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

2. On 31st January, 1992, the President of India in exercise of the powers conferred upon him by Article 123(1) of the Constitution of India was pleased to promulgate the SecuritiesExchange Board of India Ordinance, 1992. This Ordinance was subsequently replaced by the SecuritiesExchange Board of India Act, 1992 (`the Act). The act was given retrospective operation w.e.f 30th of January, 1992, Section 3 of the Act provided for the establishment of SecuritiesExchange Board of India (SEBI) while Section 4 SEBIs Management Board (the Board).On 10th of April, 1992 on behalf of the Board, a letter was addressed to the Presidents and Executive Directors of all the recognised Stock Exchanges whereby the members, stock brokers of all the recognised Stock Exchangers in India were called upon to submit their applications to the Board for the purpose of registration in accordance with Section 12(1) of the Act. The said letter which enclosed a pro forma of the application for registration of stock brokers required fees to be paid by applicants for registration on the following basis : Category A : Stock Brokers who are or will be members of Bombay, Delhi and Calcutta Stock Exchanges. Category B : Stock Brokers who are or will be members of Bangalore, Cochin, Madras and Ahmedabad Stock Exchanges. Category C : Stock Brokers who are or will be members of other stock Exchanges.This demand of the Board led to aagitation of stock brokers which resulted in the closing down of Stock Exchange throughout India for several days. The issue which gave rice to this agitation was the high registration fee sought to be levied by the Board for the purpose of registration. Succumbing to the pressure of this agitation the Board on 19th of April, 1992 issued a revised fee structure for registration of brokers giving tow options as below : "Option A : One time registration fee may be payable by the members in 5 annual installments under this Option as follows : For Group A exchanges viz. Bombay, Delhi and Calcutta at Rs. 50,000 per year for 5 years Rs. 2.5 lakhs For Group B exchanges viz. Madras, Ahmedabad, Bangalore and Cochin at Rs. 30,000 per year for 5 years For other exchanges at Rs. 10,000/Per year for 5 years Rs. 50,000/Option B : One time registration fee may be payable by the members under this Option as follows : Fee @ of 1% of the annual turnover of each broker for 5 year formThis fee will be uniform for all exchanges. The registration fee will include fee for registration as underwriters also. During the 5 years period three will no annual fee. Each exchange may choose either Option A or Option B and collect fees accordingly from all its members and sent their applications forms to SEBI within the date stipulated already. The one time registration fee forwill be uniform at Rs.In addition, thewill require to pay an annual fee of Rs. 1,000/for renewal of registration.As could be seen from the above, there was substantial change in the view proposal made by the Board. It proposed to reduce the initial fee for registration by 50% with more instalment facility. In effect the earlier demands of registration fee of Rs. 2.5 lakhs. Rs. 1.5 lakhs and Rs. 50,000/respectively on different categories of members were brought down to Rs. 1.45 lakhs, Rs. 87,000/and Rs. 29,000/respectively. Even to this reduced offer to the Board, the members of the Stock Exchanges and the stock brokers had their opposition which is evident from the letter dated 25th of April, 1992 addressed to the Finance Minister of India by the Presents of all the 22 Stock Exchanges which are recognised and regulated by the Union of India under the Securities Contract (Regulation) Act, 1957 (The SCR Act). By the said letter the Stock Exchanges sought exemption from the requirement of registration by their members. Their further demand was that there should be, if at all necessary, a simplified form for registration and only nominal fee for registration of Rs. 1,000/payable at one time only should be collected from each of their members.The Union of India by a notification dated 20th of August, 1992 issued in exercise of powers conferred by Section 29 of the Act notified the SecuritiesExchange Board of India (Stock brokers andRules, 1992 (the Rules). Rule 3 of the said Rules provides that no stock broker shall by sell and deal in securities unless he holds a certificate granted by the Board. The Rule also provided that for the grant of such certificate, the applicant concerned will have to pay an amount of fees for registration in the manner provided in the Regualtion to be framed by the Board.By a notification dated 23rd of October, 1992 issued in exercise of the powers conferred under Section 30 of the Act, the Board with previous approval of the Central Government notified the SecuritiesExchange Board of India (Stock brokers andRegulations, 1992 (`the Regulations). Regulation 3(1) of the same provided that applications by stock brokers for grant of certificate shall be made in the prescribed Form `A through the Stock Exchange of which the said broker is admitted as a member. Regulation 6 provided that the Board on being satisfied that the stock broker is eligible for a certificate of registration shall grant a certificate in Form `D to the stock broker and send an intimation to that effect to the Stock Exchange concerned.The controversy in this petition from Regulation 10 read with Schedule III of the said Regulations which reads thus : "10(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 theto pay such fees at any time before the expiry of six months from the date of on which such fees become due. (2) Where afails 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 aSchedule III states as under : "I. Fees to be paid by theker shall subject to paragraphs 2 and 3 of this Schedule pay registration fees in the manner set out below : (a) Where the annual turnover does not exceed rupees one crore during any financial year, a sum of rupees five thousand for each financial year; or (b) Where the annual turnover of theexceeds year, a sum of rupees five thousand plus one hundredth of one per cent of the turnover in excess of rupees one crore for each financial year. (c) After the expiry of five financial years from the date of initial registration s ahe shall pay sum of rupees five thousand for a block of five financial years commencing from the sixth financial year after the date of grant of initial registration to keep his registration in force. 2. Fees referred to in clause (a) and (b) of paragraph 1 above shall be paid(a) in respect of the financial yearwithin 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 proceeding financial year. 3. Every remittance of fees referred to in clauses (a) and (b) of paragraph 1, shall be accompanied by a certificate as to the authenticity of turnover on the basis of which fees have been computed duly signed by the stock exchange of which theis a member or by a qualified auditor as defined in Section 226 of the Companies Act, 1956. ExplanationFor the purposes of paragraphs 1, 2 and 3, "annual turnover" means the aggregate of the sale and purchase prices of securities received and receivable by theon his own account as well as on account of his clients in respect of sale and purchase or dealing in securities during any financial year. II. Fees to be paid by: (a) Ashall pay a fee of rupees one thousand for each financial year for an initial period of five years. (b) After the expiry of the five years mentioned above, theshall pay a fee of rupees five hundred for each financial year as long as the certificate remains in force. III. Manner of fees to be paid : The fees indicated above shall be paid on or before the 1st day of October each year payable by a cheque, draft or other instrument in favour of "The SecuritiesIt seems that after coming into force of the said Regulation, the Board by its letter dated 7th November, 1992 called upon the President/Executive Director of all the Stock Exchange in the country to collect registration fees from each of the member broker for the year 1992 in accordance with the said Regulations.The members of the Stock Exchanges being agitated by this demand, through their Stock Exchanges initiated correspondence with the Board as to the justification of the levy as well as the method of levy. They contended that the demand was excessive and the collection of the same based on turnover of a broker was unreasonable and arbitrary. On such complaint of the broker, the Board on 18th of December 1992 appointed an Expert Committee to look into their grievances. The said Committee after considering the cae of the parties came to the conclusion that the fees levied by the Board was reasonable. Having found no beneficial response to their grievances from the Government of India and the Board, aggrieved parties filed various writ petitions in different High Courts, as stated above. One such writ petition was Writ Petition No. 126/93 filed by the BSE Brokers Forum, Bombay before the High Court of Bombay. This petition by the above said order of transfer of this Court is now before us as Transferred Case (C) No. 20/2000.

Reasoning:
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.