the company could not claim the benefit
of paragraph 4. In this view of the matter, we have no hesitation in
upholding the order passed by the Board rejecting the claim of the
appellant.”
20. It remains uncontroverted that 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.
At the same time, it was informed by the Board to the CSE vide
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letter dated 18 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
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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
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copy retrieved from ROC’s office in respect of AGM dated 28 April,
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1997 and 19 May, 1999.
21. At the same time, appellant Company was granted registration
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after para 4 was put in place by notification dated 21 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.
22. After going through the material on record, 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.
23. Consequently, the appeal is without any substance and
accordingly dismissed. No costs.
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24. Pending application(s), if any, shall stand disposed of.
Civil Appeal No. 5636 of 2007
25. This appeal is preferred by the Board against the selfsame
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impugned judgment dated 9 August, 2007 as in Civil Appeal No.
2402 of 2008. Hence, the facts need not be reiterated for the
purpose of instant appeal.
26. The appeal filed by the Board deserves to succeed as the
question remains no more res integra in view of judgment of this
Court in Securities and Exchange Board of India Vs. National
(supra).
Stock Exchange Members Association and Another
27. Consequently, the appeal succeeds and is allowed.
28. Pending application(s), if any, shall stand disposed of.
……………………………J.
(AJAY RASTOGI)
…………………………….J.
(BELA M. TRIVEDI)
NEW DELHI;
MARCH 20, 2023
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