Judgment
As delivered
CASE NO.:Transfer Case (civil) 20 of 2000Writ Petition (civil) 502 of 2000
PETITIONER:B.S.E. BROKERS FORUM, BOMBAY & ORS. .
Vs.
RESPONDENT:SECURITIES & EXCHANGE BOARD OF INDIA & ORS. .
DATE OF JUDGMENT: 01/02/2001
BENCH:B.N.Kirpal, N.S.Hegde
JUDGMENT:
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SANTOSH HEGDE, J.
Writ petitions questioning the validity of Regulation10 of the Securities & Exchange Board of India (StockBrokers and Sub- brokers) Regulations, 1992 read withSchedule III thereof as also letters dated 7th of November,1992 and 7th of January, 1993 issued by the Securities &Exchange Board of India (SEBI) were filed in various HighCourts in the country. On a transfer petition forconsolidating these cases being filed before this Court byrespondent No.1, this Court by its order dated 10th ofDecember, 1999 directed that one such Writ Petition ©No.126/1993 pending before the Bombay High Court betransferred to this Court. By the said order, this Courtalso stayed other proceedings pending in the other HighCourts but gave liberties to the concerned parties to fileintervention application in the above transferred case. On31st of January, 1992, the President of India in exercise ofthe powers conferred upon him by Article 123(1) of theConstitution of India was pleased to promulgate theSecurities & Exchange Board of India Ordinance, 1992. ThisOrdinance was subsequently replaced by the Securities &Exchange Board of India Act, 1992 (the Act). The Act wasgiven retrospective operation w.e.f. 30th of January, 1992.Section 3 of the Act provided for the establishment ofSecurities & Exchange Board of India (SEBI) while Section 4provided for SEBIs Management Board (the Board).
On 10th of April, 1992 on behalf of the Board, aletter was addressed to the Presidents and ExecutiveDirectors of all the recognised Stock Exchanges whereby themembers, stock brokers of all the recognised Stock Exchangesin India were called upon to submit their applications tothe Board for the purpose of registration in accordance withSection 12(1) of the Act. The said letter which enclosed apro forma of the application for registration of stockbrokers required fees to be paid by applicants forregistration on the following basis: Registration AnnualFees Fees (Rs.) (Rs.)
Category A 5 Lakhs 10.000
Category B 3 Lakhs 5.000
Category C 1 Lakh 4.000
Category A:
Stock Brokers who are or will be members of Bombay,Delhi and Calcutta Stock Exchanges. Category B: StockBrokers who are or will be members of Bangalore, Cochin,Madras and Ahmedabad Stock Exchanges. Category C: StockBrokers who are or will be members of other stock Exchanges.
This demand of the Board led to a nation-wideagitation of stock brokers which resulted in the closingdown of Stock Exchanges throughout India for several days.The issue which gave rise to this agitation was the highregistration fee sought to be levied by the Board for thepurpose of registration. Succumbing to the pressure of thisagitation the Board on 19th of April, 1992 issued a revisedfee structure for registration of brokers giving two optionsas below : OPTION A: One time registration fee may bepayable by the members in 5 annual instalments under thisOption 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.Rs. 1.5 lakhs
For other exchanges at Rs.10,000/- Per year for 5years. Rs. 50,000/-
OPTION B:
One time registration fee may be payable by themembers under this Option as follows:
Fee @ of 1% of the annual turnover of each broker for5 years from 1990-91. This fee will be uniform for allexchanges.
The registration fee will include fee for registrationas underwriters also. During the 5 years period there willbe no annual fee.
Each exchange may choose either Option A or Option Band collect fees accordingly from all its members and senttheir applications forms to SEBI within the date stipulatedalready.
The one time registration fee for sub-brokers will beuniform at Rs.5,000/-. In addition, the sub-brokers willrequire to pay an annual fee of Rs.1,000/- for renewal ofregistration.
As could be seen from the above, there was substantialchange in the new proposal made by the Board. It proposedto reduce the initial fee for registration by 50% with moreinstalment facility. In effect the earlier demands ofregistration fee of Rs.2.5 lakhs, Rs.1.5 lakhs andRs.50,000/- respectively on different categories of memberswere brought down to Rs.1.45 lakhs, Rs.87,000/- andRs.29,000/- respectively. Even to this reduced offer of theBoard, the members of the Stock Exchanges and the stockbrokers had their opposition which is evident from theletter dated 25th of April, 1992 addressed to the FinanceMinister of India by the Presidents of all the 22 StockExchanges which are recognised and regulated by the Union ofIndia under the Securities Contracts (Regulation) Act, 1956(the SCR Act). By the said letter the Stock Exchangessought exemption from the requirement of registration bytheir members. Their further demand was that there shouldbe, if at all necessary, a simplified form for registrationand only nominal fee for registration of Rs.1,000/- payableat one time only should be collected from each of theirmembers. The Union of India by a notification dated 20th ofAugust, 1992 issued in exercise of powers conferred bySection 29 of the Act notified the Securities & ExchangeBoard of India (Stock brokers and Sub-brokers) Rules, 1992(the Rules). Rule 3 of the said Rules provides that nostock broker shall buy sell and deal in securities unless heholds a certificate granted by the Board. The Rule alsoprovided that for the grant of such certificate, theapplicant concerned will have to pay an amount of fees forregistration in the manner provided in the Regulation to beframed by the Board. By a notification dated 23rd ofOctober, 1992 issued in exercise of the powers conferredunder Section 30 of the Act, the Board with previousapproval of the Central Government notified the Securities &Exchange Board of India (Stock brokers and Sub- brokers)Regulations, 1992 (the Regulations). Regulation 3(1) ofthe same provided that applications by stock brokers forgrant of certificate shall be made in the prescribed FormA through the Stock Exchange of which the said broker isadmitted as a member. Regulation 6 provided that the Boardon being satisfied that the stock broker is eligible for acertificate of registration shall grant a certificate inForm D to the stock broker and send an intimation to thateffect to the Stock Exchange concerned. The controversy inthis petition emerges from Regulation 10 read with ScheduleIII of the said Regulations which reads thus: 10(1)Every applicant eligible for grant of a certificate shallpay such fees and in such manner as specified in ScheduleIII:
Provided that the Board may on sufficient cause beingshown permit the stock-broker to pay such fees at any timebefore the expiry of six months from the date on which suchfees become due.
(2) Where a stock-broker fails to pay the fees asprovided in regulation 10, the Board may suspend theregistration certificate, whereupon the stock broker shallcease to buy, sell or deal in securities as a stock-broker.
Schedule III states as under:
I. Fees to be paid by the Stock-broker. 1. Everystock-broker shall subject to paragraphs 2 and 3 of thisSchedule pay registration fees in the manner set out below:
(a) Where the annual turnover does not exceed rupeesone crore during any financial year, a sum of rupees fivethousand for each financial year; or (b) Where the annualturnover of the stock- broker exceeds rupees one croreduring any financial year, a sum of rupees five thousandplus one hundredth of one per cent of the turnover in excessof rupees one crore for each financial year; (c) After theexpiry of five financial years from the date of initialregistration as a stock-broker, he shall pay sum of rupeesfive thousand for a block of five financial years commencingfrom the sixth financial year after the date of grant ofinitial registration to keep his registration in force.
2. Fees referred to in clause (a) and (b) ofparagraph 1 above shall be paid-
(a) in respect of the financial year 1992- 1993 withinone month of the commencement of these regulations; (b) inrespect of the financial year beginning on the 1st day ofApril, 1993 and the following financial years, on or beforethe first day of October of the financial year to which suchpayment relates, and such fees shall be computed withreference to the annual turnover relating to the precedingfinancial year.
3. Every remittance of fees referred to in clauses
(a) and (b) of paragraph 1, shall be accompanied by acertificate as to the authenticity of turnover on the basisof which fees have been computed duly signed by the stockexchange of which the stock-broker is a member or by aqualified auditor as defined in Section 226 of the CompaniesAct, 1956.
Explanation - For the purposes of paragraphs 1, 2 and3, annual turnover means the aggregate of the sale andpurchase prices of securities received and receivable by thestock -broker on his own account as well as on account ofhis clients in respect of sale and purchase or dealing insecurities during any financial year.
II. Fees to be paid by Sub-broker:
(a) A Sub-broker shall pay a fee of rupees onethousand for each financial year for an initial period offive years. (b) After the expiry of the five yearsmentioned above, the sub-broker shall pay a fee of rupeesfive hundred for each financial year as long as thecertificate remains in force.
III. Manner of fees to be paid:
The fees indicated above shall be paid on or beforethe 1st day of October each year payable by a cheque, draftor other instrument in favour of The Securities andExchange Board of India at Bombay.
It seems that after coming into force of the saidRegulation, the Board by its letter dated 7th November, 1992called upon the President/Executive Director of all theStock Exchanges in the country to collect registration feesfrom each of the member broker for the year 1992 inaccordance with the said Regulations. The members of theStock Exchanges being agitated by this demand, through theirStock Exchanges initiated correspondence with the Board asto the justification of the levy as well as the method oflevy. They contended that the demand was excessive and thecollection of the same based on turnover of a broker wasunreasonable and arbitrary. On such complaint of thebroker, the Board on 18th of December 1992 appointed anExpert Committee to look into their grievances. The saidCommittee after considering the case of the parties came tothe conclusion that the fees levied by the Board wasreasonable. Having found no beneficial response to theirgrievances from the Government of India and the Board,aggrieved parties filed various writ petitions in differentHigh Courts, as stated above. One such writ petition wasWrit Petition No.126/93 filed by the BSE Brokers Forum,Bombay before the High Court of Bombay. This petition bythe above said order of transfer of this Court is now beforeus as Transferred Case © No.20/2000. In this said petitionthe petitioners contend that there are at present 491 stockbrokers operating from its exchange out of which more than460 stock brokers are members of the first petitionerSociety. They contend that the registration fee sought tobe levied by the Board on stock brokers for the purpose ofregistration is ex facie illegal and void ab initio beingultra vires of the Act and the Rules and the demand iswithout authority of law being a tax in the guise of a feewhich is ultra vires Article 265 of the Constitution ofIndia. They also contend that the said levy isdiscriminatory, arbitrary, excessive and ultra viresArticles 14 and 19(1)(g) of the Constitution of India.
Their further contention is that the said fee which islevied merely for the purpose of registration is soexcessive that the same is nothing short of a colourableattempt on the part of the Board to tax the petitioners forcarrying on their professions/business. It is also statedthat both the Union of India and the Board lack thelegislative competence to levy a tax which is in the natureof a professional tax which power being exclusively with theStates under Entry 60, List II, Schedule VII of theConstitution of India. They also contend that theartificial and unreasonable classification of the stockbrokers for the purpose of exacting the lions share of thelevy is arbitrary and violative of Article 14. In view ofthe fact, the consequences of non-payment of such fee wouldentail penal consequences affecting materially thebusiness/profession of such defaulters, the same would alsobe violative of Article 19(1)(g) of the Constitution. Thelevy is further impugned on the ground that the same isbased on vague and imprecise concept of annual turnoverwhich has no nexus whatsoever with the purpose for which thefee is sought to be collected and registration fee on itsvery nature can only be one- time fee, hence, demand forcollection based on annual turnover extending over 5 yearsis arbitrary and unreasonable. On behalf of the members ofthe National Stock Exchange (NSE) a further argument isaddressed contending that as per the provisions of the Actthe stock brokers and other intermediaries dealing in itsexchange are not liable to be charged with the impugnedregistration fees since these are not members of theirExchange.
In reply to the above contentions in the petition,first respondent-Board has filed its objections denying thatthere was lack of legislative competence to levyregistration fee as contended in the petition. It is alsodenied that the levy in fact is a tax in the guise of a fee.On the contrary, it is asserted that the said levy is a feetowards the service rendered by it to the petitioners andothers involved in the business of stocks and shares and infurtherance of the object enumerated in Section 11 of theAct. It also denied that the levy would amount to anunreasonable restriction on trade/business so as to attractArticle 19(1)(g) of the Constitution. It denied that anyunreasonable hardship would be caused to the brokers byvirtue of the levy being linked with the annual turnover oftheirs and their classification vis-a-vis otherintermediaries is an unreasonable classification. Itcontends that it is a reasonable classification taking intoaccount the object of the Act. They, further, contendedthat when earlier a proposal was made to levy a flat fee thebrokers opposed the same strongly, hence, the said decisionto levy flat fee had to be withdrawn. They denied thatRegulation 10 of Schedule III to the Regulations is eitherultra vires of the Act or unconstitutional. Justifying thefee levied by them the Board contended that it had to rendermultifaceted and multitude of services contemplated underSection 11(2) of the Act which included the followingmandatory duties under the Act:- (a) regulating thebusiness in stock exchanges and any other securitiesmarkets; (b) registering and regulating the working ofstock brokers, sub-brokers, share transfer agents, bankersto an issue, trustees of trust deeds, registrars to anissue, merchant bankers, underwriters, portfolio managers,investment advisers and such other intermediaries who may beassociated with securities markets in any manner; (c)registering an regulating the working of collectiveinvestment schemes, including mutual funds; (d) promotingand regulating self-regulatory organisation; (e)prohibiting fraudulent and unfair trade practices relatingto securities markets; (f) promoting investors educationand training of intermediaries of securities markets (g)prohibiting insider trading in securities; (h) regulatingsubstantial acquisition of shares and take-over ofcompanies; (i) calling for information, undertakinginspection, conducting inquiries and audits of the stockexchanges and intermediaries and self-regulatoryorganisations in the securities market; (j) performing suchfunctions and exercising such powers under the SecuritiesContracts (Regulation) Act, 1956 as may be delegated to itby the Central Government; (k) levying fees or othercharges for carrying out the purposes of this section; (l)conducting research for the above purposes; (m) performingsuch other functions as may be prescribed.
Taking into consideration the above multifariousduties, it contended that it required the finances forfulfilling the following statutory obligations. These are:
(a) Establishment of a computer network, i.e. to createenvironment and facilities to enable dealers in securitiesto monitor trade at various places with interlinkagesthrough telecommunication and other facilities for on linetransmission of information.
(b)Developing self regulatory organisation, i.e. toencourage formation and recognition of associations to beformed by respective intermediaries with the objectives ofevolving a code of self-regulation on matters concerned withtrade practices, code of business ethics, prevention ofunhealthy and unfair competition among the members withpowers to discipline the erring members.
(c)Providing resources support to investorsassociations.
(d)Undertaking studies and preparing reports relatingto, interalia, the functioning of the stock brokers with aview to finding out ways and means of strengthening thebasis of their operations.
(e)Organising investment education programs includingbringing out publications, books, magazines etc., includingnewspaper advertisements, relating to the capital market.
(f)To improve the procedure and practice fortransaction on stock exchange for the benefit of the brokersand investors, for settlement of disputes between theinvestors and brokers as well as brokers inter se.
(g)To inspect the records of the brokers and stockexchange from time to time to prevent malpractices.
It is also contended that from the facilities thatwill be provided by the Board, the brokers would stand tobenefit a great deal and that the Board intends to provideimproved system of the trading which would fetch largerincome to the brokers, by regulating the system the Boardcontends the inflow of foreign investment in the countryalso would increase substantially. According to the Board,the money that will be received by the levy would bereasonably sufficient to meet its expenses arising out ofits statutory obligations. It specifically denied that thelevy is a registration fee simpliciter but the same includesa fee required for establishing the necessary infrastructurefor fulfilling and maintaining the objectives of the Act.It also disputed the figures relied upon by the petitionersto controvert the argument that the collection from the levyfar exceeded the requirement of funds by the Board. It alsodenied that imposition of fee on the basis of turnover waseither vague, unreasonable, arbitrary or discriminatory. Itcontends that a levy of .01% of the annual turnover whencompared to the brokerage fee charged by a broker was hardlyunreasonable. It further contended that on therepresentations made by the petitioners it had appointed anExpert Committee and this Committee after hearing variousmembers of the Bombay stock Exchange by its report dated18th of December, 1992 in effect approved the levy. On theabove basis, the Board prayed for the dismissal of the writpetition. The Union of India has adopted the saidobjections of the Board.
We have heard Shri P.Chidambaram, Shri Ashok H.Desai,Shri S.K.Dholakia, Shri Mahendra Anand, and Shri ShantiBhushan, Senior Advocates and Mr.Navroj Seervai andMr.P.L.Narayanan, Advocates for the petitioners andintervenors and Shri Kirit N.Raval, A.S.G. for respondentNo.1.
From the arguments addressed before us, we will haveto first consider the question whether the respondents havethe necessary statutory authority for levying a fee of thenature which is impugned in this petition. If so, whetherthis fee is, as a matter of fact, a tax in the guise of feeand is so excessive as to lose the character of a fee ascontended by the petitioners. The Act in question is an Actto provide for the establishment of a Board to protect theinterests of investors in securities and to promote thedevelopment of, and to regulate, the securities market andfor matters connected therewith or incidental thereto. TheBoard is established under Section 3 of the Act. Section 11of the Act defines the powers and functions of the Boardwhich mandates that it shall be the duty of the Board toprotect the interests of investors in securities and topromote the development of, and to regulate the securitiesmarket, by such measures as it thinks fit. Sub-section (2)of the said Section enumerates the various areas in whichthe Board is mandated to take measures to fulfil the objectsof the Act. They include such measures as (i) regulatingthe business in stock exchanges and any other securitiesmarkets; (ii) registering and regulating the working ofstock brokers and other intermediaries; (iii) registeringand regulating the working of the depositories etc. (iv)registering and regulating the working of venture capitalfunds and collective investment schemes, including mutualfunds; (v) promoting and regulating self-regulatoryorganisations; (vi) prohibiting fraudulent and unfair tradepractices relating to securities markets; (vii) promotinginvestors' education and training of intermediaries; (viii)prohibiting insider trading in securities; (ix) regulatingsubstantial acquisition of shares and take-over ofcompanies; (x) collection of information, inspection,conducting inquiries and audits of the stock exchanges,mutual funds, other persons associated with the securitiesmarket and other intermediaries and self-regulatoryorganisations in the securities market; (xi) performingsuch other functions as are delegated to it by the CentralGovernment; (xii) conducting research for the abovepurposes; (xiii) providing necessary information for theefficient discharge of the functions of the organisationswith securities markets etc. The said Board is also vestedwith certain powers of the civil courts under the Code ofCivil Procedure, 1908 in regard to discovery, production,summoning and enforcing the attendance of persons andinspection of books, registers etc. Section 11(2)(k) of theAct empowers the Board to levy fees or other charges forcarrying out the purposes enumerated in Section 11 of theAct. Section 12 requires the stock brokers, sub-brokers,share transfer agents, bankers to an issue, trustee of trustdeed, Registrar to an issue, merchant banker, underwriter,portfolio managers, investment advisors and such otherintermediaries who may be associated with securities marketto get themselves registered and obtain a certificate ofregistration from the Board in accordance with theRegulations made under this Act. Section 12(2) empowers theBoard to collect such fees as may be determined by theRegulations from the applicants who seek registration.
Section 29 of the Act empowers the Central Governmentto make, by notification, rules for carrying out thepurposes of the Act. It is an undisputed fact that suchRules have been notified. Pursuant to the power vested inthe Board under Section 30 of the Act, the Board has framedthe Securities and Exchange Board of India (Stock-brokersand Sub-brokers) Regulations, 1992 (the Regulations) withprevious approval of the Central Government which came intoforce w.e.f. 23.10.1992. Regulation 10 of the saidRegulations provides for payment of fees as specified inSchedule III of the said Regulations. Schedule III of thesaid Regulations provides that every stock broker will haveto pay a registration fee where his annual turnover does notexceed Rs.1 crore a sum of Rs.5,000/- for each financialyear. In case of stock brokers whose annual turnoverexceeds Rs.1 crore during any financial year, the feepayable is a sum of Rs.5,000 plus 100th of 1 per cent of theturnover in excess of Rs.1 crore for each financial year.It also provides that after the expiry of 5 financial yearsfrom the date of initial registration as a stock broker, hewill have to pay a sum of Rs.5,000/- for a block of 5financial years commencing from the 6th financial year afterthe date of grant of initial registration to keep hisregistration in force. It also provides for instalments forpayment of the said fee from the stock brokers. In regardto sub-brokers and other intermediaries, the Scheduleprovides for a flat rate of fee.
From the enumeration of the above provisions of theAct, Rules and Regulations, it is clear that the Board isempowered to collect two types of fees, namely, the feeunder Section 11(2)(k) for carrying out the purposes ofSection 11 and a fee for the purpose of registering theapplicants under Section 12(2) of the Act. The quantum offee to be paid is fixed under Schedule III of theRegulations as provided under the Act. Therefore, there isno room to attack the levy on the ground that the same isnot authorised by law.
The petitioners contend that it is clear from thedemand that what is demanded by the Board from them is a feeunder Section 12(2) of the Act which is a registration feesimpliciter. They support this contention by pointing outthat the application for registration has to be made in FormA and the registration certificate is issued in Form D,which are statutory forms and which shows that these Formsare issued under Regulations 3 and 6 which are referableonly to Section 12 of the Act. Therefore, they contend thatthe Board cannot now contend that the impugned fee iscollected for any purpose other than for registration.
In reply on behalf of the Board, it is contended thatthough the demand is termed as registration fees, as amatter of fact, the fee that is collected is a combinationof a regulatory fee as well as a registration fee ascontemplated under Sections 11(2)(k) and 12 of the Actrespectively. They also point out that, as a matter offact, the collection from this levy is credited to a fundcreated under Section 14 of the Act and the amount from thesaid fund is utilised only towards the expenses incurred bythe Board in performing its duties mandated under the Act.It is further contended that the mere fact that Forms Aand D are referable to Section 12(2) only, ipso facto doesnot make the demand a registration fee simpliciter.
It is no doubt true that a perusal of Forms A andD shows that these forms are issued pursuant to therequirement of Regulations 3 and 6 and Section 12(2) of theAct which, however, does not by itself determine the natureof the fee in question. It is a well established principlein law that so long as the impugned power is traceable tothe concerned Statute, mere omission or error in recitingthe correct provision of law does not denude the power ofthe authority of taking a statutory action so long as itsaction is legitimately traceable to a statutory powergoverning such action. In such cases, this Court willalways rely upon Section 114(e) of the Evidence Act to drawa statutory presumption that the official acts are regularlyperformed and if satisfied that the action in question istraceable to a statutory power, the courts will uphold suchState action. See Peerless General Finance and InvestmentCo. Ltd. & Anr. v. Reserve Bank of India (1992 (2) SCC
343) and Union of India & Anr. v. Tulsiram Patel (1985 (3)SCC 398). Applying the said principles to the facts of thiscase, we notice that the Board has the necessary competenceto collect the fees for the purpose of carrying out themandates under Section 11(2)(k) of the Act and also thepower to collect the registration fee under Section 12(2) ofthe Act. Therefore, in our opinion, the Board has thenecessary authority to collect a cumulative fee both for thepurpose of regulating the activities contemplated underSection 11 of the Act as also for the purpose ofregistration under Section 12(2) of the Act, and the feelevied is both regulatory and registration fee leviableunder Sections 11(2)(k) and 12(2) of the Act.
It is next contended on behalf of the petitioners thatassuming that the fee in question is a cumulative fee underSections 11(2)(k) and 12(2) of the Act, even then such fee,as demanded by the respondents, cannot be levied on thembecause a fee can be levied only if the collector of the feeis rendering any service to the contributories of the fee.They contend that no such service is being rendered by theBoard to them which can even remotely be equated to thequantum of the levy. They also contend that the amountcollected as fee is used as a general fund by the Board forits various activities which has no nexus with the servicesto be rendered to the contributories. Hence, the impugnedlevy cannot be treated even as a regulatory fee. On behalfof the Board, it is contended that a levy being aregulatory-cum-registration fee, the quid pro quo requiredis very minimal and that it is entitled to levy and collectthe same for meeting out the various activities of the Boardrequired to be performed under the Act and the fact that thebenefit from such acts of the Board also goes tonon-contributories of the fee, would not deviate from thefact that the levy is a fee and not a tax. The Board alsocontends, the fact that the amount so collected is creditedto a general fund and is utilised for the capital andrevenue expenditures of the Board also will not change thenature of the levy so long as such collection, as a matterof fact, is utilised solely for the purpose of theactivities of the Board authorised under the Act.
The argument of the petitioners in regard to therequirement of equivalent service from the collector of thefees is based on the dictum of this Court in the case of TheCommissioner, Hindu Religious Endowments, Madras vs. SriLakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954 SCR1005) where while enumerating the different characteristicsof tax and fee, this Court held that the distinction betweena tax and a fee lies primarily in the fact that a tax islevied as a part of common burden while fee is a payment fora special benefit or privilege. Bringing out a cleardistinction between a tax and a fee, this Court held that atax is a compulsory exaction of money by public authorityfor public purposes enforceable by law and is not a paymentfor services rendered. The Court in the said case held thatit is also not possible to formulate a definition of feethat can apply to all cases as there are various kinds offees. But a fee may generally be defined as a charge for aspecial service rendered to individuals by some governmentalagency. The amount of fee levied is supposed to be based onthe expenditure incurred by the Government in rendering theservices.
The petitioners also relied on another judgment ofthis Court in The Chief Commissioner, Delhi & Anr. v. TheDelhi Cloth & General Mills Co. Ltd. & Ors. (1978 (2) SCC
367) wherein this Court has held that there are twoessential elements required to be established for justifyinga levy of fee. Firstly, such levy should be inconsideration of certain services which the individualsaccept either willingly or unwillingly and secondly thecollection from such levy should not be set apart or mergedin the general revenue of the State to be spent for generalpublic purposes but should be appropriated for the specificpurpose for which the levy is being made.
The petitioners further relied on another judgment ofthis Court in Om Parkash Agarwal & Ors. v. Giri RajKishori & Ors. (1986 (1) SCC 722) wherein this Court heldthat when the money collected by the levy of fee is to bedeposited in a fund which was to vest in the StateGovernment and not in the Municipality or a MarketingCommittee or any other local authority having limitedfunctions specified in the enactment under which the fundwas constituted and was empowered to be expended by theState Government virtually on any object which the StateGovernment considered to be the development of rural areas,that levy could not be treated as a fee because it was morein the nature of a tax primarily in view of the fact thatthe collection so made was being utilised not for fulfillingthe objects of the Act under which the collection wasauthorised but for the general requirement of the Statesfunctions.
Based on these judgments, the petitioners contend thatthe Board after collecting huge sums of money by way ofimpugned fee, was not rendering them services co-relatableto the levy but was utilising the same for the benefit ofthe persons who were not contributories to the levy and thelevy in question being a compulsory exaction having penalconsequences, the same is not a fee but a tax in the garb offee.
A lot of ice has melted in the Himalayas afterrendering the judgments in the above-cited cases so alsothere has been see changes in the judicial thinking as tothe difference between a tax and a fee since then.
This Court in the case of Sreenivasa General Traders &Ors. v. State of Andhra Pradesh & Ors. (1983 (4) SCC 353)has taken the view that the distinction between a tax and afee lies primarily in the fact that a tax is levied as partof a common burden, while a fee is for payment of a specificbenefit or privilege although the special advantage issecondary to the primary motive of regulation in publicinterest. This Court said that in determining whether alevy is a fee or not emphasis must be on whether its primaryand essential purpose is to render specific services to aspecified area or class. In that process if it is foundthat the State ultimately stood to benefit indirectly fromsuch levy, the same is of no consequence. It also held thatthere is no generic difference between a tax and a fee andboth are compulsory exactions of money by publicauthorities. This was on the basis of the fact that thecompulsion lies in the fact that the payment is enforceableby law against a person in spite of his unwillingness orwant of consent. It also held that a levy does not cease tobe a fee merely because there is an element of compulsion orcoerciveness present in it nor is it a postulate of a feethat it must have direct relation to the actual servicerendered by the authority to each individual who obtains thebenefit of the service. It also held that the element ofquid pro quo in the strict sense is not always a sine quanon for a fee, and all that is necessary is that thereshould be a reasonable relationship between the levy of feeand the services rendered. That judgment also held that theearlier judgment of this Court in Kewal Krishan Puri & Anr.v. State of Punjab & Ors. (1979 (3) SCR 1217) is only anobiter.
In the case of City Corporation of Calicut v.Thachambalath Sadasivan & Ors. (1985 (2) SCC 112), thisCourt reflected the change that is taking place in thejudicial thinking as to the difference between a tax and afee. It held that the traditional concept of quid pro quoin a fee is undergoing transformation, though the fee musthave relation to the services rendered, or the advantagesconferred, it is not necessary to establish that those whopay the fee must receive direct or special benefit oradvantage of the services rendered for which the fee isbeing paid. It held that if one who is liable to payreceives general benefit from the authority levying the feethe element of service required for collecting fee issatisfied.
In the case of The Sirsilk Ltd. & Ors. v. TheTextiles Committee & Ors. (AIR 1989 SC 317), this Courtheld that when the entire proceeds of the fee are utilisedin financing the various projects undertaken by the TextilesCommittee, it cannot be said that there is no reasonable andsufficient correlation between the levy of fee and theservices rendered by the Textiles Committee. It furtherheld that when the levy of the fee is for the benefit of theentire textile industry, there is sufficient quid pro quobetween the levy recovered and the services rendered to theindustry as a whole.
In a more recent case of Commissioner & Secretary toGovt., Commercial Taxes & Religious Endowments Department &Ors. v. Sree Murugan Financing Corporation Coimbatore &Ors. (1992 (3) SCC 488), this Court after taking intoconsideration the financial involvement of general public inthe chit funds, observed that the object of the Actobviously was to protect the interest of the subscribers andmore the number of subscribers meant more the burden on theauthorities under the Act and as a consequence more fee isrequired to meet the expenditure. Taking note of the humanexpectation of winning a draw or a bid at the auction andbecoming rich overnight mostly by the lower-middle class andthe poor who invest their hard-earned money in such chitfunds, this Court held that a situation like that makes thelevy a regulatory measure since the collection of such fundsfrom such category of people will have to be monitoredstrictly, and it also held that the Act and the Rules whichoperate with such objectives, if charge enhanced fee, suchenhancement is justified in law as amounting to sufficientquid pro quo.
In Krishi Upaj Mandi Samiti & Ors. v. Orient Paper &Industries Ltd. (1995 (1) SCC 655), rejecting thecontention of the respondent therein, this Court held thatthe machinery created under the said Act is meant tofacilitate and benefit all the buyers and sellers of all theagricultural produce within the market area and it cannot besaid that the respondent-Mills is neither directly norindirectly a beneficiary of the said machinery. In the caseof Secretary to Government of Madras & Anr. v. P.R.Sriramulu & Anr. (1996 (1) SCC 345) testing the validity ofthe Court Fee Act involved therein, this Court negatived thecontention that the expenses incurred by the administrationof justice in criminal courts should not be treated assufficient quid pro quo for the levy of court fee in civilcases. It held that such levy should not be examined sominutely or be weighed in golden scale to discern anydifference between the two. It also held that there couldnot be any scientific method by which levy of fee may bemade exactly corresponding to the expenditure in aparticular year relating to the administration of civiljustice. It held that it is not the requirement of law thatthe collection raised by the levy should exactly tally orcorrespond to the expenditure in the administration of civiljustice. It further held that the test of correlation ofthe collection with the services rendered is to be reckonedat the aggregate level and not at the individual level.
In Vam Organic Chemicals Ltd. & Anr. v. State ofU.P. & Ors. (1997 (2) SCC 715), this Court held that thereis a distinction between a fee charged for licence, that isregulatory fees and fees for services rendered ascompensatory fees. In the case of regulatory fees, theCourt held that like the licence fees, existence of quid proquo is not necessary although the fee imposed must not be,in the circumstances of the case, excessive, keeping in viewthe quantum and nature of the work involved in the requiredsupervision.
In Secunderabad Hyderabad Hotel Owners Association &Ors. v. Hyderabad Municipal Corporation, Hyderabad & Anr.(1999 (2) SCC 274), this Court after considering the earlierjudgments, to some of which we have already made reference,held that a licence fee may be either regulatory orcompensatory. When a fee is charged for rendering specificservices, a certain element of quid pro quo must be therebetween the service rendered and the fee charged so that thelicence fee is commensurate with the cost of rendering theservice although the exact arithmetical equivalence is notexpected. It held, however, that is not the only kind offee which can be charged. Licence fees can also beregulatory when the activities for which a licence is givenrequire to be regulated or controlled. The fee which ischarged for regulation of such activity would be validlyclassifiable as a fee and not a tax although no service isrendered. An element of quid pro quo for levy of such feeis not required although such fees cannot be excessive.
As noticed in the City Corporation of Calicut (supra),the traditional concept of quid pro quo in a fee hasundergone considerable transformation. From a conspectus ofthe ratio of the above judgments, we find that so far as theregulatory fee is concerned, the service to be rendered isnot a condition precedent and the same does not lose thecharacter of fee provided the fee so charged is notexcessive. It is also not necessary that the services to berendered by the collecting authority should be confined tothe contributories alone. As held in Sirsilk Ltd. (supra),if the levy is for the benefit of the entire industry, thereis sufficient quid pro quo between the levy recovered andservices rendered to the industry as a whole. If we applythe test as laid down by this Court in the abovesaidjudgments to the facts of the case in hand, it can be seenthat the Statute under Section 11 of the Act requires theBoard to undertake various activities to regulate thebusiness of the securities market which requires constantand continuing supervision including investigation andinstituting legal proceedings against the offending traders,wherever necessary. Such activities are clearly regulatoryactivities and the Board is empowered under Section 11(2)(k)to charge the required fee for the said purpose, and once itis held that the fee levied is also regulatory in naturethen the requirement of quid pro quo recedes to thebackground and the same need not be confined to thecontributories alone.
Alternatively, the petitioners have contended thatassuming that the fee levied does not require the equivalentquid pro quo even then the amount collected by way of thislevy amounts to hundreds of crores of rupees which is notreasonably required by the Board for the purpose ofimplementing the objectives of the Act. They contend thatthe amount to be collected by the Board as per the presentlevy in the first five years will be in the region of over400 crores and by no stretch of imagination it could be saidthat such a large amount of levy is required for the purposeof maintaining the regulatory measures under the Act.According to the petitioners, even as per the Boards ownassessment, the requirement of the Board over a period of 5years since its inception will not exceed more than Rs.65crores. Therefore, the collection of Rs.400 crores by wayof this levy is unjustified and unreasonable. The Board,however, contends that even though at a point of time theBoard had estimated its immediate requirement for the firstyear of the inception of the Board in the range of Rs.65crores. Subsequently, on an analysis of its expenditure itwas found that its requirement was far more than what wasoriginally projected. It further contends that, as a matterof fact, the entire amount collected by the Board isrequired only for the purpose of fulfilling its statutoryobligations. According to the Board, as per the levypermissible under Schedule III of the Regulations, the Boardis likely to collect from the brokers of all Stock Exchangesincluding that of National Stock Exchange for the periodbetween 1992-93 to 1999-2000 a total sum of Rs.418.57 croresand from intermediaries other than brokers for the saidperiod a sum of Rs.126.96 crores; and from 2001 onwards itsincome by way of fee from approximately 9000 brokers wouldbe of the order of approx. Rs.90 lakhs per annum, and fromthe intermediaries it would be to the tune of Rs.25-30crores per annum, and in regard to its expenditure, theBoard has given the following particulars :
EXPENDITURE S.No. Particulars Amount in crores
1. AMOUNT ALREADY SPENT DURING 1991-92 TO 1999-2000(REVENUE & CAPITAL) 193.00
3. BUDGET ESTIMATES FOR 2000-2001
(i) Office Premises Rs.99.20 Crores (ii) ResidentialPremises Rs.90.00 Crores (iii) Office Equipments Rs.20.00Crores Rs.209.20 Crores 209.20
4. FURTHER REQUIREMENT OF FUNDS
(i) Corpus creation Rs.150.00 Crores (ii) Refund ofGovt. Loans Rs.105.00 Crores Rs.255.00 Crores 255.00
5. FUTURE PROJECTIONS ON REQUIREMENT OF FUNDS(Planned expenditure subject to availability of Funds)
a. Computerisation Rs. 60.00 Crores b. Offices inother cities Rs.120.00 Crores c. Increase in staff Rs.
15.00 Crores d. EDGAR Project * Rs. 75.00 Crores e.Setting up Institute for Capital market and InvestorEducation Campaign Rs. 50.00 Crores
Rs.320.00 Crores 320.00
------------------------------------------------------------------------------------------ TOTAL 977.20
* EDGAR = Electronic Data gathering, Analysis and Retrieval Systems. The project envisages automated collections, validation of vital information by/from listed companies.
Therefore, it contends that it will be erroneous on the part of the petitioners to contend that the Board is levying any amount in excess of its requirement. While examining the reasonableness of the quantum of levy, the same will not be done with a view to find out whether there is a co-relatable quid pro quo to the quantum of levy, because as noticed hereinabove, the quid pro quo is not a condition precedent for the levy of a regulatory fee. Such examination will have to be made in the context of the levy being either excessive or unreasonable for the requirement of the authority for fulfilling its statutory obligations. With this principle in mind, we have noticed earlier that apart from the requirement of registration of brokers and other intermediaries, the Statute also mandates that the Board should regulate the business of stock exchanges and other securities market. It also mandates that the Board shall promote and regulate self-regulatory organisations prohibiting fraudulent trade practices and insider trading, promote investors education and training of intermediaries, regulate the acquisition of shares and take-over of companies, undertake inspection, inquiries and audits of the stock exchanges, mutual funds and other persons associated with the securities market, conduct research in furtherance of the obligations cast on the Board and over and above all, it has the obligation to perform such functions as are delegated to it by the Central Government under the SCR Act, 1956. It is seen that in furtherance of these requirements of the Statute, the Board requires substantial sums of money towards capital expenditure in the form of acquiring office premises, residential premises, office equipments and to provide the necessary facilities for inducting the information technology in its day-to-day functions. It is to be noticed that the Board has to control and regulate 23 stock exchanges all over India which have more than 10,000 listed companies, 9500 brokers, 5500 sub-brokers, 250 merchant brokers with similar number of Registrars to the Issue, share transfer agents, more than 300 depository participants and other categories of intermediaries. From the material supplied by the Board, it is to be noticed that the total market capitalisation is over 800,000 crores. Apart from this, it is the case of the Board that it has to regulate 39 mutual funds involving 300 schemes with a Net Asset Value (NAV) of Rs.1 lakh crores. The Board has also to deal with the entities which raise money through collective investment schemes at present involving 642 companies which have raised Rs.2,680 crores from the public. From the pleadings of the Board, it is to be seen that a large number of cases to the tune of nearly 800 are pending in various courts in India which in due course are likely to increase, thereby burdening the Board with heavy expenditure. That apart, it has the responsibility of protecting the interests of investors as well as undertake investors education among other duties specified in Section 11 of the Act. The Board has placed material before us to show that the Government of India has already delegated to the Board the functions under the SCR Act, the Depositories Act as also some of the functions under the Companies Act. To discharge all these duties, the Board has contended before us, which cannot be controverted, that it requires substantial staff members and it has to induct professional persons at various levels apart from modernising the working with the induction of latest modern technology. The Board has also contended that it has to invest huge sums of money in providing proper and necessary office space as also adequate housing facilities to the staff without which it would be extremely difficult for the Board to employ and retain its technically trained staff in its employment. To meet all these expenses, according to the Board, it has no other source of income apart from the levy contemplated under Sections 11(2)(k) and 12 of the Act, except certain sum loaned by the Government of India which is repayable, hence, the Board certainly requires substantial sums of money. What the petitioners contend in this regard is that most of these expenses are in the nature of capital expenditure for which provisions ought to be made by the Government and they cannot be saddled with the burden of providing these infrastructures of the Board. This argument of course is based on the ground that the capital expenditure cannot be met out of the fee to be levied on them and also on the ground that a substantial amount of levy is being utilised not for their benefit but for the benefit of other persons involved in the stock market. Once we come to the conclusion that the fee in question is primarily a regulatory fee then the argument that the service rendered by the Board should be confined to the contributories alone, cannot be accepted. What the Court has to investigate while examining a challenge of this nature is to see what is the primary object of the Regulations for which the fee is being collected and find out whether the Regulation in question is in public interest or not. Once the levy is in public interest and connected with the larger trade in which the contributories are involved then confining the services only to the contributories does not arise. As has been held by this Court in City Corporation of Calicut (supra). Applying the said principle, we are of the opinion that since the amount collected under the impugned levy is being spent by the Board on various activities of the stock and securities market with which the petitioners are directly connected, the fact that the entire benefit of the levy does not accrue to contributories i.e. the petitioners would not make the levy invalid.
The next contention of the petitioners that the Board cannot be permitted to levy the fee for its capital expenditure should also meet with the same fate. This Court in Salvation Armys case (supra) has specifically held The expenditure in constructing buildings for locating the head office and regional offices and the increase in the allowances or other amenities to the staff have also to be included in the costs of the services. That being the position in law, this argument should also fail. Even the 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 investing 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 Traders (supra) has rejected a similar contention.
It is contended on behalf of the petitioners that the brokers have been subjected to a hostile discrimination vis-à-vis other intermediaries in the stock market inasmuch as they as a class alone are made to pay the fee on the basis of the annual turnover while others have to pay only on a flat rate. Thus, they have been compelled to bear the maximum burden of the levy while the other intermediaries are liable to pay only a nominal part of the levy. This argument, in our opinion, proceeds on the footing that the law requires every contributory 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 enure to the benefit of the non-contributories so 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 classifying 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 be achieved.
Another major issue in controversy in this case pertains to the imposition of impugned fee on the basis of the annual turnover of the brokers. The petitioners contend that assuming that the respondents had the authority in law to levy the fee under challenge, the same could not have been levied on the basis of the annual turnover of the brokers because such levy would amount to a tax on turnover. They also contend that the definition of annual turnover found in Explanation III of the Regulations is vague, imprecise, irrelevant and is over- inclusive. They contend that by virtue of such definition, every transaction of the brokers; be it a carry forward or a badla transaction will be subjected to the levy of fee in question. They also contend that this definition could multiply a single transaction into multiple transactions, for example, in the case of squaring up of transactions during the same settlement cycle, the turnover will get multiplied four times as per the said definition due to which there is a likelihood of balooning of value of transaction ultimately leading to confiscation of the gross income earned by the broker because in reality, he earns only one brokerage in all the above transactions while for the purpose of payment of registration fee, the turnover would get multiplied anywhere between 4 to 14 times in the annual turnover. In support of their contention, the petitioners have strongly relied upon the report submitted by the Bhatt Committee appointed by the SEBI itself as also Justice Mody Committee appointed by the High Court of Bombay. In reply, it is contended on behalf of the Board that the annual turnover of a broker reflects the number of transactions entered into by the broker which all form the subject-matter of scrutiny by the Board. However, when the Board received a letter from the petitioners opposing the levy based on annual turnover, the Board constituted an Expert Committee comprising of the persons actively associated with the functioning of the Stock Exchange and the Securities Market. It also included the Chairman of the Unit Trust of India (UTI), Joint Managing Director of the Industrial Credit & Investment Corporation of India Ltd. (ICICI) a leading merchant banker in India so also the Executive Director and a member of the governing body of the Bombay Stock Exchange. This Committee, according to the respondents, had taken into consideration the views expressed by various members of the Stock Exchange and thereafter it submitted a report which was made public through a Press Release by the SEBI. This report, according to the respondents, upheld the decision of the Board to levy fee on the basis of the turnover of the brokers and has also concluded that the levy in question was a reasonable levy. It was pointed out that the said Expert Committee had made certain recommendations which have been accepted by the Government of India and the Board is in the process of implementing those recommendations. De hors the report, the Board contends that the levy of fee based on annual turnover of a stock broker is not a new phenomenon and the same is prevalent even in countries like United States of America, Hong Kong etc. They refuted the allegation that the definition of annual turnover as found in Schedule III to the Regulations is vague, imprecise, irrelevant or over-inclusive. It cannot be disputed that the annual turnover of a broker is not the subject matter of the levy but is only a measure of the levy. In other words, the fee is not being levied on the turnover as such but the fee is being levied on the brokers making their annual turnover as a measure of the levy which is a fee for regulating the activities of the securities market and for registration of the brokers and other intermediaries in the said market. Therefore, it is futile to contend that such levy would be either a tax or a fee on turnover. It is 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 or income-tax, the impugned levy ipso facto by adoption of such measure, would not become either an income-tax or a turnover tax or even a fee on income or a fee on turnover. This Court in the case of Goodricke Group Ltd. & Ors. v. State of West Bengal & Ors. (1995 Supp (1) SCC 707) while upholding a cess on tea estate which is a tax on land by the measure of yield by quantum of tea leaves produced in the tea estate held :
A tax imposed on land measured with reference to or on the basis of its yield, is certainly a tax directly on the land. Apart from income, yield or produce, there can perhaps be no other basis for levy. A tax on land is assessed on the actual or potential productivity of the land sought to be taxed. Merely because 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 land/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 buildings indeed 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 adopted hitherto. The legislature is free to adopt such method of levy as it chooses and so long as the character of levy remains the same, i.e., within the four corners of the particular entry, no objection can be taken to the method adopted.
Similar is the view taken by this Court in the case of The Tyford Tea Co. Ltd. & Anr. v. The State of Kerala & Anr. (1970 (1) SCC 189).
Therefore,it would be futile to contend that the impugned fee merely because it is levied on the basis of the turnover of the brokers would either amount to a turnover tax or a tax on income. While we accept the levy based on annual turnover of the brokers as valid, we have to notice that the Expert Committee appointed by the Board has in its report held that there should be certain changes brought about in the definition of annual turnover as also in the quantum of the levy pertaining to certain specific transactions which are treated as part of the turnover. It has recommended that for jobbing transactions the scale of fees may be reduced to One Two hundredth of 1 per cent, and in regard to carry forward, renewal or badla transactions, the off-setting entries made by the Exchange, may not be counted as part of the turnover, and further on Government securities, PSU Bonds and Units, the turnover will have to be calculated separately and a fee of one thousandth of one per cent may be charged on such turnover than the present scale of one hundredth of one per cent. It has also recommended that the activities such as underwriting and collection of deposits should not be taken into account for the purpose of calculating the turnover of the brokers. These recommendations of the Committee were, as a matter of fact, accepted by the Government of India also but as on date, the necessary changes have not been brought about by the Board in its Regulations. Consequently, to the extent of the recommendations made by the Expert Committee, we are of the opinion that the Board is bound to bring about 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 be rejected.
At this stage, in 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 said report to support their case while they have their reservations as to the Bhatt Committee report. We are aware that the superior courts have often appointed Committees and 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 recommendations 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.
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 the 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 be 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 considered 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.
For the reasons stated above and subject to the directions issued by us in regard to the implementation of the Bhatt Committee Report, T.C. © No.20/2000 fails and the same is hereby dismissed.
In view of the order passed in T.C. © No.20/2000 hereinabove, this petition is also dismissed.
