Case: Securities &amp; Exchange Board Of India Vs. M/S.Prebon Yamane (I) Ltd

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 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 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 Rs.1 Crore. However, the fixed basic fee of Rs.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 Rs.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 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).

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]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 anas envisaged in the Regulations as would be entitled toor exemption from payment of fees. The Regulation 4 clearly refers to a newly formed entity through conversion from either a 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, theinternal file notings are of no consequence and the Appellant is not estopped from coming to a contrary conclusion. Theargument 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).