Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 7607 OF 2005

SECURITIES & EXCHANGE BOARD OF INDIA    .….   APPELLANT

VERSUS

M/s. PREBON YAMANE (I) LTD.                               …..   RESPONDENT

J U D G M E N T

VIKRAMAJIT SEN, J.

1 This  Appeal  assails  the  Judgment  dated  17.8.2005  pronounced  by  the  Securities  

Appellate Tribunal (hereinafter ‘SAT’) directing the Appellant as well as the National  

Stock  Exchange  (NSE  for  brevity)  to  continue  to  grant  the  Respondent  the  “fee  

continuity  benefit”  as  was  available  to  them  before  the  NSE  decided  to  permit  

segmental surrender of membership to its members.  In response to the fee demanded  

by the Appellant, namely the Securities and Exchange Board of India (SEBI for short),  

the Respondent has paid, albeit under protest, the principal amount of 4,37,20,256/-  

together with     26,96,590/- being the interest accrued thereon.  The factual matrix is  

that on 27.5.1994, Oracle Stocks and Shares Ltd. (hereinafter ‘Oracle’) was registered  

by the NSE as a Trading member in two segments, that is the Wholesale Debt Market  

(WDM) as well as in the Equity Market/Capital Market (EM/CM).  Subsequently, on  

14.1.1999, Oracle informed the NSE that it had entered into a 50:50 Joint Venture

Page 2

with Prebon Holdings B.V. (Prebon Group), namely Prebon Yamane (India) Ltd. (the  

Respondent),  but  restricted  in  respect  to  the  WDM segment  alone.   NSE advised  

Oracle to bifurcate the WDM and the EM/CM segments whereupon Oracle forwarded  

a  proposal  in  writing  seeking  the  approval  of  NSE  for  the  segregation  of  its  

Membership of WDM and of the EM/CM segments.  By its letter dated 11.2.1999,  

NSE approved the proposal of Oracle for segregation but subject to certain conditions,  

inter alia, that if the trading member Oracle was desirous of surrendering its trading  

membership, both the entities viz. Oracle and the Respondent would have to surrender  

their respective memberships simultaneously.  As is palpably apparent, NSE looked  

after its own financial interests by demanding 10 Lacs as approval fee together with  

an interest free security of  50 Lacs.  Both entities were also required to maintain  

their shareholding pattern and comply with the net worth and all other requirements -  

Oracle in respect of corporate trading of the Capital Market and the Respondent in  

respect  of  the corporate trading in the WDM segment.   The Respondent  was also  

called upon to submit its shareholding pattern.  It seems facially obvious to us that  

even the NSE was alive to the possibility of Oracle hiving off or transferring its WDM  

operations to the Respondent without complying with all  the applicable Rules and  

Regulations.  NSE maintained this position even later on, as is evident from a perusal  

of  its  letter  to  the  Respondent  positing  that  both  memberships,  though vesting  in  

separate parties, were treated as ‘concomitant’.  It is also relevant to underscore that  

the Appellant was not privy to these negotiations.

Page 3

2 We must hasten to add that shortly subsequent to these events, the Appellant by its  

letter  dated  4.4.1999 to  the  Respondent  had  granted  registration  to  it  “as  a  stock  

broker”.   The Appellant made its permission conditional inter alia, upon payment of  

fees for registration provided in the Securities and Exchange Board of India [Stock-

Brokers  and  Sub-Brokers]  Regulations,  1992,  the  salient  parts  of  which  we  shall  

extract for ease of reference.  However, the relevant terms contained in the letter dated  

4.4.1999 are these -

2  d) It  shall  pay  the  amount  fees  for  registration  in  the  manner  provided in the Securities and Exchange Board of India [Stock  Brokers and Sub Brokers] Regulations, 1992; and  

                         5. You are now, in terms of clause [d] of the conditions of grant of  

registration certificate, required to pay the fees in accordance with  regulation  10[1]  read  with  Schedule-III  of  the  Securities  and  Exchange  Board  of  India  [Stock  Brokers  and  Sub  Brokers]  Regulations, 1992 and remit the same through the stock exchange  of which you are a member.  All the stock exchange have been  separately given necessary instructions in regard to collection of  fees from the stock brokers and remittance thereof to the Board.   

3      In this continuum NSE, in its letter dated 30.1.2002, again conveyed to the  

Respondent  that  both  the  memberships,  though  vesting  in  different  entities,  were  

‘concomitant’. This reiterated stand of the NSE was submitted by the Respondent to  

the Appellant with a request to grant fee continuity benefit on the basis of the facts of   

the  case.  The  Appellant  has  admitted  that  on  receipt  of  this  request  from  the  

Respondent, it recorded in its file notings that the two membership cards could be  

treated as composite and that the turnover of the two cards may be taken together for  

the purpose of turnover fees.  It is not in dispute that till 2003 the Respondent had

Page 4

been availing of  the benefits  permissible  under the fee continuity provisions.  This  

position  was  also  accepted  by the  Appellant,  as  both  the  membership  cards  were  

treated as composite and ‘concomitant’ and the turnover of the two cards of Oracle  

and the  Respondent  were  taken together  on  the  predication  that  the  Respondent’s  

WDM membership was a continuation of WDM segment of Oracle’s membership.  

4      On  18.9.2003,  the  Respondent  applied  to  the  NSE  for  membership  in  the  

Derivatives Segment which the NSE, as per procedure, forwarded to the Appellant for  

its  approval.   On  24.6.2004,  the  Appellant  returned  the  application  and  issued  a  

provisional  fee  liability  statement  disclosing  that  after  making  the  necessary  

adjustments of the amount paid with respect to its membership in the WDM Segment,  

there were unpaid dues in the name of the Respondent to the tune of  5,59,45,054  

towards  principal  and  interest.   It  was  indicated  that  the  application  may  be  

resubmitted only after payment of the outstanding fees.  In its letter dated 23.8.2004 to  

the  Respondent,  NSE  clarified  that  although  segmental  surrender  of  the  trading  

membership was permissible since December, 2002, it had nevertheless to be kept in  

perspective that when the Respondent and Oracle had made the subject proposal in  

January, 1999, it was accepted on the condition that “should any one of the entities  

decide to surrender their membership, then both the entities have to surrender their  

respective membership simultaneously”.  

5 After receiving the provisional fee liability statement which stated a fee liability  

of 5,59,45,054, Respondent filed an Appeal on 8.11.2004 under Section 15T of the

Page 5

SEBI Act, 1992.  This was contested by the Appellant before the Securities Appellate  

Tribunal (SAT), which observed that at the time that NSE had granted fee continuity  

to  the Respondent,  there  was no provision for  segmental  surrender,  as  a  result  of  

which, subject to certain conditions, fee continuity was granted to Respondent despite  

it being a new entity. The SAT held that this letter did not have the effect of revocation  

or  cancellation  of  the  earlier  conditions  which  were  specifically  imposed  while  

granting assignment of WDM Segment from Oracle to the Respondent.  Counsel for  

the Respondent brought to the notice of the SAT that the Respondent had already paid,  

albeit under protest pending disposal of the appeal, a sum of 4,37,20,256 towards the  

principal amount of the Appellant’s claim and a further sum of 26,96,590 as interest.  

However,  the  SAT  directed  the  Appellant  to  refund  both  the  amounts  to  the  

Respondent.   Hence, the present Appeal.

6 Learned  Senior  Counsel  for  the  Appellant  has  relied  on  Regulation  10  and  

Schedule III of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, which  

are reproduced for the facility of reference:

10. (1) Every applicant eligible for grant of a certificate shall pay such  fees and in such manner as specified in Schedule III or Schedule IIIA, as  the case may be: Provided that the Board may on sufficient cause being  shown permit  the  stockbroker  to  pay such fees  at  any time before  the  expiry of six months from the date on which such fees become due.  

(2)  Where  a  stock-broker  fails  to  pay  the  fees  as  provided  in  Regulation  10,  the  Board  may  suspend  the  registration  certificate,  whereupon the stock-broker shall cease to buy, sell or deal in securities as  a stock-broker.

Page 6

SCHEDULE III Regulation 10

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 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; xxx xxx xxx

(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.  (currently deleted)

      xxx xxx xxx

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 the erstwhile entity  has paid the fee as per the regulations.

7       The learned senior Counsel for the Appellant has contended that a membership  

of the Stock Exchange is an essential pre-requisite, for which the fee prescribed in  

Regulation 10 is payable by every such member. The amount that is payable as fee is

Page 7

determined as per the provisions under Schedule III. Emphasis has been placed on  

Clause 4 of Schedule III (supra) as it provides the only exception to the payment of  

fees.    Facially,  it  appears  to  us,  this  exception  has  been carved out  only for  the  

enablement of persons who are vulnerable to unlimited personal liability in respect of  

their business debts, to avail of the advantages of converting their mode of transacting  

business  into  a  corporate  structure,  provided  this  conversion  is  not  misused  to  

essentially transfer the business and yet escape payment of transfer fees; hence the  

insistence of retention of forty per cent share holding.  It also manifests that for all  

other transfers, fees are payable to the Appellant, which depends on these collections  

for  defraying  its  manifold  expenditures.   The  legal  propriety  of  these  pecuniary  

demands by SEBI have received the attention of the Court and have been found proper  

in B.S.E. Brokers Forum vs. SEBI (2001) 3 SCC 482.

8       Reliance has also been placed on letter dated 4.4.1999 issued by the Appellant to  

the Respondent, by which a certificate of registration was issued to the Respondent  

subject, inter alia, to condition (d) which provides that the Respondent and similarly  

situated entities shall pay the amount of fees for registration in the manner provided in  

SEBI (Brokers and Sub Brokers)  Regulations,  1992. This  letter  also requested the  

Respondent to study the Rules and Regulations carefully.  Learned Senior Counsel for  

the Appellant contended that the Respondent could not claim “fee continuity” on the  

basis of internal file notings. Reliance has been placed on the well entrenched legal  

principle that estoppel has no efficacy against a statute.  Sethi Auto Service Station  

vs. Delhi Development Authority 2009 (1) SCC 180 clarifies this position thus -

Page 8

13. Thus, the first question arising for consideration is whether the  recommendation  of  the  Technical  Committee  vide  minutes  dated  17th May, 2002 for re-sitement of appellants petrol pumps constitutes an  order/decision binding on the DDA?

14. It is trite to state that notings in a departmental file do not have  the sanction of law to be an effective order. A noting by an officer is an  expression of his viewpoint on the subject. It is no more than an opinion  by an officer for internal use and consideration of the other officials of  the department and for the benefit of the final decision-making authority.  Needless to add that internal notings are not meant for outside exposure.  Notings in the file culminate into an executable order, affecting the rights  of the parties, only when it reaches the final decision-making authority in  the department; gets his approval and the final order is communicated to  the person concerned.

15. In Bachhittar Singh v. The State of Punjab AIR 1963 SC 395, a  Constitution Bench of this Court had the occasion to consider the effect  of  an  order  passed  by  a  Minister  on  a  file,  which  order  was  not  communicated to the person concerned. Referring to the Article 166(1) of  the  Constitution,  the  Court  held  that  order  of  the  Minister  could  not  amount to an order by the State Government unless it was expressed in  the name of the Rajpramukh, as required by the said Article and was then  communicated to the party concerned. The court observed that business  of State is a complicated one and has necessarily to be conducted through  the agency of a large number of officials and authorities. Before an action  is  taken  by  the  authority  concerned  in  the  name of  the  Rajpramukh,  which formality is a constitutional necessity, nothing done would amount  to  an  order  creating  rights  or  casting  liabilities  to  third  parties.  It  is  possible, observed the Court, that after expressing one opinion about a  particular  matter  at  a  particular  stage  a  Minister  or  the  Council  of  Ministers may express quite a different opinion which may be opposed to  the  earlier  opinion.  In  such  cases,  which  of  the  two opinions  can be  regarded as the "order" of the State Government? It was held that opinion  becomes a decision of the Government only when it is communicated to  the person concerned.

16.  To  the  like  effect  are  the  observations  of  this  Court  in Laxminarayan  R.  Bhattad  and  Ors. v. State  of  Maharashtra  and  Anr. 2003 (3) SCR 409, wherein it was said that a right created under an  order  of  a  statutory  authority  must  be  communicated  to  the  person  concerned so as to confer an enforceable right.

Page 9

9       The manner in which the Respondent understood its role and participation in the  

Wholesale  Debt  Market  (WDM)  segment  along  with  Oracle  is  comprehensively  

contained in the Respondent’s letter dated February 4, 2002.  (This letter, although  

copiously relied upon by the parties in the course of argument was not available on the  

Court records.  On 18.9.2015 we called upon the Appellant to furnish a copy thereof  

which was done by its learned Senior counsel who has assured us that copies thereof  

had already been served on the learned counsel  for  the Respondent)   We think it  

appropriate to reproduce the contents thereof as it is a summation of the case of the  

Respondent:

“The National Stock Exchange (NSE) was formed in 1993-94 with a  view to promote the Debt Market and Capital  Markets.   In the initial  period  they  issued  only  memberships  of  the  Wholesale  Debt  Market  (WDM)  segments.  M/s.  Oracle  Stocks  and  Shares  Limited  (Oracle)  applied for  and was granted registration of  the WDM segment of  the  NSE.  Subsequently, the NSE issued membership in the Equity Market  segment  wherein  the  members  who were  holding  membership  of  the  WDM  segment  were  automatically  entitled  to  membership  in  this  segment by paying an additional deposit.  

Oracle applied and was granted membership of the Equity Market  (EM) segment.  NSE did not issue a new registration number to Oracle  and the company continued to do business in both the segments.  Thus,  the memberships of  the WDM and the EM segments were treated as  concurrent and there was no fresh registration with SEBI separately for  the EM segment.

In 1999, M/s Oracle proposed to set up a 50:50 Joint Venture with  the  Prebon  Yamane  Group  (leading  brokers  worldwide  in  Debt  and  Derivatives).  Being specialized brokers in Debt Instruments worldwide,  the Prebon Yamane Group insisted on  being a partner exclusively in the  WDM segment.  Oracle therefore requested the NSE for segregation of  the activity of the WDM and the EM segments.  During that period, the  NSE, as a matter of policy, was not issuing separate memberships for  WDM and EM.  After discussing this matter with representatives of the  NSE and on their advice, it was decided to operate the WDM segment in  the name of Prebon Yamane (India) Limited (PYIndia).  As a part of the  procedural formalities, a separate registration number was issued by the

Page 10

NSE (in the name of Prebon Yamane India Ltd.).  Oracle would continue  to hold 50% of the subscribed capital in the new entity.

Although Oracle and PYIndia were given two separate registration  numbers for  EM and WDM respectively,  the NSE did not  collect  the  deposit  of  Rs.15 million which it  would normally have done for  new  WDM members.  Instead, the NSE merely transferred (without refunding  the amount to Oracle) a part of the total deposits of Oracle, amounting to  Rs.10 million,  in  favour  of  PYIndia.   PYIndia did not  bring in  fresh  deposits for the WDM membership of NSE.

Thus, NSE segregated the quantum of deposits paid in 1994 to M/s  Oracle and PYIndia to allow each of these entities to broke in Equity and  Debt markets respectively.  It was also stipulated by the NSE that neither  of  these  entities  can  surrender  one  of  the  memberships  without  surrending  the  other.   Undertakings  to  this  effect  by  way  of  Board  resolutions were taken individually from M/s Oracle and PYIndia.  Thus,  in  essence,  the  NSE  treated  both  these  companies  as  one  composite  member with the same promoter group.

The  NSE  treats  the  induction  of  the  Prebon  Group  and  the  consequent assignment of the WDM segment of Oracle Stocks & Shares  Ltd. to Prebon Yamane India Ltd. as a continuation of the original WDM  membership that was granted to M/s Oracle Stocks & Shares Ltd. The  view of the NSE in this regard, confirming that both the memberships are  concomitant, is enclosed herewith.

In view of the facts mentioned above and the NSE’s view in this  regard, we would request you to give the status of fee continuity to the  composite membership taken by M/s Oracle and PYIndia.

In other words, if Oracle has paid turnover fees from 1994, and the  broking business has commenced from 1994, any fees be levied in either  Oracle and/or PYIndia for the balance period, as a composite entity.”

10 Learned Senior Counsel for the Respondent has contended that transfer from  

one juristic person to another is not the appropriate test and that since the Regulations  

employ  the  term  “entity”,  it  is  necessary  to  determine  whether  the  entities  are  

essentially the same. Senior Counsel  has submitted that since Oracle, who was an  

existing member, had a 50% stake in the Respondent, in effect the Respondent was  

another  manifestation  or  avatar of  Oracle.  Further,  the  Appellant  had  conducted  

inspections of the Respondent but had not raised any issue or recorded any objections

Page 11

at that time.   Reliance has been placed on the letter dated 30.1.2002 issued by the  

NSE  to  the  Respondent,  which  had  stated  that  as  per  the  policies  of  the  NSE,  

segmental  surrender  of  trading  membership  was  not  permitted,  and  therefore  the  

assignment of WDM segment to the Respondent has been treated as a continuation of  

the WDM membership that was originally granted to Oracle.   It has been strenuously  

contended that the Appellant had a change of mind and heart consequent upon the  

issuance of its Circular dated 28.3.2002 which stated that in case a broker had more  

than one registration certificate from any stock exchange, he would be required to pay  

fees as per the Regulations for each and every certificate that he held. The Circular  

further stated that in the event of a broker holding only one Registration Certificate  

but more than one card on any Exchange, registration fee would be payable on the  

registration certificate and not on the number of cards held by the broker, and the  

broker’s turnover would be reckoned as the aggregate turnover of all cards. It appears  

that this provision had been relied upon in the Judgment dated 3.6.2010 in WP (C)  

No.17349/2004, which was struck down by the Delhi High Court in Association for  

Welfare of  Delhi  Stock Brokers vs.  Union of India,  and an Appeal  thereagainst  is  

pending before this Court.  However, we find that issue which were in contemplation  

in those proceeding are dissimilar to what we have in hand.  

11 Reliance has also been placed on the affidavit filed by the Appellant before the  

SAT.   Therein  the  Appellant  admitted  that  the  Respondent  had  applied  for  fee  

continuity  vide  letter  dated  4.2.2002  which  had  enclosed  the  letter  of  the  NSE  

confirming that both the memberships had been considered concomitant by it.  The

Page 12

Appellant, based on the same, approved in the file that the two cards could be treated  

as composite for all practical purposes and the turnover of the two cards may be taken  

together for the purpose of ad-valorem fee.  We have already noted that  Sethi Auto  

Service Station enunciates that file notings cannot be relied upon with the intent of  

binding the concerned Authority or Department.

12 Counsel for the Appellant has pointed out that the Respondent has not paid fee  

as per Schedule III, Clause 1(c). The Respondent only paid the basic fee indicating  

that its turnover for the financial year was not beyond 1 Crore. However, the fixed  

basic fee of  5000 was paid by the Respondent in 1999, 2000 and 2001. Had the  

Respondent indeed believed that it had been granted continuity, then as per Clause  

1(c)  of  Regulation 10,  the Respondent would have paid  5000 only once,  for  the  

block  of  5  years.   Furthermore,  to  prove  that  the  Respondent  was  under  no  

misconception with regard to it not having been granted “fee continuity”, reference  

was  made  to  two  letters  dated  4.2.2002  and  18.9.2003.  Both  these  letters  were  

applications seeking grant of fee continuity. Thus, the Respondent was never under an  

understanding that it had been granted fee continuity.   

13 After considering the submissions of the learned Senior Counsel for both parties  

and appreciating the  facts  of  the  case,  it  is  evident  to  us that  as  per  Clause  4 of  

Schedule III, the Respondent was not an ‘entity’ as envisaged in the Regulations as  

would  be  entitled  to  “fee  continuity”  or  exemption  from  payment  of  fees.   The  

Regulation 4 clearly refers to a newly formed entity through conversion from either a

Page 13

sole  proprietorship  or  a  partnership  to  a  limited  Company,  which  alone  has  been  

bestowed  the  benefit  of  continuity.  Given  that  the  Respondent  is  barred  by  the  

provisions,  the  Appellant’s  internal  file  notings  are  of  no  consequence  and  the  

Appellant is not estopped from coming to a contrary conclusion. The Respondent’s  

argument that the Appellant experienced a change of heart after the issuance of the  

Circular dated 28.3.2002 is untenable, because if that was indeed what the Respondent  

believed, it would not have written a letter requesting fee continuity on 4.2.2002, a  

date prior to the issuance of the circular dated 28.3.2002. Thus, the Respondent has  

failed to prove that it believed it was granted fee continuity, in light of its letter to the  

Appellant requesting the same. Further, it appears to us that the Respondent was an  

entity quite distinct from Oracle, with the consequence that it would be bound to pay  

the fee in accordance with Schedule III, Clause (a) or (b) as the case may be, and  

would not be entitled to claim the advantage of Clause (c).  In fact, this is the very  

understanding of the Respondent since fees were deposited by them under Clause (a)  

in sharp contradistinction of Clause  (c).   

14 The amounts deposited by the Respondent have been properly calculated.  The  

Respondent  is  not  entitled  to  any  refund  therefrom.    The  Appeal  is  accordingly  

allowed.  The Interim Order granted by the Court stands recalled.  

…………………………………J. [VIKRAMAJIT SEN]

…………………………………J. [SHIVA KIRTI SINGH]

New Delhi, November 03, 2015.