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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4493 OF 2006

S.E.B.I.              …..Appellants

Versus

Alliance Finstock Ltd. & Ors. Etc. Etc.        …..Respondents

W I T H

C.A.No. 4743 of 2006    

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. Both the appeals have been preferred under Section 15Z of the Securities &  

Exchange Board of India Act, 1992 (for brevity ‘the SEBI Act’) against a common  

judgment  and  order  dated  09th May  2006  rendered  by  the  learned  Securities  

Appellate  Tribunal  (for  brevity  ‘the  SAT’)  in  Appeal  No.123 of  2004 and other  

analogous appeals filed by the stock brokers (respondents herein) to challenge the  

action of the Securities & Exchange Board of India (for short, ‘the SEBI’) denying  

them the benefit of fee continuity in terms of paragraph 4 of Schedule III to the  

Securities  &  Exchange  Board  of  India  (Stock  Brokers  and  Sub-Brokers)  

Regulations, 1992 [hereinafter called ‘the Regulations’].

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2. The SAT formulated the issue falling  for  determination in the form of  a  

question  –  “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 in terms of paragraph 4 of Schedule III  

….”.  Since the SAT answered the question in favour of the stock brokers (the  

respondents herein), SEBI is in appeal.

3. The basic facts are common in all the matters inasmuch as the concerned  

broker was previously member of the Bombay Stock Exchange (for short, ‘BSE’) in  

his individual capacity or as a partnership firm.  He 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.  Undoubtedly, no stock broker or  

sub-broker can buy, sell or deal in securities unless it is granted Certificate of  

Registration by  SEBI  under  the Regulations and for  that,  ordinarily  the stock  

broker  is  required  to  pay  the  requisite  fees  in  the  manner  provided  in  the  

Regulations.  In particular, Regulation 10 provides that every applicant eligible for  

the grant of a certificate shall pay such fees and in such manner as is specified in  

Schedule III to the Regulations.

4. Although the controversy relates to paragraph 4 of Schedule III, some other  

paragraphs  are  also  relevant  and  hence  these  along  with  paragraph  4  are  

extracted hereinbelow :

“I. Fees to be paid by the Stock Broker.

1. Every  stock broker  shall  subject  to  paragraphs 2 and 3 of  this  Schedule pay registration fees in the manner set out below :

(a) where  the  annual  turnover  does  not  exceed  rupees  one  crore

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during any financial year, a sum of rupees five thousand for each  financial year;

(b) where the annual turnover of the stock-broker exceeds rupees one  crore during any financial  year,  a  sum of  rupees five thousand  plus one hundredth of one per cent of the turnover in excess of  rupees one crore for each financial year;

(bb) …… …… ……

(c) after  the  expiry  of  five  financial  years  from  the  date  of  initial  registration as a stock-broker, he shall pay a sum of rupees five  thousand for every block of five financial years commencing from  the sixth financial year after the date of grant of initial registration  to keep his registration in force.

2. Fees referred to in clauses (a) and (b) of paragraph 1 above shall be  paid -  

(a) in respect of the financial year 1992-93 within one month of the  commencement of these regulations;

(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.

3. …… …… ……

4. Where  a  corporate  entity  has  been  formed  by  converting  the  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 a minimum  of 40 per cent shares of the paid-up equity capital of the corporate entity  for a period 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 corporate  entity  for  the  period for  which erstwhile entity has paid the fee as per the regulations.

4A. …… …… …… 5. If a stock broker fails to remit fees in accordance with Paragraphs  1 and 2, he shall be liable to pay interest at 15% per annum for each  month of delay or part thereof.

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Provided that the liability to pay interest as aforesaid may be in addition  to any other action which the Board, may take as deemed fit against the  stock broker under the Act, or the Regulations.

Provided further …… …… ……

II. …… …… ……

III. Manner of Fees to be paid.

The fees specified above shall be paid on or before the 1st day of October  each year payable by draft in favour of “The Securities and Exchange  Board of India” at Bombay, or at the respective regional office”.

5. Case of the SEBI is that since Para 4 of Schedule III was introduced by an  

amending notification dated 21.1.98 which states in Para 2 that the amendment  

will be effective from the date of notification i.e, 21.1.98, the annual fee payable by  

registered brokers would remain unaffected for the earlier year ending 31.3.97 and  

it  can  at  best  be  effected  only  in  respect  of  fees  payable  for  the  year  1.4.97  

onwards.  On  such  premise  it  has  been  forcefully  contended  on  behalf  of  the  

appellants that the SAT has erred in granting retrospectivity to the provisions of  

para 4 by granting the benefit of fee continuity even to entities which acquired  

corporate membership on conversion even prior to 1.4.97.

6. The submission of Mr. C.U. Singh, learned Senior Counsel for the SEBI, are  

to the following effect:-

(1) SEBI cannot make retrospective Regulations.

(2) Rules and regulations are generally prospective unless  explicitly made retrospective.

(3) While bestowing a new benefit, the concerned statutory  authority can always choose a cut off date.

(4) Unless the cut off date suffers from arbitrariness,  there can be no interference.

(5) Materials like press statement or letter cannot act as

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estoppel against the statutory provisions such as the  Regulations.

7. In support of the first and second submission it has been pointed out that  

Section 30 of the SEBI Act vests the Board with the power to make regulations  

consistent with the Act and the rules made thereunder so as to carry out the  

purposes of the Act and there is nothing specific in this Section granting power to  

frame regulations with retrospective effect.  To further support this proposition,  

reliance has been placed upon judgments in the case of  (1)  K Narayanan  v.  

State of Karnataka, 1994 Supp. (1) SCC 44, (2) Mohd. Rashid Ahmad v. State  

of U.P., (1979) 1 SCC 596 and (3)  Mahadeolal Kanodia v. The Administrator  

General of West Bengal, (1960) 3 SCR 578 = AIR 1960 SC 936.  In K. Narayanan  

a retrospective rule was struck down on ground of unjust and unfair effect upon a  

section of officials and therefore held discriminatory and violative of Articles 14  

and 16. In Mohd. Rashid Ahmed the Court was dealing with service matter and  

was called upon to decide whether a particular rule could be given retrospective  

effect. Since the statute vested the State Government with power to frame rules  

even with retrospective effect, the relevant provision was held to be retrospective  

after reiterating an established rule of construction “that retrospective operation is  

not to be given to a statute so as to impair an existing right or obligation other  

than as regards the matter  of  procedure,  unless that  effect  cannot be avoided  

without doing violence to the language of enactment.” Similar view was expressed  

in the case of Mahadeolal.

8. Reliance was also placed upon a Constitution Bench judgment in the case of  

K.S. Paripoornan v. State of Kerala & Ors., (1994) 5 SCC 593. There the issue  

related to retrospectivity but in an entirely different context of whether there must  

be clear intendment in the law if an amendment dealing with substantive rights is

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to apply to pending legal proceedings, initiated prior to the commencement of the  

amending Act. The majority held that the intendment in such a situation must be  

in clear terms. In the case of  C. Gupta v. Glaxo- Smithkline Pharmaceuticals  

Ltd., (2007) 7 SCC 171 the Court, in the context of benefits under the Workmen’s  

Compensation Act, reiterated the well established law that an enactment in order  

to be read as retrospective, must have an express provision to that effect or same  

effect must flow by necessary implication or intendment.

9. The aforementioned case laws have been noticed out of  deference to the  

submissions  but  in  fact  they  do  not  serve  much  purpose  because  the  law  

governing  the  field  is  otherwise  also  quite  settled.   Although  the  amending  

notification introducing para 4 of Schedule III is effective from 21.1.1998, on the  

plea of convenience and logic the appellant has itself clarified that the provisions  

of para 4 will be effective from an earlier date, viz., 1.4.1997.  By relying upon  

some case laws such as in the case of National Council For Teacher Education  

v.  Shri Shyam Shiksha Prashikshan Sansthan (2011) 3 SCC 238 it has been  

contended that appellant is entitled to fix a cut-off date such as 1.4.1997.  It has  

been highlighted that fees are to be computed and paid for every financial year  

hence introduction of  the  concession under  paragraph 4 w.e.f.  beginning of  a  

financial  year  1997-1998  is  reasonable  and  serves  a  purpose.   Appellant  

emphasized the reasons for introducing incentive for corporatisation of individual  

or partnership entities for carrying out business of brokerage in shares etc. by  

referring to  a speech of  the then Finance Minister  as well  as a Memorandum  

explaining the provisions in the Finance Bill, 1997.  It was argued on behalf of  

appellant  that  capital  gains  exemptions  were  granted  as  a  one  time  measure  

during the concerned financial year to encourage corporatisation of stock brokers’  

cards and hence the action of SEBI in introducing paragraph 4 of Schedule III in

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the Regulations needs to be construed only as a prospective measure and not as  

one conferring  benefit to even such entities who had acquired corporate entity  

prior to 1.4.1997.

10. In reply Mr. Shyam Divan, learned senior advocate appearing for some of  

the respondents used the same background facts  to  contend that  in principle  

SEBI accepted the proposition that if the same entity had paid fees as a stock  

broker and it continues to do the same business by converting into a corporate  

entity then fees paid for the earlier years needed recognition.  On this principle the  

effect of paragraph 4 to Schedule III was to place an embargo on the powers of  

SEBI on and after the amendment introduced w.e.f. 21.1.1998 to collect any fees  

from the new entity by ignoring the fees earlier paid by the previous avatar of the  

new entity.  According to Mr. Divan a fee is a fiscal levy and, therefore, principles  

applicable to interpretation of legal provisions governing a fiscal levy are attracted  

in  the  present  case  and  not  the  rules  of  interpretation  governing  other  laws.  

According to him the plain language of paragraph 4 is decisive and that led to the  

decision under appeal against SEBI.  According to him even if some amount of  

ambiguity  is  found  in  the  relevant  provision  then  the  interpretation  which  is  

favourable to the brokers needs to be adopted.  He further made a distinction  

between power to a levy duty or fee and the power of collection.  According to him  

a competent authority, in this case SEBI, can decide for itself whether to proceed  

with  collection  or  not.   Embargo  on  collection,  according  to  him,  is  clearly  

prospective in the present facts.

11. On behalf of respondents reliance was placed upon judgment in the case of  

Mathuram Agrawal v.  State of Madhya Pradesh (1999) 8 SCC 667 wherein, in  

the  context  of  municipal  taxes,  this  Court  held  that  the  intention  of  the

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Legislature  in  a  taxing  statute  is  to  be  gathered  from  the  express  language  

particularly where it is plain and unambiguous.  It is not permissible to add or  

substitute words for giving a meaning to such statutes for the purpose of serving  

the perceived spirit or intention of the Legislature.  Reliance was also placed upon  

Somaiya Organics (India) Ltd. v. State of U.P. (2001) 5 SCC 519 for supporting  

the submission that in law there is a clear distinction between levy and collection  

of taxes.  In the case of  Somaiya Organics the Constitution Bench noted that  

Article 265 of the Constitution uses the words ‘levy’ and ‘collect’.  The Court went  

on to hold that these words are not synonymous terms.  This distinction was  

required to be made in that case because certain provisions had been declared  

illegal only prospectively.  In that context it was held that while “levying” would  

mean the assessment or charging or imposing of tax, “collection” would mean the  

fiscal  realization  of  the  tax  levied  or  imposed.   It  was  also  pointed  out  that  

ordinarily collection of tax is a stage subsequent to the levy of the same.  It is not  

necessary to multiply case laws cited on these points.

12. Respondents referred to a Press Release dated 28.12.2001 publicising the  

decisions that were taken in the meeting of the SEBI Board on that date.  In sub-

para  (e)  of  para  2  it  is  disclosed  that  the  SEBI  Board  considered  the  

representations made by the brokers in the light of relevant materials and decided  

the following :

“2. Broker Fees – Amendment to SEBI (Stock Broker and Sub Broker)  Regulations

a. ….. ….. ….. b. ….. ….. ….. c. ….. ….. ….. d. ….. ….. …..

e. the fee-continuity benefit which was given to all brokers, who had  corporatised after January 21, 1998 (the date on which the SEBI (Stock

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Broker and Sub Broker) Regulations were amended) and also to those  who corporatised between April 1, 1997 and January 21, 1998 would be  extended to  all  brokers  who had corporatised prior  to  April  1,  1997,  provided that SEBI has not collected fees from any such broking entity  already. f. …. …. ….”

13. It was also pointed out that Explanation of paragraph 4 to Schedule III of  

the Regulations was inserted through an amendment regulation of  2002 w.e.f.  

20.2.2002 and submitted that the entire provision in the Explanation was to give  

statutory base to the decision contained in the Press Release highlighted above.  

The Explanation reads thus :

“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 corporate  entity  for  the  period for  which the erstwhile entity has paid the fee as per the regulations.”

14. Reliance  was  placed  upon  judgments  in  the  case  of  K.P.  Varghese v.  

Income  Tax  Officer  Ernakulam (1981)  4  SCC  173  and  also  in  the  case  of  

Commissioner of Sales Tax, U.P. v. Indra Industries (2000) 9 SCC 66 in support  

of the submission that the Press Release may not be having statutory effect but it  

helps in understanding the intention of SEBI Board which issued the Release.  In  

other words, the respondents sought to rely upon the principle of contemporanea  

expositio as propounded in the case of  K.P. Varghese.  In  Indra Industries the  

circulars issued by the Income Tax Department were held to have binding effect  

upon the taxing authorities though it may not be binding on the courts or on the  

assessee.

15. For  highlighting  the  general  principles  concerning  retrospectivity  of  a  

statutory Act, Rule or notification, Mr. Divan relied upon a Constitution Bench

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judgment in the case of  CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1. In  

paragraphs 27, 28 and 29 the Court recollected the clear legal position agreed to  

by the parties and thereafter some exceptions as to when and why the general rule  

against retrospectivity is inapplicable, was pointed out in paragraph 30 which is  

as follows:-

“30. We  would  also  like  to  point  out,  for  the  sake  of  completeness, that where a benefit is conferred by a legislation,  the rule against a retrospective construction is different.  If  a  legislation  confers  a  benefit  on  some  persons  but  without  inflicting a corresponding detriment on some other person or on  the public generally, and where to confer such benefit appears  to have been the legislators’ object, then the presumption would  be that such a legislation, giving it a purposive construction,  would warrant it to be given a retrospective effect. This exactly  is  the  justification  to  treat  procedural  provisions  as  retrospective. In Govt. of India v. Indian Tobacco Assn., (2005) 7  SCC 396 the doctrine of fairness was held to be relevant factor  to construe a statute conferring a benefit, in the context of it to  be  given  a  retrospective  operation.  The  same  doctrine  of  fairness, to hold that a statute was retrospective in nature, was  applied in  Vijay v.  State of Maharashtra,  (2006) 6 SCC 289. It  was  held  that  where  a  law  is  enacted  for  the  benefit  of  community as a whole, even in the absence of a provision the  statute may be held to be retrospective in nature. However, we  are (sic not) confronted with any such situation here.”

The  Court  then  concluded  that  “In  such  cases,  retrospectivity  is  attached  to  

benefit the persons in contradistinction to the provision imposing some burden or  

liability where the presumption attaches towards prospectivity.” The Court also  

extracted relevant explanation in respect of “declaratory statutes” from the book  

Principles  of  Statutory  Interpretation by  Justice  G.P.  Singh to  make  the  legal  

position clear that if a statute is curative, explanatory or merely declaratory of an  

earlier law, it is generally intended to have retrospective operation.

16. Learned  counsel  appearing  on  behalf  of  several  other  respondents  have  

supported the contentions advanced by Mr. Divan that on plain construction of

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the concerned Regulation i.e, para 4 of Schedule III, it can safely be held that the  

provisions merely look at some past happenings but the benefits are to accrue to  

the  eligible  entities  only  in  future  and  hence  the  provisions  do  not  operate  

retrospectively.  Further  stand  of  the  respondents  is  that  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 in view of law noticed and laid down  

in  Vatika case. The matter could have been different if SEBI had attempted to  

impose liabilities or create obligations upon stock brokers from a retrospective  

date. In case of conferment of benefits, no vested rights are adversely affected and  

in  such  cases  retrospective  operation  is  protected  and  permissible  on  the  

principles noticed in Vatika case.

17. In reply Mr. C.U. Singh referred to policy circular dated 28.3.2002 which  

inter  alia  states  that  pursuant  to  a  judgment  of  this  Court  dated  1.2.2001  

directing SEBI to amend the Regulations in light of recommendations of the R.S.  

Bhatt  Committee report,  SEBI had examined representations from the brokers  

and issued clarifications contained in part A of the circular. Part A, inter alia,  

contains a clarification in respect of applicability of the notification on exemption  

from  fees  on  corporatization.  The  clarification  reads  thus  “the  spirit  behind  

notification  dated  21.1.1998  was  to  give  benefit  of  this  amendment  to  stock  

brokers who have converted their individual stock partnership membership into  

corporate on or after 1.4.1997. Accordingly such stock brokers shall be given the  

benefit  of  continuity subject  to the satisfaction of  conditions mentioned in the  

notification.”

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18. On a careful  consideration of  rival submissions and keeping in view the  

relevant case laws relied upon by the parties we have examined analytically and  

carefully paragraph 4 as well as the explanations thereto in Schedule III of the  

Regulations. We find that para 4 was no doubt inserted through an amendment  

with effect from 21.1.1998 but it does not disclose, either explicitly or even by  

necessary  implication,  that  although  possessing  the  required  qualifications,  a  

corporate entity formed earlier to 21.1.1998 would not be exempted from payment  

of fee for the period for which the erstwhile individual or partnership members has  

already paid the fees. In respect of a legislation of fiscal character such as the  

present provision which relates to fees, it will not be proper or permissible to read  

into or delete words which do not exist in the provision. Further even if there is  

any scope of doubt, the benefit of such doubt will go to the subject i.e., the stock  

brokers and not  to  authority,  in this  case the SEBI.  We further find that  the  

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 a  

corporate 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.

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19. Following the judgment in the case of  Somaiya Organics,  we agree that  

‘levy’  and  ‘collection’  are  not  synonyms  and  generally  they  occur  at  different  

stages.  In  the  present  case  the  legislative  intention  is  to  put  an  embargo  on  

collection in future, in case the converted corporate entity is found entitled to the  

benefits of fee continuity. Such embargo is clearly to operate prospectively even if  

there existed some kind of liability in the past on account of fees leviable prior to  

insertion  of  paragraph  4  of  Schedule  III  to  the  Regulations.  In  any  case  the  

rationale in not permitting retrospective operation of laws is only to ensure that  

subjects are not adversely affected by creation of legal liabilities and obligations  

for a period already bygone. In the present case the provisions do not create any  

obligation  or  liability.  They  only  confer  benefits  by  way  of  fee  continuity  on  

account of fees already paid by the earlier entity before its conversion into a new  

corporate entity.  

20. Even if we were to apply the test of fairness, no exception can be taken to  

extention of the benefit of fee exemption as provided by the relevant provision in  

the  Regulations.  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.   

21. As noted earlier the SEBI itself extended the benefit to those converting not  

only from 21.1.1998 but from 1.4.1997. There is nothing in paragraph 4 or in the  

explanation to support the stand of the SEBI that the benefits must be confined to  

conversions taking place after a particular date when no such date finds place in  

the Regulations. As a result,  appeals preferred by SEBI are dismissed and the

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judgments and orders under appeal passed by SAT are upheld. In the facts of the  

case the parties shall bear their own costs.

…………………………….J. [VIKRAMAJIT SEN]

..……………………………..J. [SHIVA KIRTI SINGH]

New Delhi. November 03, 2015.