BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 215 of 2011
Date of decision: 16.07.2012 KCA Stock Broking Pvt. Ltd.
29B, Rabindra Sarani,
4th Floor, Room No. 411,
Kolkata – 700 073. …Appellant
Versus
- Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-1A, G-Block,
Bandra Kurla Complex,
Mumbai – 400 051. - Calcutta Stock Exchange Ltd.
7, Lyons Range,
Kolkata – 700 001. … Respondents
Mr. Bharat Merchant, Advocate with Mr.Neerav Merchant, Advocate for the Appellant.
Dr. Poornima Advani, Advocate with Mr. Ajay Khaire, Ms. Rachita Romani,
Advocates for Respondents.
Coram : P. K. Malhotra, Member & Officiating Presiding Officer
S.S.N. Moorthy, Member
Per : P. K. Malhotra
The appellant before us is a company incorporated under the provisions of the
Companies Act, 1956. It is a member broker of the Calcutta Stock Exchange Ltd. and is
also registered as a stock-broker with the Securities and Exchange Board of India (for
short the Board). Initially, one Mr. K. C. Agarwal was a member of the Calcutta Stock
Exchange Ltd. in his individual capacity and subsequently under the scheme of
corporatization of the Board, membership of Mr. K. C. Agarwal was corporatized as 2
KCA Stock Broking Pvt. Ltd. Accordingly, the Board granted registration to the
appellant. - On corporatization of the membership of the stock exchange, certain benefits of
continuity of fee paid by the individual members were extended to the corporate entity
on fulfillment of certain conditions. The payment of the fee and consequences of failure
to pay fee by the stock-broker is governed by regulation 10 read with Schedule III and
Schedule IIIA of the Securities and Exchange Board of India (Stock Brokers and Sub-
Brokers) Regulations, 1992. The relevant provis ions of the Regulations are extracted
below for ease of reference:
“ Payment of fees and the consequences of failure to pay fees. - (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 stock-broker to pay su ch 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 suspe nd the registrati on certificate,
whereupon the stock-broker shall cease to buy, sell or deal in
securities as a stock-broker.”
SCHEDULE III
I. Fees to be paid by the Stock Broker.
1 to 3 ……………………………………………….
- Where a corporate entity has been formed by converting the
individual or partnership member ship 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 th e exchange into corporate entity
shall be deemed to be in conti nuation of the old entity and no fee
shall be collected again from the converted corporate entity for the
period for which the erstwhile ent ity has paid the fee as per the
regulations.” 3
The Board also came out with a scheme on July 15, 2004 known as Securities and
Exchange Board of India (Interest Liabil ity Regularisation) Scheme, 2004 whereby
certain benefits regarding pa yment of interest on the prin cipal amount of fee were
extended to the brokers who had not paid thei r fee earlier in accordance with the laid
down norms. The said scheme provides for payment of only a portion of the interest
due on the principal amount in case the same is paid within the stipulated period. The
object of the scheme was to give the brokers an opportunity to pay interest at a reduced
rate as per the scheme. The scheme was to come to an end on November 15, 2004. - The appellant before us claimed exemption from the Board for payment of fee
for the period for which Shri K. C. Agarwa l had paid fee to the Board. Since this
exemption was denied, the appellant along wi th many other entities, preferred appeals
before this Tribunal. The Tribunal, by its interim order dated October 12, 2004, in
Appeal no. 164 of 2004, observed that in view of the large number of pending appeals,
it would not be possible for th e Tribunal to dispose of thes e appeals before the date
when the scheme for payment of interest at concessional rate comes to an end.
Therefore, by way of an interim order and without prejudice to the contentions of the
respondent, the Tribunal directed that it woul d be appropriate that the appellants be
allowed to submit their applications under th e scheme with regard to principal and
interest outstanding as if the appellants were entitled to the benefit of the scheme. If
ultimately the appeals fail, the appellant will be liable to pay the balance principal and
the balance interest under the scheme. It was also obligated that the appellants will give
an undertaking in writing to the Board that in the event the appeals fail, they will pay
the balance of principal and balance of interest under the scheme. The Tribunal,
accordingly, directed the appellants to make an application as if the benefit of fee
continuity is available to them and pay the principal and interest under the scheme and
also give an undertaking to the Board that the appellants will make good the balance
amount of principal and interest thereon unde r the provisions of the scheme. Similar
order was passed by this Tr ibunal on November 3, 2004 in the Appeal filed by the
appellant and some other entities (Appeals no. 286 to 303 and 307 of 2004). In 4
compliance with the aforesaid order, the appellant gave an undertaking and deposited
the amount of fee and interest under the scheme vide letter dated November 9, 2004. - The appellant was ultimately denied th e benefit of fee continuity vide Board’s
order dated March 29, 2007. As no appeal was preferred ag ainst the said order, it has
acquired finality. The appellant accordi ngly paid the balance amount of fee of
Rs.6,41,280/- in accordance with the undertaking given under the scheme read with the
Tribunal’s interim order dated October 12, 2004. However, the Calcutta Stock
Exchange Ltd., by its letter dated September 30, 2010, informed the appellant that the
Board, vide its email dated September 29, 2010, has reported an outstanding fee amount
of Rs.5,84,545 from the appellant. The said demand is towards payment of interest on
the outstanding fee which the appellant paid on March 29, 2007. The appellant disputes
the liability for payment of this amount on the ground that he had availed of the benefit
of the scheme of 2004 and in terms of the Tribunal’s order dated October 12, 2004, he is
not liable to pay interest as claimed by the Board. - The short question that arises for our consideration is whether the appellant is
entitled to benefit of Interest Liabi lity Regularisation Scheme of 2004 thereby
restricting his liability towards interest to 20% only. The relevant portion of the scheme
reads as under:
“1.2 The stock brokers had been contesting the fess liability
before various High Courts. Finally the Hon’ble Supreme Court of
India, vide its judgment dated February 01, 2001 in the matter of
BSE Brokers Forum vs. SEBI, (as reported in [2001] 30 SCL 31],
upheld the Regulations and the pow er of SEBI to levy fees for
carrying out the purposes of the Act. It also held that turnover can
be the measure for levy of fees. It, however, directed SEBI to
incorporate the recommendations of the R.S. Bhatt Committee in
the Regulations. In compliance with the directions of the Hon’ble
Supreme Court, the Regulations were amended on February 20,
2002 by incorporating the recommendations of the R.S. Bhatt
Committee.
1.3 In the meantime, in order to enforce payment of fees by the
stock brokers, the Board, on December 16, 1998, amended the
SEBI (Broker and Sub Broker) Regulations, 1992. By this
amendment it was provided that if a stock broker fails to remit fees
in accordance with paragraph 1 and 2 of Schedul e III of the
Regulations, he shall be liable to pay interest at the rate of 15% per
annum for each month of delay or part thereof. 5
2.0 It has been observed that defaults have occurred in payment
of registration fees. Given the ba ckground of defaults, the Board
has decided to introduce a scheme, namely, SEBI (Interest Liability
Regularisation) Scheme, 2004 (the Scheme) to provide a one time
opportunity to enable the stock br okers in the Cash segments of
stock exchanges to regularise their defaults. Therefore, in exercise
of the powers under Section 11 of th e Act read with Regulation 10
and Schedule III of the SEBI (Stock Brokers and Sub-Brokers)
Regulations, 1992, the Board hereby introduces the Scheme viz.
SEBI (Interest Liability Regularisation) Scheme, 2004. Under the
Scheme, if the defaulting broker pays the entire outstanding
principal amount of fees, if a ny, and 20% of the outstanding
interest during the regularization period, he will not be required to
pay the balance 80% of outstanding interest.
2.1 It is clarified that after the expiry of the scheme, a broker
having outstanding registration fees liabilities towards the Board
shall be liable to pay entire ou tstanding amount, including interest,
as per the Regulations and shall also be liable for appropriate
enforcement action as permi ssible under the Act and the
Regulations framed thereunder. It is further clarified that in terms
of regulation 27 of the Regulations, a stock broker, who fails to pay
fees as per Schedule III of the Regulations, is liable for action as
specified in the SEBI (Procedur e for Holding Enquiry by Enquiry
Officer and Imposing Penalty) Re gulations, 2002, including the
suspension or cancellation of certi ficate of registration. Besides,
such persons may also be liable for prosecution under section 24 of
the Act.
3.0 The details of the Scheme are as under:
3.1 Interest Liability Regularisation: Under the Scheme, the
stock brokers who have outstanding fee liabilities (principal and/or
interest) as on 1 st October 2004, as per the Regulations, may pay
the entire outstanding amount of pr incipal, if any, together with
20% of the outstanding interest as on that date. On payment of the
aforesaid amounts during the “Re gularisation Period” specified
under the Scheme, the stock brokers shall not be liable for payment
of the balance 80% of the outstanding interest on the date.
3.2 Regularisation Period: Th e regularization period shall
commence on 15 th October 2004 and end on 15 th November, 2004
(both days inclusive).”
It is the case of the appellant that by virt ue of the interim order dated October 12, 2004
of the Tribunal, the benefit of interest under the scheme will be available not only up to
the date of regularisation period as mentioned in the scheme i.e., 15 th November, 2004,
but up to the disposal of the appeal filed by the appellant. The issue regarding continuity
of fee benefit acquired finality when the Board rejected the claim of the appellant by its
order dated March 29, 2007. Accepting the Tribunal’s order, the appellant paid the fee
on December 19, 2007. During the pendency of the issue before the Tribunal/Board, 6
the appellant is not liable to pay any interest. If any interest is payable, it is only for the
period from 29th March, 2007 to 19th December, 2007 i.e. from the date of final order to
the date of payment of principal amount of fee. It was argued by learned counsel for the
appellant that the Board has taken three years to decide the issue and the appellant
cannot be burdened with the interest liabilit y for the delay which is attributable to the
Board. The Board cannot take advantage of its own wrong. In support of his
contention, learned counsel for the appella nt relied on the judgment of the Supreme
Court in the case of Mrutunjay Pani vs . Narmada Bala AIR 1961 Supreme Court 1353
and Union of India vs. Madan Lal Yadav AIR 1996 Supreme Court 1340. - Learned counsel for the respondent Board submitted that the appeal having been
finally disposed of, the interim order merges wi th the final order. In the final order the
benefit of the scheme has not been extended. The appellant is, therefore, not entitled to
the same. In support of her contention, she relied upon the judgments of the Apex
Court in the case of Jaipur Municipal Corpor ation vs. C.L. Mishra (2005) 8 SCC 423,
Prem Chandra Agarwal and anr. vs. U.P. Financial Corporation and ors., (2009) 11 SCC
479 and Amarjeet Singh and ors. vs. Devi Ratan and ors. (2010) 1 SCC 417. It was
further argued by the learned counsel fo r the respondent Board that assuming the
interim order survives; it only talks of benefit of reduced interest amount under the
scheme (emphasis supplied) which ended on November 15, 2004.
- We have considered the arguments advanced on both sides. The general
proposition of law is that once a final orde r is passed, all the earlier interim orders
merge into the final order and the interim orde rs cease to exist. This is what has been
said by the Supreme Court in the case of Pr em Chandra Agarwal (supra) relied upon by
the learned counsel for the respondent Board. However, in that case what was being
dealt with was ‘appeal against the interim order’ and the observation was made in that
context. When appeal against the final or der has been decided, appeal against the
interim order will not survive. Similarly in the case of Jaipur Municipal Corporation
(supra), the observations were made in th e context where a c ontempt petition was 7
dismissed as withdrawn, the Court observed that the time given earlier to comply with
the order ceased to be operative. In th e case of Amarjeet Singh, the Court was dealing
with a matter where the litigant had take n benefit under an interim order due to
pendency of the case and the question was wh ether that benefit can be continued when
the matter is finally decided. It is in that context that the Supreme Court observed that
no litigant can derive any benefit from mere pendency of case in a Court of law as the
interim order always merges in the final order to be passed in the case and if the writ
petition is ultimately dismissed, the interim order stands nullified automatically. - Let us now have a look at the in terim order dated Oc tober 12, 2004 passed by
this Tribunal to see whether this was an inte rim order in the sense as referred to in the
above noted judgments. We are of the consider ed view that it is not so. This interim
order was passed for the purpose of extendi ng the benefit of the scheme namely,
Securities and Exchange Board of India (I nterest Liability Regularisation) Scheme,
2004, to the entities whose cases with regard to fee continuity benefits were pending
before the Tribunal. The scheme was to come to an end on 15 th November, 2004 and
this Tribunal observed that in view of a la rge number of appeals pending, it would not
be possible for the Tribunal to dispose of th ese appeals before the stipulated date.
Therefore, as an interim order, which was pa ssed with the consent of the Board, it was
ordered that the appellants be allowed to submit their applicati ons under the scheme
with regard to principal and interest outstan ding as if the appellants are entitled to the
benefit of the scheme of cor poratization and the Board was directed to accept the same
without prejudice to their contentions ot herwise the benefit under the scheme will
become infructuous. Admittedly, the appellant had complied with the requirements and
furnished necessary undertaking along with the outstanding amount to the Board within
the stipulated period. If the argument of the learned counsel for the Board is accepted
that the benefit of the scheme was available only up to 15 th November, 2004, it will
make the whole process of the interim order and undertaking given to the Board
meaningless in respect of all the appeals which were pending before the Tribunal/Board.
We are, therefore, unable to agree to such an interpretation. Since the appellant had 8
complied with the requirements as laid down in the said interim order and his appeal
acquired finality by the order passed by the Board on March 29, 2007, we are of the
considered view that the appellant is entitled to the benefit of the scheme on finalization
of the dispute with regard to payment of fee of corporatization. If at all, there is a
liability to pay interest, it is only for the period from the date of finalization of the
dispute i.e. March 29, 2007 up to the date of payment of principal amount i.e.
December 19, 2007.
We, therefore, allow the appeal with no order as to costs.Sd/- P. K. Malhotra Member & Presiding Officer ( Offg.) Sd/- S.S.N. Moorthy Member16-07-2012
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