Allowed

Cil Securities Ltd. v. SEBI

SAT22 Jan 2002

Case brief

AI extract

What is this about?

Appellant challenged Respondent's demand for payment of Capital Market Segment turnover fees before considering its application for registration in the NSE Derivative Segment. Tribunal held that distinct segments have independent fee structures and remand case for consideration on compliant fees.

What did the court decide?

Impugned order set aside; matter remanded to Respondent to consider application on receipt of fees payable under Regulation 16G read with Schedule IV.

Cil Securities Ltd. Vs. SEBI — Securities and Capital Markets | SAT (2002)

Allowed

Cil Securities Ltd. v. SEBI

SAT22 Jan 2002

Download

Case brief

AI extract

What is this about?

What did the court decide?

Impugned order set aside; matter remanded to Respondent to consider application on receipt of fees payable under Regulation 16G read with Schedule IV.

¶26

Shri Barua submitted that the liability of the Appellant in respect of registration fees payable in the Capital Market Segment in NSE as per the total turnover figures furnished by the Exchange was Rs. 1, 09, 18, 100 as principal and Rs. 44,28,082 as interest, that against the same the Appellant had paid only Rs. 67, 697 and as such there was huge liability in respect of payment of fees. Shri Barua submitted that subsequent to the Honourable Supreme Court’s judgement in BSE Brokers case pronounced on 1.2.2001, a decision has been taken by the Respondent that applicants in the Derivatives Segment, who are also members in the Capital Market Segment would have to pay the registration fees as per the Honourable Supreme Court decision and allow to do so on self assessment basis. He further stated that the Respondent has infact taken a lenient view that registration to the applicants in the Derivative Segment may be granted, if the applicants paid atleast 50% of the arrears in the Capital Market Segment on the concerned Exchange and furnishes a specific undertaking to pay the balance amount with interest on the entire principal @ 15% from 16.12.98 as per SEBI regulations with in one year, Shri Barua submitted that since the Appellant did not pay the required fees NSE was advised vide letter dated 17.8.2001 to inform the Appellant to pay the fees payable in the Capital Market Segment as per the judgement of the Honourbale Supreme Court at the earliest to consider the application. Shri Barua submitted that the Regulations have not been amended to incorporate the revised fees scheme, but that does not in any way take away the authority underlying the Respondent’s instruction to pay the fees. In this context he cited the Honourable Supreme Court in V.T. Khanzode V Reserve Bank of India (AIR 1982 SC 9171) and Surender Singh V Central Government (AIR 1986 SC 2166) to show that framing of regulation could not be condition precedent for the exercise of power, that the Respondent is vested with the power to levy the fees under Section 11(2)(k) and Section 12(2) of the Act. Shri Barua refuted the Appellant’s contention that since no notification has been issued by the Respondent so far, the Appellant

¶76

Capital Market Segment in accordance with the Courts order in BSE Brokers case, and till such time the dues are paid, the application for registration for carrying on the business in the Derivative Segment cannot be considered. If there is a failure to pay the requisite fees, by the Appellant as Share Broker, the Respondent in terms of Regulation 26(viii) is empowered to suspend that registration. I have carefully gone through the provisions of the rules and regulations and find no support to the Respondent’s argument that unless the applicant clears the dues if any payable with reference to his broking activities in the Capital Market Segment, his application for grant of registration in the Derivative Segment cannot be considered. The Appellant’s statement that it is still permitted to carry on trading activities in the Capital Market Segment and there is no disqualification on account of non payment of the turnover fee in the said Segment but he is disqualified to get a certificate of registration to carry on business in the Derivative Segment, which is a totally independent Segment is untenable cannot be said to be illogical. It is to be noted that grant of registration certificate is to be considered as per the provisions of Chapter III A of the Regulations. There is not even an implied requirement to clear the arrears of fees, relatable to the Capital Market Segment in Chapter IIIA, by the applicants. It is also to be noted that the Capital Market Segment and Derivative Segment are two distinct segments. It is a requirement put by the Respondent, while granting approval to the Exchange to commence derivative trading, and settlement in the approved derivatives contracts that Derivative Segment of the Exchange and its clearing house should appoint (i) Governing Board of Derivative Exchange / Segment (which shall include Governing Council/ Executive committee) (ii) Clearing Council (which shall include the Clearing Council / Executive Committee of Derivatives clearing House/Clearing Corporation), (iii) Chief Executive Officer of the Derivatives Exchange /Segment. (iv) Chief Executive Officer of Derivatives Clearing House /Corporation and (v) Statutory Committees such as Disciplinary Action Committee, Arbitration committee and Defaults Committee. Thus it is clear that Derivative Segment management and Capital Market Segment management are independent. The nature of business activities carried on in these two segments are also distinct. The Regulations also do not stipulate that any person from whom fees is due in the Capital Market Segment, should clear those dues first to be eligible for grant of certificate of registration in the Derivative Segment. In these circumstances, it is not possible to uphold the Respondent’s view that unless the fees relatable to the Capital Market Segment is paid, the Appellant’s application for grant of registration certificate in the Derivative Segment cannot be considered.

¶78

"While we accept the levy based on annual turnover of the brokers as valid, we have to notice that the expert Committee appointed by the Board has in its report held that there should be certain changes brought about in the definition of ‘annual turnover’ as also in the quantum of the levy pertaining to certain specific transactions which are treated as part of the turnover. It has recommended that for "jobbing transactions" the scale of fees may be reduced to One Two hundredth of 1 per cent, and in regard to carry forward, renewal or badla transactions, the off- setting entries made by the Exchange, may not be counted as part of the turnover, and further on Government Securities, PSU Bonds and Units, the turnover will have to be calculated separately and a fee of one thousandth of one per cent may be charged on such turnover than the present scale of one hundred of one per cent. It has also recommended that the activities such as underwriting and collection of deposits should not be taken into account for the purpose of calculating the turnover of the brokers. These recommendations of the Committee were, as a matter of fact, accepted by the Government of India also but as on date, the necessary changes have not been brought about by the Board in its Regulations. Consequently, to the extent of the recommendations made by the Expert Committee, we are of the opinion that the Board is bound to bring about corresponding changes so as to remove the anomalies pointed out by the Committee. This was pointed out to learned counsel for the respondents when it was submitted that the Board has accepted these recommendations and the proposed changes were not brought about because of the pendency of this position and the necessary changes to incorporate the recommendations of the Bhatt Committee would be done after disposal of these petitions. We record this submission on behalf of the Board and direct that the said changes recommended by the Bhatt Committee will be incorporated in the regulations. Subject to the above, we are of the view that the challenge made of the levy based on the measure of turnover has to be rejected". (emphasis supplied)

Cil Securities Ltd. v. SEBI

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

Cil Securities Ltd. v. SEBI

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

What the court decided

A compact analysis

Statutes considered