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C.A.No.3548/10

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3548 OF 2010

OPG Securities Private Ltd.        …..Appellant   

  Versus

S.E.B.I.  & Anr.        ...Respondents  

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. This is a statutory appeal preferred under Section 15Z of the  

Securities and Exchange Board of India Act, 1992 (for brevity ‘the  

Act’)  against  the judgment and order  dated 11th February,  2010  

passed by the Securities Appellate Tribunal, Mumbai (for brevity  

‘the  SAT’)  in  Appeal  No.  28  of  2009.  The  dispute  between  the  

parties  has  arisen  on  account  of  amended  Regulations  effective  

from 1.10.2006 introducing Schedule IIIA into the Regulations.  For  

stock brokers the measure of fee under Schedule III was “turnover  

of  the  previous  year”  on  yearly  basis  and  the  same  has  been  

replaced  by  concept  of  monthly  fee  on  the  basis  of  monthly  

turnover. The dispute is whether the latter would come into effect  

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immediately from the date Schedule IIIA becomes applicable to a  

stock-broker or the earlier measure of fee on yearly basis would  

continue for a limited period till fee in accordance with Schedule III  

and the principle of turnover of the whole year is realized not only  

as per the previous year’s turnover but for the entire up to date  

turnover till Schedule IIIA comes into effect in respect of a stock-

broker.  

2. According to the impugned judgment and order of the SAT,  

SEBI  was  justified  in  demanding  registration  fee  from  the  

appellant, a stock-broker, not only on the basis of turnover of the  

previous  year  but  also  for  the  entire  turnover  earned  after  the  

turnover of  the previous year  and till  the implementation of  the  

Schedule IIIA, so that no part of the turnover of the stock-broker  

escapes from the net of  registration fee. According to appellant’s  

case,  argued by learned senior  counsel  Mr.  Shyam Divan,  such  

view of the SAT is impermissible in view of specific provisions of the  

Regulations, particularly clause (IV) to Schedule III  and whole of  

Schedule  IIIA  which  were  introduced  together  by  the  third  

amendment  to  the  Regulations  with  effect  from 1.10.2006.   Per  

submissions, the view is also contrary to the distinction between a  

turnover tax / tax on income in which case the annual turnover is  

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targeted  as  the subject  matter  of  levy  on one  hand,  and a  levy  

imposed in the present case as registration fee on the other,  in  

which the annual turnover of a stock-broker is only a measure of  

the levy and not its subject matter.

3. On  the  contrary,  the  stand  of  the  respondent  is  that  the  

demand made by SEBI is justified by clause 1(a) & (b) of Schedule  

III and such demand is saved by clause 4 of Schedule IIIA.

4. Since the question to be answered is dependent solely upon  

interpretation of  provisions of  Securities and Exchange Board of  

India (Stock-brokers and sub-brokers) Regulations, 1992 (for short  

the Regulations) as amended from time to time including Schedule  

III and IIIA, it is not necessary to go into the facts.  It is sufficient to  

notice that the appellant is a stock-broker trading, inter alia, as a  

member of the Bombay Stock Exchange Limited since 29.1.2004. It  

is not in dispute that the appellant and stock-brokers in general  

are regulated under the provisions of the Act and for conducting  

their trade or business they are required to be registered with SEBI  

under the Regulations.  Such registration is mandatory in terms of  

Section  12  of  the  Act  whereas  Regulation  10  requires  that  for  

obtaining certificate of registration from SEBI, every applicant shall  

pay such fees and in such manner as specified in Schedule III or  

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IIIA, as the case may be.  The part relating to Schedule IIIA was  

inserted by the SEBI (Stock Brokers and sub-Brokers) Act (third  

amendment)  Regulations  2006  with  effect  from  1.10.2006.  

Regulation  10  also  empowers  SEBI  to  suspend  the  Registration  

Certificate of a stock-broker if he fails to pay the fees and on such  

suspension the stock-broker shall cease to sell or deal in securities  

as a stock-broker.

5. The  appellant  paid  the  registration  fee  in  accordance  with  

Regulation 10 read with Schedule III without any dispute for the  

financial  years  2003-04,  2004-05  and  2005-06  based  on  the  

previous  year  turnover.   After  Schedule  IIIA  was  inserted  w.e.f.  

1.10.2006,  the appellant  exercised the option under clause 2 of  

Schedule  IIIA  and started paying fee  as  per  Schedule  IIIA  w.e.f.  

1.10.2006  on  the  basis  of  monthly  turnover  as  the  measure  of  

registration fee payable on monthly basis.   

6. In  case  there  had  been  no  option  offered  by  way  of  

introduction  of  Schedule  IIIA,  the  appellant  would  have  been  

required to pay for the whole of the year 2005-06 on the basis of  

turnover of previous year but on account of exercise of option and  

switching over to regime under rule IIIA with effect from 1.10.2006,  

the appellant paid pro rata only for the period upto 30.9.2006 on  

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the basis of turnover of the previous year (1.4.2005 to 30.9.2005).  

SEBI, on the other hand, claimed that appellant had paid only half  

of his liability whereas he was liable to pay further Rs.18,13,995/-  

even for the period from October 2006 to March 2007 regardless of  

the fact that from October 2006, as per Schedule IIIA he was liable  

to  pay  and  had  paid  the  registration  fee  on  monthly  basis  on  

monthly turnover.  Not only this, SEBI claimed further amount of  

Rs.21,60,600/- for the year 2007-08 on the ground that no amount  

of turnover reached by the appellant till he opted to come under  

Schedule IIIA  should escape from levy of  registration fee.   Such  

demands by the SEBI were regardless of the fact that the appellant,  

without any dispute came to be governed by Schedule IIIA from  

1.10.2006  and  he  paid  Registration  Fee  in  accordance  with  

Schedule  IIIA  for  the  remaining  part  of  2006-07,  i.e,  from  

1.10.2006 and for the year 2007-08.

7. As  noticed  earlier,  due  to  above  dispute  the  appellant  

preferred appeal No. 28 of 2009 under Section 15T of the Act.  The  

SAT decided against the appellant and dismissed his appeal by the  

impugned order.

8. On hearing learned senior counsel for the appellant Mr. Divan  

and learned senior counsel for the SEBI, Mr. C.U. Singh, we find  

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that the demands raised by SEBI is illegal being contrary to the  

Regulations particularly clause IV of Schedule III.  It is also based  

on a misconception that the entire annual turnover regardless of  

the formula accepted under Schedule III which took into account  

only the annual turnover of previous year as a measure of levy,  

must be the subject matter of levy even after Schedule IIIA became  

applicable.  This misconception is due to a wrong mind set that the  

annual  turnover  is  the subject  matter  of  levy  and not  merely  a  

measure of levy.  Such misconception is directly in teeth of what  

has been clearly held in Paragraph 45 of this Court’s Judgment in  

the case of  B.S.E. Brokers’ Forum v. Securities and Exchange  

Board  of  India,  (2001)  3  SCC  482  decided  by  a  three  Judges  

Bench.  Relevant part of para 45 of that judgment reads as follows:-

“45.  It  cannot  be  disputed  that  the  “annual  turnover” of a broker is not the subject-matter of  the levy but is only a measure of the levy. In other  words, the fee is not being levied on the turnover  as such but the fee is being levied on the brokers  making their annual turnover as a measure of the  levy which is a fee for regulating the activities of  the securities  market  and for  registration of  the  brokers  and  other  intermediaries  in  the  said  market. Therefore, it is futile to contend that such  levy  would  be  either  a  tax  or  a  fee  on  the  turnover.”

9. The  main  contention  of  Mr.  C.U.  Singh  to  support  the  

impugned judgment of the SAT is based upon clause 1(a) & (b) of  

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Schedule  III.   According  to  him  that  clause  is  the  charging  

provision which requires taking note of annual turnover during any  

financial year for levy of registration fee for each financial year.  In  

reply Mr. Divan has contended that the charging provision is in fact  

Regulation 10 which requires  every applicant  for  a  certificate  of  

registration to pay fees.  Only the quantum and manner of payment  

of such fees has been left to be determined as per Schedule III or  

Schedule IIIA.

10. Further reply is that in clause 1(a), the annual turnover of the  

financial  year  has  not  been  made  the  basis  for  computing  

registration  fee  for  that  financial  year  and  in  fact  under  the  

applicable  provisions  in  clause  2(b)  such  fee  is  required  to  be  

computed  with  reference  to  the  annual  turnover  relating  to  the  

preceding financial year.  It was further pointed out on behalf of the  

appellant  that  while  introducing  Schedule  IIIA,  the  SEBI  also  

introduced a contemporaneous change in Schedule III by inserting  

clause IV, which is as follows :

“IV.  Non-applicability to stock brokers governed by  Schedule III- The provisions of this Schedule shall not  apply to stock brokers to whom Schedule IIIA applies,  from the time when it becomes so applicable.”

11. We find ourselves in agreement with submissions advanced  

on behalf of the appellant that after 30th September, 2006 i.e. after  

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Schedule  IIIA  admittedly  became applicable  to  the  appellant,  no  

provisions in Schedule III could be applied to his case.  We also find  

no merit in the contention advanced on behalf of SEBI that clause  

4 of Schedule IIIA protects the demand raised by SEBI.  Clause 4 of  

Schedule IIIA along with clause 3 occurs in Part B which relates to  

charge of fees. It reads as follows :

“4 – Nothing in clause 3 shall affect the liability of any  stock  broker  to  pay  fees  under  Schedule  III,  which  accrued before this Schedule became applicable to him  and  such  fees  shall  be  paid  as  per  the  relevant  provisions of Schedule III as if they had not ceased to be  applicable to him.”

The aforesaid clause is clarificatory in nature. It clarifies that the  

liability to pay fees as per Schedule III which has already accrued  

and got fastened to a stock-broker before the Schedule IIIA became  

applicable, would remain payable as per the provisions of Schedule  

III even after they cease to be effective for subsequent period.

12. This clause in our view does not affect the enforceability of  

Schedule IIIA from the date it became applicable to the appellant  

on account of option permitted by the relevant provisions.  After  

Schedule IIIA became applicable, the Registration fee for any future  

period since 1.10.2006 could not  be levied or demanded on the  

basis  of  Schedule  III.   It  had  to  be  calculated  on  the  basis  of  

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monthly  turnover  and payable  each month  as  per  provisions  in  

Schedule IIIA.

13. In view of  clear legal provisions noticed above, we find the  

impugned order of the SAT under appeal to be contrary to law. The  

same is accordingly set aside.  The Appeal is allowed.  As a result  

the demand made upon the appellant by SEBI which was under  

challenge before the SAT shall stand quashed.  Whatever amount  

the appellant had paid towards such demand shall be refunded to  

it along with interest at the rate of 10% per annum from the date of  

deposit till refund.  The refund should be effected without any delay  

and in any case within two months. There shall be no order as to  

costs.

     …………………………………….J.       [VIKRAMAJIT SEN]

      ……………………………………..J.                  [SHIVA KIRTI SINGH]

New Delhi. December 04, 2015.

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