Gpsk Capital Pvt. Ltd. vs Securities & Exchange Bd.Of India

CIVIL APPEAL NO(S). 2402 OF 2008

GPSK CAPITAL PRIVATE LIMITED ….APPELLANT(S) (FORMERLY KNOWN AS MANTRI FINANCE LIMITED)

VERSUS

THE SECURITIES AND EXCHANGE BOARD OF INDIA ….RESPONDENT(S)

WITH

CIVIL APPEAL NO(S). 5636 OF 2007

JUDGMENT

Rastogi, J.

Civil Appeal No(s). 2402 of 2008 Signature Not Verified Digitally signed by Ashwani Kumar Date: 2023.03.20

1. 16:00:02 IST Reason: The instant appeal has been filed under Section 15(Z) of the

Securities and Exchange Board of India Act, 1992(hereinafter being 1 referred to as the “Act 1992”) assailing the judgment and order

dated 9th August, 2007 passed by the Securities Appellate

Tribunal(hereinafter being referred to as the “Tribunal”) affirming

the order of the Securities and Exchange Board of India,

Mumbai(hereinafter being referred to as the “Board”) dated 7 th May,

2007 holding that the appellant did not satisfy the conditions of

clause (4) of Schedule III of the Securities and Exchange Board of

India(Stock Brokers and Sub­Brokers) Regulations,

1992(hereinafter being referred to as the “Regulations”) hence the

exemption from payment of fees for the period for which the

erstwhile individual Srikant Mantri has paid to the Board cannot be

converted to the corporate entity MFL.

2. The brief facts of the case culled out are that one Srikant

Mantri became a member of the Calcutta Stock

Exchange(hereinafter being referred to as the “CSE”) and was

granted registration as a stock broker on 30 th November, 1992.

Sometime in the year 1997, he decided to transfer his membership

card of CSE in favour of Mantri Finance Ltd.­the appellant

herein(hereinafter being referred to as the “Company”). It is not in

2 dispute that the company was registered with the Registrar of

Companies, Calcutta on 27th December, 1998 under the name and

style of Ushagram Properties and Finance Ltd. Later, it changed its

name to Mantri Finance Ltd. on 13th November, 1992. The

Company had started the business of stock broking in 1995 and

became a member of NSE and thereafter sought registration with

the Board as a stock broker and obtained membership of NSE as a

stock broker on 17th October, 1995. Thereafter, when the

membership card of Srikant Mantri was transferred in the name of

the Company, the latter became a member of CSE and was

registered as a stock broker of CSE on 1 st April, 1998.

3. After obtaining the membership of CSE on transfer of the card

from Srikant Mantri, the appellant Company claimed that it should

be exempted from payment of registration fee for the period for

which Srikant Mantri had already paid the fees. In other words, it

claimed the benefit of exemption of the fee already paid by Srikant

Mantri. At the same time, also claimed that all the conditions

prescribed under para 4 of Schedule III to the Regulations were

satisfied and, therefore, it was entitled to claim exemption.

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4. The claim of the Company was rejected by the Board by its

Order dated 7th May, 2007 holding that Srikant Mantri was only a

Director in the Company during the three years period after the

transfer of his membership and since he was not the whole time

Director, the conditions prescribed under para 4 of Schedule III are

not satisfied and accordingly, was not entitled to claim exemption

as prayed for by the appellant.

5. The appellant Company filed appeal against order of the Board

dated 7th May, 2007 before the Tribunal on following two issues:­

(i) Whether the stock broker requires multiple registrations to operate on more than one stock exchange(s) or a single registration will suffice for all the stock exchanges.

(ii)Whether the appellant Company is entitled to fee continuity benefits provided under para 4 of Schedule III.

6. In regard to issue no. (i), the learned Tribunal held that the

single registration with the Board is sufficient even if the stock

broker has multiple memberships and functions from several stock

exchanges and therefore, will have to pay the fee for initial

registration with the Board and set aside the impugned order and

4 remitted the matter to the Board for a fresh computation of the

registration fee payable by the Company on the basis of its

registration with effect from 17th October, 1995.

7. So far as issue no. (ii) is concerned, learned Tribunal held that

the appellant Company has failed to satisfy the conditions of clause

(4) of Schedule III to the Regulations and was not eligible to claim

exemption from payment of fee over the period for which the

erstwhile individual Srikant Mantri has paid the fees.

8. Hence, appeals have been preferred by the appellant Company

as well as by the Board against the self­same impugned judgment of

the Tribunal dated 9th August, 2007.

9. The main thrust of submissions advanced by learned counsel

for the appellant is that Srikant Mantri, in the first instance, was

the sole proprietor of the firm M/s. Govind Prasad Shrikant & Co.

which was registered with the Board since 30 th January, 1992.

Under Para 4 to Schedule III, it applies for conversion of

membership to a corporate entity and membership of the old entity,

i.e., M/s. Govind Prasad Shrikant & Co. (SEBI Registration No.

INB030054715) was converted into a corporate entity w.e.f. 1 st 5 April, 1998. Accordingly, the appellant fulfils the pre­conditions as

indicated in para 4 of Schedule III annexed to the Regulations and

this is the apparent error which has been committed by the Board

in the first instance and the factual matrix has not been

appreciated by the Tribunal as well.

10. Learned counsel further submits that para 4 was added to

Schedule III pursuant to Board’s policy to corporatize individual

stock brokers, and to institutionalize the stock broking activity and

further submits that the interpretation ought to be in consonance

with the intent and purport of the policy to which para 4 was added

to Schedule III.

11. Learned counsel further submits that in the case of

conversion, the individual registration has been converted into a

corporate registration and, therefore, the exemption for the payment

of fees is available and further submits that para 4 to Schedule III

does not contemplate two registrations. The Explanation to para 4,

by a deeming fiction, mandates a continuity from the erstwhile

membership to the converted membership qua the payment of fees

and further submits that the law, therefore, mandates that in a

6 case of conversion, no fresh fee will be collected from the converted

corporate entity. In the facts and circumstances, the finding

returned by the Tribunal needs to be interfered with by this Court.

12. Per contra, learned counsel for the respondent, while

supporting the finding returned by the Board and affirmed by the

Tribunal submits that the material which has come on record has

been appreciated at two stages by the Board as well as by the

Tribunal. It remains uncontroverted that Srikant Mantri

transferred his membership card of CSE to the appellant Company

and he was not a whole time Director therein but only a Director

and the corporate entity is entitled to claim exemption from the

payment of registration fee only if the individual or partnership

membership had been converted into a corporate entity. However,

in the instant case, Srikant Mantri did not convert himself into a

corporate entity, instead transferred his membership card of CSE to

an existing company and became a Director therein.

13. Accordingly, it has rightly been held by the Board and

confirmed by the Tribunal in the order impugned holding that the

appellant was not entitled to claim exemption invoking Para 4 of

7 Schedule III to the Regulations and no evidence has been placed by

the appellant on record even in rebuttal before this Court. In the

given circumstances, there appears no reason or justification to

disturb the concurrent finding of fact in the appeal filed at the

instance of the appellant Company.

14. We have heard learned counsel for the parties and with their

assistance perused the material available on record.

15. So far as issue no. (i) in reference to stock broker which

requires multiple registrations to operate on more than one stock

exchange(s) or a single registration will suffice for all the stock

exchanges is concerned, it has been decided by this Court in

Securities and Exchange Board of India Vs. National Stock

Exchange Members Association and Another1 and remains no

more res integra in view of the judgment of this Court wherein it

has been held as under:­

“47. Thus, in our considered view, the conjoint reading of the expression “a certificate” as referred to in Section 12(1) of the Act read with the scheme of Rules, 1992 and Regulations 1992, leads to an inevitable conclusion that the stock broker not only has to obtain a certificate of registration from SEBI for each of the stock exchange where he operates, at the same time, has to pay ad 1 2022 SCCOnline SC 1392

8 valorem fee prescribed in terms of Part III annexed to Regulation 10 of the Regulations, 1992 in reference to each certificate of registration from SEBI in terms of the computation prescribed under Circular dated 28th March, 2002 and fee is to be paid as a guiding principle by the stock broker which is in conformity with the scheme of Regulations 1992.”

16. The issue involved in the instant appeal confines as to whether

the appellant Company is entitled to fee continuity benefits under

Para 4 of Schedule III of the Regulations 1992.

17. To examine the said issue no. (ii), it will be apposite to first

take note of para 4 of Schedule III of Regulations, 1992 which is as

follows:­

“Where a corporate entity has been formed by converting such individual or partnership membership card of the exchange, such corporate entity shall be exempted from payment of fee for the period for which the erstwhile individual or partnership member, as the case may be, has already paid the fees subject to the condition that the erstwhile individual or partner shall be the whole time director of the corporate member so converted and such director will continue to hold minimum 40 per cent shares of the paid up equity capital of the corporate entity for a person of at least three years from the date of such conversion. Explanation­ It is clarified that the conversion of individual or partnership membership card of the exchange into corporate entity shall be deemed to be in continuation of the old entity and no fee shall be collected again from the converted entity for the period for which the erstwhile entity has paid the fee as per the regulations.”

18. The Board, in the first instance, after appraisal of the evidence

placed on record under its Order dated 7 th May, 2007, and taking 9 into consideration para 4 of Schedule III of the Regulations, 1992

returned its finding as follows:­

“3.11 Exemption from payment of fees confers a benefit to the corporate entity. For granting such benefit, the conditions subject to which such benefit is available need to be established beyond doubt. From the true copy of Annual Returns for the relevant period provided by MFL, it appears that Shri Shrikant Mantri was a director, but, not a whole time director during the relevant period. This fact has also been established from the copy retrieved from ROC’s office in respect of AGM dates April 28, 1997 and May 19, 1999. MFL was granted registration after the issue of notification dated January 21, 1998 i.e. after the conditions subject to which exemption can be granted to a converted corporate entity were in place. It is clear from the above that MFL did not satisfy at least one of the conditions of clause I (4) of Schedule III of the Regulations. Hence, MFL cannot become eligible for exemption from payment of fees for the period for which the erstwhile individual Shri Shrikant Mantri has already paid the fees.”

19. On appeal being preferred by the appellant Company, the

Board, on reappreciating the evidence on record confirmed the

finding under its Order impugned dated 9 th August, 2007 as

follows:­

“…. The Board adopted a policy to encourage the brokers to corporatize themselves so that their working becomes more transparent as corporate entities have more and better regulatory controls as compared to individuals and partnerships. With this object in view, the Board introduced paragraph 4 in Schedule III to the Regulations with effect from 21.1.1998 and it decided to give the benefit of the fee already paid by the individual or partnership prior to its becoming a corporate entity. In the case before us the Board has found that when Srikant Mantri transferred his membership card of CSE to the company, he was not a whole time

10 director therein but was only a director. This fact is being disputed by the appellant before us. It is not necessary for us to record a finding in this regard because we are of the view that the company is not entitled to the benefit under paragraph 4 of the Schedule because there is no continuity. As already noticed, the corporate entity is not entitled to claim exemption from the payment of registration fee only if the individual or partnership had been converted into a corporate entity. In the instant case, Srikant Mantri did not convert himself into a corporate entity but instead, transferred his membership card of CSE to an existing company and became a director therein. The Regulations do not provide for exemption in such cases. The company before us was an existing company and therefore, when it became a member of CSE on the transfer to membership card from Srikant Mantri it could not claim the benefit under paragraph 4. It could claim such a benefit only if Srikant Mantri had formed himself into a company and continued his broking business. Since that was not the case, we are clearly of the view that the company could not claim the benefit of paragraph 4. In this view of the matter, we have no hesitation in upholding the order passed by the Board rejecting the claim of the appellant.”

20. It remains uncontroverted that when Srikant Mantri

transferred his membership card of CSE to the Company, he was

not a whole time Director but was only a Director. Neither CSE nor

its internal auditors, were clear of the exact date on which Srikant

Mantri had acquired 40% shareholding in the appellant Company.

At the same time, it was informed by the Board to the CSE vide

letter dated 18th March, 1998 that Srikant Mantri was holding less

than 40% of the paid­up capital of the corporate entity. It was also

recorded by the Tribunal that from the true copies of annual

11 returns provided by the appellant Company, it was revealed that the

details of the Directors provided by them nowhere indicate Srikant

Mantri as a whole time Director for any of the relevant years. The

designation of Srikant Mantri has been indicated as “Director” in all

the relevant years’ Annual Return. It was also established from the

copy retrieved from ROC’s office in respect of AGM dated 28 th April,

1997 and 19th May, 1999.

21. At the same time, appellant Company was granted registration

after para 4 was put in place by notification dated 21 st January,

1998 and the appellant Company failed to satisfy that it fulfilled the

conditions of para 4 to Schedule III pursuant to which the appellant

has claimed his entitlement of fee continuity benefits.

22. After going through the material on record, we are satisfied

that the appellant Company failed to fulfil the conditions as referred

to under Para 4 of Schedule III appended to the Regulations of

which a reference has been made.

23. Consequently, the appeal is without any substance and

accordingly dismissed. No costs.

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24. Pending application(s), if any, shall stand disposed of.

Civil Appeal No. 5636 of 2007

25. This appeal is preferred by the Board against the self­same

impugned judgment dated 9th August, 2007 as in Civil Appeal No.

2402 of 2008. Hence, the facts need not be reiterated for the

purpose of instant appeal.

26. The appeal filed by the Board deserves to succeed as the

question remains no more res integra in view of judgment of this

Court in Securities and Exchange Board of India Vs. National

Stock Exchange Members Association and Another (supra).

27. Consequently, the appeal succeeds and is allowed.

28. Pending application(s), if any, shall stand disposed of.

……………………………J. (AJAY RASTOGI)

…………………………….J. (BELA M. TRIVEDI) NEW DELHI;

MARCH 20, 2023

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