Case: B.S.E. Brokers Forum, Bombay &amp; Ors.  Vs. Securities &amp; Exchange Board Of India &amp; Ors.

fairness to the petitioners, we must notice the fact that the High Court at an interim stage had appointed a Committee headed by Justice A.N. Mody to submit a report as to the reasonableness of the levy. The petitioners rely heavily on the aid report to support their cse while they have the reservations as to the Bhatt Committee report. We are aware that the superior courts have often appointed Committees nd Commissions to assist the court in technical matters with which the courts are generally not very familiar. Though in the instant case, the facts involved are matters pertaining to the securities market with its own intricacies, we find that the question involved mainly pertains to the legislative competence, nature and reasonableness of the levy. We are not called upon to decide or to recommend as to what is the best way to levy the impugned fee. So long as the Legislature has the legislative competence to levy and the Board has not exceeded its statutory authority in imposing the levy, we need not go into other niceties of the levy which are not in the realm of our jurisdiction. We have examined the reasonableness of the levy qua the statutory power of the Board and its quantum with reference to the need of the Board and not with reference to whether it is the best available method of levy. It is possible that Justice Mody Committees recommendation are better than the method adopted by the Board but then that is not what we have to decide in this case. Hence, we have not made any specific reference to that report. Of course, we have referred to some of the recommendations of the Bhatt Committee because that part of the report is favourable to the case of the petitioners and the Government of India has accepted the same and the Board has, in principle, agreed to implement that report and not because Bhatt Committee report is more acceptable to us than Justice Mody Committee Report. 47. Lastly, on behalf of the trading members of the National Stock Exchange it is contended that they are not the members of the said Stock Exchange so as to bring them within the ambit of the levy. This argument is based on the premise that it is only a full-fledged member of a Stock Exchange who can be called upon to be registered under Section 12(2) of he Act and not any other member of the Stock Exchange. They contend that the National Stock Exchange has only institutional members who are treated as full-fledged members and all others are only trading members who do not have any right and obligations expected of a member of the Stock Exchange. It is also contended that under the Rules and Regulations, a stock broker to be registered as such under the Act has to be a regular member of the Stock Exchange and since the said Rules and Regulations of the Board do not recognise a trading member as a member of the Stock Exchange, they cannot be brought within the net of the levy. they rely on the definition of `Stock Exchange under Rule 2(d) of the Rules which states that `Stock Exchange means a stock exchange which is for the time being recognised by the Central Government under Section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and a stock broker is defined as a member of a stock exchange. Since the stock brokers of NSE are not the members as defined under Section 2(e) of the Act and the NSE being a company of which shareholders are only institutions and trading members not being shareholders, they do not fall within the definition of a member of a stock exchange. It is difficult to accept this argument. Section 3(2)(c) of the SCR Act requires a stock exchange which applies for recognition to specify various classes of members who will be admitted as members of the stock exchange. This does not make any distinction between a full-fledged member and a trading member of the NSE. Further, Clause 9 of Part II of Annexure to Form `A requires a stock exchange, inter alia, to state the different classes of members, if any, and such number of members thereof, and the privileges enjoined by such class of persons. Definition of a trading member under the NSE bye-laws itself shows that a trading member to the a stock broker and a member of the NSE registered in accordance with Chapter V of its bye-laws. Article 1(m) of the Articles of NSE defines a `trading member to mean a member of the stock exchange. Explanation to it further clarifies that there may be more than one class of trading members of the Exchange as may be determined by its Board from time to time. A trading member of the NSE need not necessarily be a member of the company that is NSE. Therefore, it is clear from the Articles of NSE that the said Exchange itself recognises a trading member to be a member of the Stock Exchange though with limited rights. Therefore, it is clear that there can be more than one class of members who can be admitted as members of the Stock Exchange and any of those members belonging to any of those classes so long as they are registered as such by a Stock Exchange, will fall within the definition of `member as defined in Section 2 @ of the SCR Act and Rule 2(e) of the SEBI Rules. it is also undisputed that the trading members of the NSE are carrying on the business of stock brokering, hence, keeping in mind the objects of the Act, it would be futile to contend that the trading members of the NSE cannot be considred to be the stock brokers for the limited purpose of the liability to pay the impugned fee under the Act, Rules and Regulations. Therefore, this contention also should fail.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]17. Section 29 of the Act empowers the Central Government to make, by notification, rules for carrying out the purposes of the Act. It is an undisputed fact that such Rules have been notified. Pursuant to the power vested in the Board under Section 30 of the Act, the Board has framed the SecuritiesExchange Board of Indias) Regulation, 1992 (the Regulations) with previous approval of the Central Government which came into force w.e.f.d 23.10.1992. Regulation 10 of the Said Regulations provides for payment of fees as specified in Schedule III of the said Regulations. Schedule III of the said Regulations provides that every stock broker will have to pay a registration fee where his annual turnover does not exceed Rs. 1 crore a sum of Rs. 5,000/for each financial year. In case of stock brokers whose annual turnover exceeds Rs. 1 crore during any financial year, the fee payable is a sum of Rs. 5,000 plus 100th of 1 per cent of the turnover in excess of Rs. 1 crore for each financial year. It also provides that after the expiry of 5 financial years from the date of initial registration as a stock broker, he will have to pay a sum of Rs. 5,000/for a block of 5 financial years commencing from the 6th financial year after the date of grant of initial registration to keep his registration in force. It also provides for instalments for payment of the said fee from the stock brokers. In regard toand other intermediaries, the Schedule provides for a flat rate of fee.From the enumeration of the above provisions of the Act, Rules and Regulations, it is clear that the Board is empowered to collect two types of fee, namely, the fee under Section 11(2)(k) for carrying out the purposes of Section 11 and a fee for the purpose of registering the applicants under Section 12(2) of the Act. The quantum of fee to be paid is fixed under Schedule III of the Regulations as provided under the Act. Therefore, there is no room to attack the levy on the ground that the same is not authorised by law.It is no doubt that a perusal of Forms `A and `D shows that these forms are issued pursuant to the requirement of Regulations 2 and 6 and Section 12(2) of the Act which, however, does not by itself determine the nature of the fee in question. It is a well established principle in law that so long as the impugned power is traceable to the concerned Statute, mere omission or error in reciting the correct provision of law does not denude the power of the authority of taking a statutory action so long as its action is legitimately traceable to a statutory power governing such action. In such cases, this Court will always rely upon Section 114(3) of the Evidence Act to draw a statutory presumption that the official acts are regularly performed and if satisfied that the action in question is traceable to a statutory power, the courts will uphold such Statethe said principles to the facts of this cae, we notice that the Board has the necessary competence to collect the fees for the purpose of carrying out the mandates under Section 11(2)(k) of the Act and also the power to collect the registration fee under Section 12(2) of the Act. Therefore, in our opinion, the Board has the necessary authority to collect a cumulative fee both for the purposes of regulating the activities contemplated under Section 11 of the Act as also for the purpose of registration under Section 12(2) of the Act, and the fee levied is both regulatory and registration fee leviable under Section 11(2)(k) and 12(2) of the Act.As noticed in the City Corporation of Calicut (supra), the traditional concept of quid pro quo in a fee has undergone considerable transformation. From a conspectus of the ratio of the above judgment, we find that so far as the regulatory fee is concerned, the service to be rendered is not a condition precedent and the same does not lose the character of fee provided the fee so charged is not excessive. It is also not necessary that the services to be rendered by the collecting authority should be confined to the contributories alone. As held in Sirsilk Ltd. (supra), if the levy is for the benefit of the entire industry, there is sufficient quid pro quo between the levy recovered and services rendered to the industry as a whole. If we apply the test as laid down by this Court in the abovesaid judgments to the facts of the case in hand, it can be seen that the Statute under Section 11 of the Act requires the Board to undertake various activities to regulate the business of the securities market which requires constant and continuing supervision including investigation and instituting legal proceedings against the offending traders, wherever necessary. Such activities are clearly regulatory activities and the Board is empowered under Section 11(2)(k) to charge the required fee for the said purpose, and once it is held that the fee levied is also regulatory in nature then the requirement of quid pro quo recedes to the background and the same need not be confined to the contributoriesthe argument that the amount required for the capital expenditure of the Board should be met by the Government of India and not out of the regulatory fee charged by the Board, has no force. The Board is an autonomous body created by an Act of Parliament to control the activities of the securities market in which thousands of members of gullible public will be inventing huge sums of money. Therefore, there is every need for a vigilant supervision of the activities of the market and for that purpose if the Statute intends that the necessary funds should be met by collection of fees from the securities market itself then the said levy cannot be questioned on the ground that the monies required for the capital expenditure of the Board should be met by the Government of India. That apart, this court in the case of Sreenivasa General Trades (supra) has rejected a similarargument, in our opinion, proceeds on the footing that the law requires every contributor to pay equally. We are unable to accept this argument either. It is true that every classification must have a reasonable nexus with the object to be achieved. In the instant case the question that arises in answering this argument of the petitioners is whether all persons involved in the business of stock exchange should be equally burdened or is it open to the Board to distribute the burden based on certain classification. At this stage, it should be borne in mind that the collection made from a class of persons even if it is a fee can also inure to the benefit of theso long as they are within the object governing the levy. From the material on record, it is seen that approx. 50 per cent of the total expenditure to be incurred by the Board would be on brokers related services and from amongst all the players in the share market brokers form a distinct and separate class as compared to others including other intermediaries. Therefore, in our opinion, there is nothing wrong in either clarifying the brokers as a separate class for the subject of levy based on their annual turnover because the volume of transaction of the brokers has a direct bearing on the regulatory expenses of the Board. Hence, this classification has a direct nexus with the object to theis a settled principle in law that if the State has the authority to impose a levy then it has a wide discretion in choosing the measure of levy provided, of course, it withstands the test of reasonableness. Many levies may have a similar measure but by such similarity in the measure, the levies do not become the same. Therefore, if the impugned levy adopts a measure which is either similar to the one adopted while levying turnover tax orthe impugned levy ipso facto by adoption of such measure, would not become either anor a turnover tax or even a fee on income or a fee onbecause a tax on land or building is imposed with reference to its income or yield, it does not cease to be a tax on land or building. The income or yield of the IInd/building is taken merely as a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. There is no set pattern of levy of tax on lands and buildingsindeed there can be no such standardisation. There cannot be uniform levy unrelated to the quality, character or income/yield of the land. Any such levy has been held to be arbitrary and discriminatory. No one can say that a tax under a particular entry must be levied only in a particular manner, which may have been adoptedto the extent of the recommendations made by the Expert Committee, we are of the opinion that the Board is bound to bring abut 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 petition 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 to the levy based on the measure of turnover has to bein the instant case, the facts involved are matters pertaining to the securities market with its own intricacies, we find that the question involved mainly pertains to the legislative competence, nature and reasonableness of theis difficult to accept this argument. Section 3(2)(c) of the SCR Act requires a stock exchange which applies for recognition to specify various classes of members who will be admitted as members of the stock exchange. This does not make any distinction between amember and a trading member of the NSE. Further, Clause 9 of Part II of Annexure to Form `A requires a stock exchange, inter alia, to state the different classes of members, if any, and such number of members thereof, and the privileges enjoined by such class of persons. Definition of a trading member under the NSEitself shows that a trading member to the a stock broker and a member of the NSE registered in accordance with Chapter V of itsArticle 1(m) of the Articles of NSE defines a `trading member to mean a member of the stock exchange. Explanation to it further clarifies that there may be more than one class of trading members of the Exchange as may be determined by its Board from time to time. A trading member of the NSE need not necessarily be a member of the company that is NSE. Therefore, it is clear from the Articles of NSE that the said Exchange itself recognises a trading member to be a member of the Stock Exchange though with limited rights. Therefore, it is clear that there can be more than one class of members who can be admitted as members of the Stock Exchange and any of those members belonging to any of those classes so long as they are registered as such by a Stock Exchange, will fall within the definition of `member as defined in Section 2 @ of the SCR Act and Rule 2(e) of the SEBI Rules. it is also undisputed that the trading members of the NSE are carrying on the business of stock brokering, hence, keeping in mind the objects of the Act, it would be futile to contend that the trading members of the NSE cannot be considred to be the stock brokers for the limited purpose of the liability to pay the impugned fee under the Act, Rules and Regulations. Therefore, this contention also should fail.