SCA/13946/2004 1/42 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 13946 of 2004 With SPECIAL CIVIL APPLICATION No. 14328 of 2004 With SPECIAL CIVIL APPLICATION No. 14351 of 2004 With SPECIAL CIVIL APPLICATION No. 14355 of 2004 With SPECIAL CIVIL APPLICATION No. 14640 of 2004 With SPECIAL CIVIL APPLICATION No. 14641 of 2004 With SPECIAL CIVIL APPLICATION No. 14654 of 2004 With SPECIAL CIVIL APPLICATION No. 14631 of 2004 With SPECIAL CIVIL APPLICATION No. 15183 of 2004 With SPECIAL CIVIL APPLICATION No. 15406 of 2004 With SPECIAL CIVIL APPLICATION No. 15426 of 2004 With SPECIAL CIVIL APPLICATION No. 2157 of 2005 With SPECIAL CIVIL APPLICATION No. 6095 of 2005 With SPECIAL CIVIL APPLICATION No. 5792 of 2005 With SPECIAL CIVIL APPLICATION No. 5793 of 2005 With SPECIAL CIVIL APPLICATION No. 7544 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE DN PATEL ========================================= = 1 Whether Reporters of Local Papers may be allowed to see the judgment? 2 To be referred to the Reporter or not? 3 Whether their Lordships wish to see the fair copy of the judgment? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to the Civil Judge? ========================================= = RAMESHCHANDRA BANSAL THROUGH CONSTITUTED ATTORNEY VIRENDRA BANSAL - Petitioner(s) SCA/13946/2004 2/42 JUDGMENT Versus SECURITIES AND EXCHANGE BOARD OF INDIA AND ANOTHER - Respondents ========================================= = SPECIAL CIVIL APPLICATION NOS. 13946/04, 14328/04, 14351/04, 14355/04, 14640/04, 14641/04, 14654/04, 14631/04, 15183/04, 6095/05 Appearance : MR SANJAY A MEHTA for Petitioner(s) : 1, DELETED for Respondent(s) : 1, MR MIHIR JOSHI, Senior Advocate with Mr. Bijal Chhatrapati and Mr. Jay Amin, FOR SINGHI & CO for Respondent(s) : 2, MR SK JHAVERI for Respondent(s) : 3, ===================================================================== SPECIAL CIVIL APPLICATION NOS. 15406/04, 15426/04, 2157/05, 5792/05, 5793/05 AND 7544/05 Appearance : MR BD KARIA for Petitioner(s) : 1, DELETED for Respondent(s) : 1, MR MIHIR JOSHI, Senior Advocate with Mr. Bijal Chhatrapati and Mr. Jay Amin, FOR SINGHI & CO for Respondent(s) : 2, MR SK JHAVERI for Respondent(s) : 3, ===================================================================== CORAM : HONOURABLE MR.JUSTICE DN PATEL Date : 11/10/2005 CAV JUDGMENT 1. Rule. Learned Counsels for the Respondents waive service of Rule on behalf of their Respondents. 2. In all the above petitions, the common question of law is involved and hence all the matters are taken up for their final hearing. The learned Counsels for both the sides consider Special Civil Application No. 13946 of 2004 as the lead matter for the purpose of referring SCA/13946/2004 3/42 JUDGMENT annexures and replies filed by the respondents. 3. In the above aforesaid petitions, a part of the Scheme floated by the Securities and Exchange Board of India (hereinafter referred to as “SEBI”, for short) is under challenge. The SEBI floated a Scheme viz. “SEBI (Interest Liability Regularisation) Scheme, 2004” (hereinafter referred to as “SEBI Scheme”, for short) dated 15th July, 2004 for the waiver of 80% of the total interest liability of the share-brokers. The said Scheme was incorporated in exercise of the powers under Sub- section (1) and Clause (k) of Sub-section 2 of Section 11 read with Section 12 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred as “the Act, 1992”, for short). The aforesaid Scheme was for regulation of interest liability in respect of Registration Fees payable by stock-brokers under the SEBI (Stock-broker and Sub-brokers) Regulations, 1992 (hereinafter referred as “Regulations, 1992”, for short). The Scheme 2004 floated by SEBI is sort of concession, remission and rebate. Certain words of paragraph Nos. 2 and 3 of the part of the Scheme are under challenge. This part is highlighted and underlined in paragraph Nos. 2 and 3 of Part-II of the Scheme, which reads as under:- “Part – II Manner of taking Turnover Date on Record. SCA/13946/2004 4/42 JUDGMENT 1. ***** 2. The Board has followed up vigorously to obtain turnover data in respect of all brokers, past and present, for the relevant years in order to enable it to assess Registration Fees liability of the stock brokers. Exchanges were also advised by the Board to submit the stock broker wise turnover data within a time frame based on their own records and / or the auditors' certificate submitted by the stock brokers to the Exchanges. The Exchanges were advised to submit gross turnover data based on their own records, if the stock brokers do not submit turnover data, after giving sufficient notice and intimating the stock brokers concerned that they would not be eligible for concessional rates of fees and that fee at a flat rate of 0.01% would be levied on the gross turnover reported by the Exchanges to the Board. Therefore, those stock brokers, who did not report turnover with break up to Exchanges and the Exchange submitted the turnover data based on its own records, will not be entitled to any concessional rate of fees. 3. In accordance with above policy, the Board has been receiving turnover data from the Exchanges and taking them on record. No further data revisions would, therefore, be permitted – even if a stock broker wishes to submit an auditor certificate at this late stage, or, if the Exchange desires to revise its own data. This measure is absolutely necessary to ensure that the process of data revision does not remain open ended for ever. As sufficient advance notices and reminders have been sent to the Exchanges / stock brokers and the Board is taking on record the latest turnover data duly certified by the Exchange, no representations / complaints would be entertained by the Board.” (emphasis supplied) 4. This aforesaid part of paragraph Nos. 2 and 3, which is highlighted and underlined is challenged in all the aforesaid petitions. SCA/13946/2004 5/42 JUDGMENT 5. The facts leading to the present case are summarized as under : (i) The SEBI Ordinance, 1992 was promulgated by the President of India on 31/01/1992, which was subsequently replaced by the SEBI Act, 1992. It was given retrospective operation with effect from 30/01/1992. Section 3 of the Act, 1992 provides for establishment of SEBI. As per Regulation 10 of the SEBI (Stock-Broker and Sub- Broker) Regulations, 1992 (issued in exercise of the powers conferred under Section 30 of the Act, 1992), Registration Fees, is to be paid by every stock-broker and sub-broker etc. The fees prescribed by the SEBI led to nation wide agitation of stock-brokers which resulted in closing down of Stock Exchanges throughout India for several days. A revision in the fee structure for registration of brokers had taken place. Further, two options were given and the fees was reduced and thereafter there was further reduction in the Registration Fees. Option A was for one time Registration Fees whereas option B was for payment of fees at the rate of 1% (one percent) of annual turnover of SCA/13946/2004 6/42 JUDGMENT each broker for five years from 1990-1991. Aforesaid matter was challenged, including the validity of Regulation 10 of the Regulations, 1992 to be read with Schedule III before the Hon'ble Supreme Court in case of B.S.E. Brokers' Forum v. Securities and Exchange Board of India reported in (2001) 3 SCC 482, wherein the validity of the actions initiated by SEBI were upheld. Regulation 10 read with Schedule III of the Regulations, 1992 has been held as intra virus the Act, 1992. (ii) Because of agitation by share-brokers and mainly for exclusion of certain transaction from 'turnover' and to resolve other dispute as to Registration Fees, an Expert Committee was constituted which gave its report on 18th December, 1992 (known as R.S.Bhatt Committee Report) and, SEBI advised the brokers on 07/01/1993 to pay fees in the manner recommended by the Bhatt Committee, which has recommended concessional rates of fees for certain types of transactions. While upholding the validity, the Hon'ble Supreme Court in the aforesaid judgment directed SEBI that SCA/13946/2004 7/42 JUDGMENT recommendations of R.S.Bhatt Committee should be incorporated in the Regulations and therefore, Regulations, 1992 were amended on 20/02/2002. As per schedule III of the Regulations, 1992 Registration Fees was required to be paid as per paragraph – 2 of schedule III which reads as under: “2. Fees referred to in clauses (a) and (b) of paragraph 1 above shall be paid - (a) in respect of the financial year 1992-1993 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.” (iii)Similarly, paragraph 5 of Schedule III of the Regulations, 1992 reads as under : “1 to 4. ****** 5. If a stock broker fails to remit fees in accordance with Paragraph 1 and 2, he shall be liable to pay interest @ 15% per annum for each month of delay or part thereof: Provided that the liability of pay interest as aforesaid may be in addition to any other action which the Board may take as deem fit against the stock broker under the Act, or the SCA/13946/2004 8/42 JUDGMENT Regulations: Provided further that if the liability of the stock broker on account of payment of interest works out to be Rs. 100 or less the same my be waived off by the Board taking into consideration the administrative cost involved in recovering the said amount.” (iv) Thus, for the late payment, stock-brokers were liable to pay interest at the rate of 15% (fifteen percent) per annum. As the dates for payment of Registration Fees had already gone, the stock-brokers were liable for payment of interest. With a view to give concession, remission or rebate, SEBI floated the Scheme, 2004 for waiving 80% of outstanding interest upon certain conditions. Those conditions which are referred in paragraph No. 2 and 3 of the Scheme, 2004 are under challenge, in the aforesaid group of petitions. The Scheme, 2004 for waiving of interest is not compulsory Scheme. The conditions are attached with said Scheme. If the conditions are fulfilled, the stock-brokers are entitled to get the concession from the payment of 80% of outstanding interest upon the Registration Fees and the conditions are that: stock-brokers must submit the certificate of the auditor and bifurcated SCA/13946/2004 9/42 JUDGMENT turnover data within the time limit framed by the SEBI to the Stock Exchanges. Initially, it was 15th July, 2002, which was extended up to 10th April, 2003 and thereafter, further extended up to 31st August, 2003. Through various circulars, SEBI intimated Stock Exchanges, who in turn informed Stock-Brokers, to supply the turnover data within time frame along with Auditors' Certificate, otherwise, they will not be entitled to concession in the payment of interest and will not be entitled to concessional rate of fees as per Clause (bb) of Paragraph (1) of Clause (I) to Schedule III of the Regulations, 1992. Time and again, opportunities were given to the stock-brokers to supply the turnover data along with Auditors' Certificate, but as the Auditors' Certificate was not supplied, SEBI calculated the Registration Fees on the basis of turnover data supplied by the Stock-Exchanges without giving the benefit of concessional rate, as per Clause (bb) of paragraph (1) of clause (I) of the Schedule III of the Regulations, 1992, and final liability statement was received by the petitioner on 12/10/2004. SCA/13946/2004 10/42 JUDGMENT 6. The learned Counsel appearing for the petitioners submitted that the Scheme floated by SEBI, 2004 (Annexure – A to the memo of the petition) is for the benefit of the stock-brokers. In paragraph Nos. 2 and 3 of Part-II of the Scheme, 2004, the words “those stock brokers, who did not report turnover with break up to Exchanges and the Exchange submitted the turnover data based on its own records, will not be entitled to any concessional rates of fees” and the words in Paragraph 3 “No further data revisions would, therefore, be permitted- even if a stock broker wishes to submit an auditor certificate at this stage, or, if the Exchange desires to revise its own data” are objectionable. SEBI has no power, jurisdiction and authority to give cut off date for providing Auditors' Certificate nor to take away the concessional rate of Registration Fees, which is provided for certain types of transactions referred in Clause (bb) of Paragraph 1 of Clause (I) of Schedule III of the Regulations, 1992. It is also submitted by the learned Counsels for the petitioners that the stock-brokers were not aware about such cut off date, but no sooner did the provisional fees liability statement was given on 11/09/2004, immediately, the petitioners wrote a letter dated 13th September, 2004 (Annexure – O) whereby details SCA/13946/2004 11/42 JUDGMENT of jobbing transactions duly certified were sent to Ahmedabad Stock Exchange, and, thus, there is no delay on the part of the petitioners to supply the turnover data to Ahmedabad Stock Exchange, which in turn, has sent data to SEBI so that stock-brokers could avail the benefit of concessional rate of Registration Fees and concession in the payment of outstanding amount of interest. It is vehemently submitted by the learned Counsels appearing for the petitioners that the calculation of the Registration Fees has been provided in Schedule III of the Regulations, 1992 and that the SEBI cannot take any deviation from applying those rates of calculation of Registration Fees and therefore, the petition deserves to be allowed and the portion referred hereinabove in paragraph Nos. 2 and 3 of part II of the SEBI (Interest Liability Regulations) Scheme, 2004 may kindly be quashed and set aside; and necessary directions may be given to SEBI to accept the turnover date with break up given by the petitioners and to calculate the Registration Fees in accordance with Schedule III of the Regulations, 1992 to be read with Regulation 10 of Regulations, 1992. 7. I have heard Mr. Mihir Joshi, learned Senior Advocate appearing for SEBI, who has submitted that the SCA/13946/2004 12/42 JUDGMENT Scheme floated by SEBI is optional. It is not compulsory for the stock-brokers to accept the said Scheme. It is not obligatory for the SEBI to float the Scheme, 2004 neither under the Act, 1992 nor under the Regulations, 1992. The learned Counsel for SEBI further submitted that the Scheme, 2004 has not changed the basic Scheme of the payment of Registration Fees. The R.S.Bhatt Committee had made certain suggestions for calculation of 'turnover' and certain types of transactions were such that concessional rates ought to be prescribed, and this has been referred to in paragraph 47 of the judgment delivered by the Hon'ble Supreme Court, as referred hereinabove, reported in B.S.E. Brokers' Forum v. Securities and Exchange Board of India reported in (2001) 3 SCC 482. These suggestions have been incorporated in Schedule III of the Regulations, 1992 in Clause (bb) of clause (i) of Paragraph (I) to the Schedule III. It is also submitted by the learned Counsel for SEBI that several circulars and reminders have been given to the petitioners informing that they have to submit turnover data along with Auditors' Certificate stating last date. This last date, was extended, from time to time, but, they have not supplied the same. SEBI had no other way left out, but, to assess them, on the basis of, data given by Stock Exchanges, without bifurcation of turnover SCA/13946/2004 13/42 JUDGMENT data. Several reminders dated 06/08/2002, 04/02/2003, 28/03/2003, 25/06/2003, 20/07/2003 have been referred, which are annexures to affidavit-in-reply filed by SEBI. It is also submitted by the learned Counsel for the SEBI that those who are seeking calculation of the Registration Fees, at the concessional rate, for certain types of transactions, they must prove the existence of those transactions and thereafter, only they can get the concession in calculation of the Registration Fees and to get the benefit of Clause (bb) of paragraph (I) of Clause(I) of Schedule III of the Regulations, 1992, stock-brokers have to prove existence of those transactions, failing which the calculation at the rate referred to in clause (b) of clause (1) of paragraph (I) of Schedule III will be resorted to. It is also submitted by the learned Counsel for the SEBI that settlement Scheme is not for the purpose of adjudication but it is composite voluntary Scheme. The conditions and concessions go together, they cannot be segregated, cut off date is always permissible to be prescribed. There is no arbitrariness in prescribing the cut off date; and, in every Scheme, there can be cut off date for its applicability. The Scheme is not contrary to Regulations, 1992; the Scheme is of the nature of concession, remission or rebate. There is no enforceable SCA/13946/2004 14/42 JUDGMENT right vested in the petitioners to get such concession, remission or rebate. In fact, there is no change in the liability by the Scheme, 2004. It is essentially a settlement Scheme by giving concession and therefore, petitions deserve to be dismissed. The learned Counsel appearing for SEBI has relied upon several decisions, which are referred hereinafter. 8. I have heard Mr. SK Jhaveri, learned Counsel appearing for Respondent No.3 i.e, Ahmedabad Stock Exchange, who has submitted that Stock Exchange has intimated time and again to the stock-brokers about the circulars issued by SEBI and, also intimated that bifurcated turnover by narrating different jobbing transactions, is required to be supplied by stock-brokers along with Auditors' Report, failing which, they will not be entitled to concessional rate in respect of fees payable by them and the member will have to pay the fees at the rate of 0.01 % of the total turnover reported by Exchange to SEBI. One of such circular dated 1st April, 2003 is at Page – 216 along with affidavit-in-reply filed by respondent no.3. Similarly, Stock Exchange has also circulated, all the circulars issued by SEBI to the members of Respondent No.3. It is also submitted by Ahmedabad Stock Exchange that those who have submitted SCA/13946/2004 15/42 JUDGMENT bifurcated turnover along with Auditors' Certificate, their data of turnover, with break up, has already been submitted to SEBI. There are approximately 60% of the members who have complied with the circulars. The Ahmedabad Stock Exchange has Gross Turnover data. SEBI insisted for Auditors' Certificate and the break-up of the turnover of the stock-brokers for giving benefit of concessional rate of Registration Fees and therefore, those who have supplied such break-up in their turnover, along with Auditors' Report, had been immediately transmitted to SEBI. Time and again, attention has been drawn of the members of the Ahmedabad Stock Exchange to supply such break-up in their turnover along with Auditors' Report. The learned Counsel appearing for the Ahmedabad Stock Exchange has also supplied copies of several circulars which are circulated to members of Respondent No.3. Thus, it is submitted by the learned Counsel appearing for the Ahmedabad Stock Exchange that the members of Ahmedabad Stock Exchange were informed about the circulars issued by SEBI and approximately 60% of the members have availed the benefit of the Scheme, 2004 floated by SEBI (which is Annexure- A to the memo of the petition). The present petitioners are left out members, who have not fulfilled the conditions attached with the Scheme, 2004, which is of the nature of giving SCA/13946/2004 16/42 JUDGMENT concession, remission or rebate. Scheme floated by SEBI is not compulsory Scheme to be accepted by the petitioners. Benefit under the Scheme is so interwoven with the conditions, that they cannot be segregated so as to avail the benefit without fulfilling conditions. There is no legal vested rights in the petitioners to get the concession, rebate or remission, as envisaged under the Scheme, 2004 and hence, the petitions may not be entertained by this Court in exercise of the powers conferred upon this Court under Article 226 of the Constitution of India. 9. Having heard learned Counsels for both the sides at length, looking the facts and circumstances of the case and the documents on record and the judicial pronouncements which are referred hereinafter, I see no reason to entertain the petitions and to interfere the Scheme, 2004 and the method of calculation followed by SEBI Of Registration Fees payable by stock-brokers under Section 12 of the Act, 1992 to be read with Regulation 10 of the Regulations, 1992, as the same is true, correct and legal, in consonance with the Act, 1992 and the Regulations, 1992, especially for the following facts and reasons: SCA/13946/2004 17/42 JUDGMENT (i) The Securities and Exchange Board of India has floated the Scheme viz. Securities and Exchange Board of India (Interest Liability Regularisation) Scheme, 2004 in exercise of the powers conferred under Section 11(1) and Section 11(2) (k) and Section 12 of the Act, 1992 for the regularization of the interest liability in respect of Registration Fees payable by stock-brokers under the Regulations, 1992. Initially, the Registration Fees fixed by SEBI was found excessive by stock-brokers. There was nation wide strike. An Expert Committee, under the Chairmanship of Mr.R.S.Bhatt, was set up by the Board to look into the interpretation of 'turnover' in context of fees payable by brokers. It was observed by R.S.Bhatt Committee in its report dated 18th December, 1992 that turnover, was fair basis, for determination of Registration Fees and the incidence of fees, prescribed by the Board was not unreasonable. It, however, recommended concessional rate of fees for certain types of transactions like one which is squared off during the same date and which have not been undertaken by the broker on behalf of his client SCA/13946/2004 18/42 JUDGMENT or the transactions on behalf of Government securities, bonds issued by the Public Sector Undertakings or carried forward, renewal or Badla transactions or transactions in securities carried by brokers without reporting them to the Stock Exchange, trade put through other Stock Exchanges and for the activities such as under writing and collection of deposits. For such type of transactions, R.S.Bhatt Committee has prescribed concessional rate of fees and some of transactions have been excluded from 'turnover'. The Board and the Central Government accepted the recommendations of the Committee in principal and the Board advised brokers on 07/01/2003 to pay the fees in the manner recommended by the Bhatt Committee. (ii) Section 11(1) and Section 11(2)(k) of the Act, 1992, which reads as under : “Chapter IV Powers and functions of the Board. 11. Functions of Board. (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests in securities and to promote the development of and to regulate the securities market, by such SCA/13946/2004 19/42 JUDGMENT measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for - xxxx-----xxxxx (k) levying fees or other charges for carrying out the purposes of this section.” The aforesaid provisions are to be read with Regulation 10 of Regulations, 1992 and with Schedule III of the Regulations, 1992. Regulation 10 of the SEBI Regulations, 1992 reads as under:- “10. 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: Provided that the Board may on sufficient cause being shown permit the stock-broker 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.” SCA/13946/2004 20/42 JUDGMENT In clause 2 of Paragraph (I) of Schedule III, the last date of payment of fees has also been prescribed