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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3682 OF 2006

PREMIUM GLOBAL SECURITIES PVT. LTD. & ORS .. APPELLANTS

VERSUS

SECURITIES & EXCHANGE BOARD OF INDIA & ANR. .. RESPONDENTS

WITH

CIVIL APPEAL NO. 3686 OF 2006, CIVIL APPEAL NO. 2310 OF 2007 & CIVIL APPEAL NO. 6394 OF 2009

J U D G M E N T

VIKRAMAJIT SEN, J.

CIVIL APPEAL NO. 3682 OF 2006, CIVIL APPEAL NO. 3686 OF 2006 AND  CIVIL APPEAL NO. 6394 OF 2009

1 These Appeals arise against the common Judgment of the Securities Appellate  

Tribunal (‘SAT’ for brevity) which affirmed the stance of SEBI refusing to grant fee  

continuity benefits to the Appellants herein. Common question of law and facts arise  

and for the sake of convenience we shall keep in perspective the factual matrix in  

Civil  Appeal  No.  3682  of  2006,  in  which  the  arguments  in  the  main  have  been  

addressed.

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2 Premium  Capital  Market  &  Investments  Pvt.  Ltd.  was  incorporated  on  

24.6.1992,  which  on  9.2.1994  changed  its  name  to  Premium  Capital  Market  &  

Investments  Ltd  (hereinafter  ‘PCMIL’,  Appellant  No.  3).  On  an  application  for  

Trading Membership of National Stock Exchange of India Ltd. (hereinafter ‘NSE’) in  

the Capital Markets Segment by PCMIL, vide letter dated 16.5.1994, NSE sent them  

an offer of membership subject to certain conditions enclosed in Annexure ‘A’.  In its  

letter dated 4.10.1994 SEBI made observations on the Draft Prospectus for Public  

Offer submitted by PCMIL, including the conditions for NSE membership, namely  

that the company could not carry on any other activities apart from broking. Pursuant  

to  this  observation,  the  draft  prospectus  was  amended  with  an  undertaking  that  

PCMIL  would  promote  a  new  company  to  which  it  would  transfer  the  NSE  

membership. Thereafter on 16.12.1994, PCMIL was admitted to the membership of  

NSE and was registered as a stock broker with SEBI.

3 On 27.4.1995 SEBI reaffirming the applicability of Rule 8(1)(f) and 8(3)(f) of  

Securities Contract (Regulation) Rules, 1957 (hereinafter ‘1957 Rules’) to corporate  

members,  via  a  letter  directed  all  corporate  members  to  “sever  connections  with  

businesses other than securities business forthwith” and requested NSE to report on  

compliance. In order to comply with this direction, Premium Global Securities Ltd.  

(later Premium Global Securities Pvt. Ltd., hereinafter ‘PGSL’, Appellant No. 1) was  

incorporated  on  16.5.1995  for  taking  over  the  membership  card  of  PCMIL.  On  

30.9.1995  PCMIL  ceased  all  its  fund-based  activities.   On  8.8.1996  NSE  was  

informed about the formation of PGSL and an application was made for transfer of

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NSE membership from PCMIL to PGSL. On 14.3.2000 NSE issued a show-cause  

notice to PCMIL under Rule 8(1)(f) and (3)(f) of the 1957 Rules in pursuance of a  

complaint that PCMIL was not allowed to engage in any business other than that of  

securities. To this PCMIL replied that PCMIL had not transacted any other business  

and  that  the  last  leasing  transaction  was  carried  out  in  September  1995  and  that  

PCMIL was only receiving lease amounts.

4 Thereafter on 4.4.2000 a fresh application was made for transfer of membership  

to PGSL and the NSE approved the aforesaid application on 12.4.2000 without any  

transfer fees. Steps for registration with SEBI were initiated and PGSL was issued the  

Registration Certificate on 20.9.2000. Meanwhile PCMIL received a letter from the  

NSE Disciplinary Committee dated 7.6.2000 directing PCMIL to cease all business in  

the nature of  fund-based activities  and to  initiate  steps to  segregate  it  within two  

months. Alternatively the Committee also advised that PCMIL could set up a separate  

subsidiary to take up the broking activity.  

5 On 30.9.2002 SEBI issued a Circular on Fee Continuity benefits. The relevant  

portions of the Circular read as follows:  

TRANSFER  OF  MEMBERSHIP  TO  100%  SUBSIDIARY,  GROUP  COMPANY, HOLDING COMPANY, ETC. Where  brokers  are  forced  by  compulsion  of  law  to  transfer  their  membership to:- i. 100% subsidiary company or ii. Group company or iii. holding company they shall not be required to pay fees afresh. In such cases, the Exchange  would have to enumerate the circumstances under law resulting in the  said  transfer  to  100%  subsidiary/group/holding  company  for  consideration by SEBI.  For this purpose,

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A company would be classified as a group company of another company,  if  the controlling persons/entities  in  both the companies are  same i.e.  such persons/entities hold atleast 51% of the paid-up capital (40% in case  of listed company) in both the companies. A Company would be classified as a holding company of the trading  member  corporate,  if  its  shareholding  in  the  member  corporate  was  above 51%.  

6 In response to the request for turnover details by NSE, PGSL vide letter dated  

12.3.2003 elucidated that there had been a transfer of membership due to compulsion  

of law and as per SEBI circular dated 27.9.2002, such transfer to group company  

would not attract any fresh payment of registration fees. SEBI however, refused to  

grant PGSL the fee continuity benefits sought. On 4.12.2003 PGSL submitted another  

detailed representation to SEBI seeking grant of fee continuity.  However no response  

was  received  from  SEBI.   Meanwhile  on  15.7.2004,  SEBI  (Interest  Liability  

Regularisation) Scheme 2004 came into force. The Scheme envisaged a waiver of  

80% outstanding interest if the broker paid the outstanding principal along with 20%  

outstanding interest during a specified period. SEBI issued a Provisional Fee Liability  

Statement demanding payment of fees and NSE along with its cover letter sent it to  

PGSL and PGSL filed an appeal before the SAT.

7 The primary issue  before  SAT was whether  the  Appellants  were  under  any  

compulsion of law to transfer their brokerage business to a subsidiary.  SAT ruled in  

favour of SEBI stating that since the Appellants were subject to the bar in Rule 8(1)(f)  

they were therefore required to sever themselves from their fund-based activities to  

keep  in  line  with  the  provision.  As  a  natural  corollary  thereof,  SAT stated  that  

although there was a compulsion of law on the Appellants, it did not extend to the

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extent that they were compelled to sever their brokerage business and transfer it to  

their subsidiary as they have in the present scenario; rather the Appellants could have  

severed their non-brokerage businesses, either give it up in entirety or transfer it to a  

subsidiary.  The Appellants have assailed this common judgment of the SAT.

8 The  issue  for  determination  before  this  Court  is  a  neat  one  -  Whether  the  

Appellants can be granted the benefit of fee continuity? To determine the answer we  

must  first  refer  to  the  Circular  under  which  these  Appellants  have  made  their  

respective  claims.  The  Circular  titled,  “Fees  Payable  by  Stock  Brokers”  dated  

30.9.2002 was issued in the form of a clarification pursuant to the direction passed by  

this  Court  in  SEBI v.  BSE Brokers’ Forum (2001)  3 SCC 482, to implement  the  

recommendation of the R. S. Bhatt Committee. The benefit in the said circular can be  

granted only when the two essential conditions are satisfied. First that the company to  

which the transfer was made is indeed a 100% Subsidiary Company, Group Company  

or  a  Holding Company and  secondly,  whether  there  was  a  compulsion of  law to  

transfer the said membership. There are no disputes on the satisfaction of the first  

essential condition. Thus we find the sole question for determination before us to be  

whether there was a compulsion of law to transfer the membership to PGSL.  

9 Mr.  S  Ganesh,  learned  Senior  Counsel  for  the  Appellant,  has  relied  on  

Ratnabali  Capital  Markets Ltd. v.  Securities Exchange Board of  India (2008) 1  

SCC 439, where the term ‘compulsion of law’ for the first time came to be discussed  

in light of the SEBI Circular dated 30.9.2002. The appellants in  Ratnabali Capital  

Markets Ltd. underwent an amalgamation in  order  to  increase their  reserves and

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qualify themselves to enter the derivatives market. On the prevailing facts it was held  

that  raising  money  to  qualify  for  membership  of  a  segment  did  not  constitute  a  

compulsion  of  law for  the  said  merger.  Mr.  Ganesh  submitted  that  in  Ratnabali  

Capital Markets Ltd. this Court clearly demarcated that  any action taken by the  

benefit-seeker  must  not  be  solely for  profit-motive;  its  roots  must  emerge  from a  

survival instinct which is so in the case before us. He stated that PGSL was put in the  

predicament of choosing one business over another; letting go or transferring of the  

financial activities would have brought with it a difficulty of having to transfer the  

main business whereas transfer of the brokerage business would involve the transfer  

of the trading license. PGSL therefore chose to transfer its brokerage business to a  

new  group  company.  This  he  said  purported  to  merely  re-organisation,  not  for  

commercial profit but for compliance with the provisions of Rule 8(1)(f) and 8(3)(f)  

of the 1957 Rules.  Mr. Sameer Parekh, one of the other Counsels for Appellants,  

submitted that PCMIL faced 4 options when told to comply with the aforesaid 1957  

Rules. They could either: a) give up the fund-based business; b) give up the brokerage  

business; c) transfer the fund-based business to another company, which would cause  

great hardship to all involved as numerous contracts would have to be changed; or, d)  

transfer the brokerage business, and of the 4 the last was the path of least resistance  

and hence the brokerage business was transferred to PGSL.   

10 Learned Senior Counsel for the Respondents, Mr. C U Singh, submitted that the  

Appellants are precluded from claiming compulsion of law as they themselves have  

admitted that they had other options besides transferring their brokerage membership

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to a group company. He submits that the mere existence of other options means that  

there  was  no  compulsion  imposed  by  law to  follow this  specific  course  and  the  

Appellants’ plea of impossibility is neither a compulsion of law nor has it been raised  

earlier. Mr. Singh placed reliance on Rules 8(1)(f) and 8(3)(f) of the 1957 Rules to  

submit  that  right  from the  start,  the  Appellants  were  under  the  restriction  to  not  

engage themselves in a business other than that of securities. He further brought to  

our attention ‘Annexure A’ of the letter of acceptance of membership to the Capital  

Market  Segment  of  the NSE which placed certain conditions on Appellants  to be  

fulfilled within three months and one of which was the requirement to sever all fund  

based activities. Mr. Singh was also of the opinion that the Appellants’ reliance on  

Ratnabali Capital Markets Ltd. is misplaced. According to him, this Court held that  

for  an  action  to  be  compulsion  of  law,  it  needed  to  have  been  an  alternative  to  

liquidation or a correspondingly calamitous situation, essentially to prevent winding-

up.  

11 To these submissions, Mr. Sameer Parekh responded by placing forth on record  

a copy of the original advertisement placed in the newspapers calling for applications  

for Trading Membership of the Capital Markets Segment of NSE. He points out that  

this  advertisement  was  published  on  11.2.1994  and  the  last  date  for  submitting  

applications  was  25.2.1994,  leaving a  gap  of  merely  14 days.  He  states  that  this  

becomes relevant in light of the submissions placed on record by SEBI that only those  

companies who had no other business involving financial liabilities could apply. He  

submits that SEBI could not have had the expectation that new companies would be

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incorporated and be ready with their applications for trading membership all within a  

span of  14 days.  He also submitted that  Rules 8(4)  and 8(4A) are the provisions  

relevant to companies and on a reading of 8(4A)(iv) which specifically exempts the  

Directors  of  the  companies  from  the  provisions  of  8(1)(f)  and  8(3)(f)  it  can  be  

concluded that it was not intended initially that Rules 8(1)(f) and 8(3)(f) would apply  

to companies.

12 It is beyond cavil that SEBI, as a trade regulator in the securities market, is  

entitled  to  charge  registration  fees  for  enabling  it  to  carry  out  its  functions  as  

stipulated in Section 11(2) of the SEBI Act, 1992. However it appears at present that  

SEBI has pounced at the opportunity to charge fresh registration fees choosing to  

ignore the exemptions assured by it.  

13 We find merit in the arguments furnished by the Appellants. In our opinion, the  

restriction imposed was to not have fund-based and trading activities together under  

one roof. Thus any action taken by the Appellants to comply with restriction of not  

participating in both the activities simultaneously would be under compulsion of law.  

The Respondents would have us say that only one line of action was compulsion of  

law but that would have the effect of adding ‘process’ to compulsion of law. The  

compulsion of law under the 1957 Rules is directed towards the desired end and not  

concerned with the means, and it would be wrong for us to ascribe otherwise.  

14 We thus set aside the impugned Judgment of SAT and direct that the Appellants  

be  given  the  benefit  of  fee  continuity.  These  Appeals  stand  allowed  accordingly.  

There will be no orders as to costs.

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C.A. 2310 of 2007

15 The  original  trading  membership  of  the  NSE  had  been  obtained  by  Onida  

Finance Ltd. on 16.9.1994 but when the NSE raised objections about its fund-based  

activities, the license was transferred to OFL Securities Ltd. on 7.2.1995. Thereafter  

in 1999-2000, OFL Securities Ltd. transferred its trading license to Gulita Securities  

Ltd. (Appellant No. 1). Thus the trading membership was transferred twice but only  

the first transfer was under compulsion of law. Therefore, we find neither any merit in  

the Appeal nor any infirmity in the order of the SAT with regard to the Appellants in  

C.A. No.2310 of 2007.   Thus this Appeal is dismissed accordingly.   There will be no  

orders as to cost.

……………………………….J      [VIKRAMAJIT SEN]

……………………………….J [SHIVA KIRTI SINGH]

New Delhi, December 09, 2015.