Summary
An individual Calcutta Stock Exchange broker transferred his membership card in 1998 to an existing company already registered as a broker elsewhere and became a director in it. The company claimed exemption from registration fees for the period the individual had already paid under paragraph 4 of Schedule III to the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. SEBI rejected the claim and the Securities Appellate Tribunal affirmed, holding there was no conversion of an individual membership into a corporate entity, while ruling that a single registration sufficed for several exchanges. The Supreme Court dismissed the company's appeal and allowed SEBI's appeal on the registration point in view of SEBI v. National Stock Exchange Members Association.
Issues
- Whether a company to which an individual stock broker transferred his exchange membership card, becoming a director but not a whole-time director, is entitled to fee continuity benefit under paragraph 4 of Schedule III to the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
- Whether a stock broker operating on more than one stock exchange requires a separate SEBI registration and fee for each exchange.
Provisions considered
- Paragraph 4 of Schedule III, SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992Exempts a corporate entity formed by converting an individual or partnership membership card from fees already paid, provided the erstwhile member is a whole-time director holding at least 40 per cent of the equity for three years; the individual here was only a director, did not hold 40 per cent, and transferred his card to an existing company rather than converting himself into a corporate entity, so the conditions were not met. (¶¶ 17, 18, 19, 20, 21, 22)
- Section 12(1), Securities and Exchange Board of India Act, 1992As held in SEBI v. National Stock Exchange Members Association, a stock broker must obtain a certificate of registration and pay the prescribed fee for each stock exchange on which he operates; the Tribunal's contrary view that a single registration suffices was set aside. (¶¶ 15, 26)
Held
- The concurrent findings that the individual was shown only as a director in the annual returns, that SEBI had informed the exchange in March 1998 that he held less than 40 per cent of the paid-up capital, and that the company's registration post-dated the insertion of paragraph 4 in January 1998, disclose that the company failed to fulfil the conditions for exemption; the benefit is available only where an individual or partnership member converts into a corporate entity, not where the card is transferred to an existing company. (¶¶ 19, 20, 21, 22)
- The question of multiple registrations is no longer res integra after SEBI v. National Stock Exchange Members Association, which requires registration and ad valorem fee for each exchange; SEBI's appeal against the Tribunal's remand for recomputation on the basis of a single registration therefore succeeds. (¶¶ 15, 26, 27)
Result
Company's appeal dismissed with no costs, the finding that it was not entitled to fee continuity benefit under paragraph 4 of Schedule III affirmed; SEBI's appeal allowed, setting aside the Tribunal's view that a single registration suffices for multiple stock exchanges; pending applications disposed of.