Order in respect of SLA Securities LtdSAT Appeal No.229/2017]

WTM/SR/MIRSD/04/01/2015 SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER Under Regulations 33A and 33B of the SEBI (Intermediaries) Regulations, 2008 in the matter of Summary Proceedings in respect of SLA Securities Limited (SEBI Registration No. INB030878837) in the matter of payment of registration fees. 1. SLA Securities Limited (hereinafter referred to as "Noticee") is a member of cash segment in Calcutta Stock Exchange ("CSE"). Its Directors are Shri Shanker Lal Agarwala (DIN: 00738450) and Ms. Rita Agarwal (DIN: 00738555). The initial registration was granted to its proprietor Shri Shanker Lal Agarwala (SEBI Registration No. INB030052511) with effect from November 30, 1992. The said registration was later converted to corporate registration (SEBI Registration No. INB030878837) with effect from February 06, 1996.

2. As per Regulation 10(1) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as "Brokers Regulations"), every stock broker is required to pay fees as specified in Schedule III. In accordance with the provisions of Schedule III to the Brokers Regulations, a stock broker is required to pay the fees on or before 1st October for the preceding financial year as prescribed.

3. It was observed that the Noticee had made an initial payment of `5,000/- on January 07, 1993 towards registration fees. Thereafter, no payments were received from the Noticee. Hence, it is alleged that the Noticee failed to pay the registration fees to SEBI as per the provisions of Brokers Regulations read with Rule 4 of the SEBI (Stock Brokers and Sub Brokers) Rules, 1992. In view of the same, SEBI initiated summary proceedings in the year 2005, in terms of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, in respect of the alleged failure to pay the registration fees by the Noticee. The fees liability as on date of initiation of summary proceedings was `3,06,390/-along with interest at the rate of 15% per annum.

4. Subsequently, the Enquiry Regulations were repealed and SEBI (Intermediaries) Regulations, 2008 (‘Intermediaries Regulations’) were notified. On completion of proceedings in terms of Regulation 27 of the Intermediaries Regulations, the Designated Authority vide report dated October 27, 2009 recommended that the certificate of registration of the Noticee be suspended for a period of 6 (six) months or till such time the Noticee clears fees liabilities with SEBI, whichever is later.

5. On consideration of the Report of the Designated Authority, the Designated Member of SEBI, vide Order No. WTM/MSS/MIRSD/29/2009 dated December 07, 2009 suspended the Certificate of Registration of the Noticee till the time outstanding registration fees was fully paid. The said order of suspension was passed in respect of 101 members of various stock exchanges including the Noticee and the same was effective after 21 days from the date of the order.

6. Pursuant to the aforesaid Order, the Noticee filed an appeal before the Hon'ble Securities and Appellate Tribunal ("SAT"). The Hon'ble SAT vide order dated March 31, 2010 set aside the aforesaid order and remanded the case to SEBI for initiating "fresh proceedings" in accordance with law and the CSE was directed to restore the certificate of registration of the Noticee.

7. Subsequently, SEBI vide letter dated April 07, 2010 granted an opportunity to the Noticee to submit written representations together with documents relied upon by it. A copy of the Enquiry Report was also enclosed with the said letter in compliance with the Order of Hon'ble SAT.

8. In response thereto, the Noticee vide letter dated May 04, 2010 contended that the issuance of the letter dated April 07, 2010 was premature and illegal. It was also contended by the Noticee that copies of annexures of the enquiry report were not provided thus no opportunity was granted to verify the facts and submit reply.

9. SEBI vide notice dated January 11, 2011 once again granted an opportunity to the Noticee to submit written representations together with documents relied upon by it. A copy of Annexure to the Enquiry Report and Fees liability statement as on January 2011 were also enclosed with the said notice. The Noticee replied to the said notice vide letter dated February 05, 2011 and merely reiterated its earlier contentions but did not submit any details or documents with regard to the payment of registration fees.

10. Thereafter in July 2013, CSE forwarded an application from the Noticee for surrender of certificate of registration and refund of security deposit lying with the Stock Exchange. In the said application dated June 08, 2013, the Noticee had mentioned that there was no fees liability in terms of the order dated March 31, 2010 passed by the Hon'ble SAT. SEBI vide e-mail dated July 17, 2013 informed CSE about the outstanding fees payable by the Noticee. In response to the same, CSE vide letter dated August 08, 2013 informed SEBI of the contentions of the Noticee that "there was no amount payable to SEBI on account of either Shanker Lal Agarwala or on account of the Noticee as per the aforesaid order of Hon'ble SAT". SEBI vide email dated October 01, 2013 once again advised the Noticee to pay the outstanding fees. The Noticee vide e-mail dated December 04, 2013 once again reiterated its earlier submissions. As the registration fees remained unpaid, SEBI did not process the Noticee's application for surrender of the certificate of registration.

11. In the interest of principles of natural justice, an opportunity of personal hearing was granted to the Noticee on September 04, 2014. During the personal hearing, the Noticee along with Mr. Dipankar Dhar, Advocate, appeared before me and submitted that the Whole Time Member of SEBI does not have jurisdiction to decide the case and further that as per the Order of Hon'ble SAT, "fresh proceeding" should be conducted by the duly constituted Board of SEBI. The Noticee was also advised to submit its reply along with the details of payment of registration fees.

12. The Noticee was granted additional time to submit written arguments till September 22, 2014. In this regard, the Noticee vide letter dated September 20, 2014 submitted as under:

i. "there is no scope to continue the same proceedings with the same enquiry report, which has been set aside by the Hon’ble SAT and while no fresh proceedings has been initiated by the Board of members of SEBI or by any of the member entrusted by the said Board of members; ii. Due to efflux of time the instant proceedings are illegal/bad in law and the proceedings should be dropped; iii. Only initiation of fresh proceedings was permitted by the Board of SEBI and not by any particular Whole Time Member; iv. As the Board of Members have not initiated any fresh proceedings and not even entrusted any WTM to conduct any proceeding in the instant case, the present Whole Time Member has no jurisdiction to take up the matter.”

13. I have carefully considered the Enquiry Report of the Designated Authority and other material available on record including the reply received from the Noticee and the submissions made before me during the personal hearing. As regards the issue of jurisdiction raised by the Noticee, it is observed that as per Section 19 of the SEBI Act, 1992, the powers and functions under the Act may be delegated by the Board to any member or officer of the Board as may be deemed fit. As per the extant work allocation, the instant matter is listed before me and hence, the present proceedings do not suffer from any lack of jurisdiction as contended by the Noticee. The issue that arises for consideration is whether the Noticee has failed to pay the registration fees to SEBI in terms of Regulation 10 read with Schedule III of the Stock Brokers and Sub-Brokers Regulations, 1992 ("Brokers Regulations").

14. The relevant provisions are reproduced hereunder for ready reference: Regulation 10 of Brokers Regulations Payment of fees and the consequences of failure to pay fees. (1) Every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III or Schedule IIIA, as the case may be.

Provided that the Board may on sufficient cause being shown permit the stock-broker to pay such fees at any time before the expiry of six months from the date for which such fees become due. (2) Where a stock-broker fails 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 a stock-broker." Schedule - III of Brokers Regulations "Every stock broker 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 the stock-broker exceeds rupees one crore during any financial year, a sum of rupees five thousand plus one hundredth of one percent of the turnover in excess of rupees one crore for each financial year"

15. The Hon’ble Supreme Court of India, vide Order dated February 01, 2001 in the matter of BSE Brokers Forum vs. SEBI ([2001] 30 SCL 31) upheld the authority of SEBI to levy registration fees from stock brokers. Subsequently, SEBI introduced the SEBI (Interest Liability Regularisation) Scheme, 2004 for regularization of defaults in payment of Registration fees by Stock Brokers. As per the scheme, "the Exchanges were advised to submit gross turnover data based on their own records; if the stock brokers do not submit turnover data, after giving sufficient notice and intiating the stock brokers concerned that they would not be eligible for concessional rates of fee and that fee at a flat rate of 0.01% would be levied on the gross turnover reported by the Exchanges to the Board. Therefore, those stock brokers, who did not report turnover with the break up to Exchanges and the Exchange submitted the turnover data based on its own records, will not be entitled to any concessional rates of fees. No further data revisions would, therefore, be permitted - even if a stock broker wishes to submit an auditor certificate at this late stage, or, if the Exchange desires to revise its own data. This measure is absolutely necessary to ensure that the process of data revision does not remain open ended forever. As sufficient advance notices and reminders have been sent to the Exchanges / stock brokers and the Board is taking on record the latest turnover data duly certified by the Exchange, no representations/complaints would be entertained by the Board".

After expiry of the scheme, “a broker having outstanding registration fee liabilities towards the Board shall be liable to pay entire outstanding amount, including interest, as per the Regulations and shall also be liable for appropriate enforcement action as permissible under the Act and the Regulations framed thereunder. It was further clarified that in terms of regulation 27 of the Regulations, a stock broker, who fails to pay fees as per schedule III of the Regulations, is liable for action as specified in the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, including the suspension or cancellation of certificate of registration. Besides, such persons may also be liable for prosecution under section 24 of the Act".

16. It is noted that an opportunity was given to the members of all the stock exchanges to submit turnover data through the stock exchanges concerned to SEBI latest by September 17, 2004 to avail the concessional rates of registration fees and also to get the benefit of waiver of 80% interest accrued as on March 31, 2004 as per the SEBI (Interest Liability Regularisation) Scheme.

17. The Noticee did not submit the turnover data in the prescribed format duly certified by the auditor and certified by the Exchange within the timeline as specified in SEBI (Interest Liability Regularization) Scheme. As the Noticee failed to avail the benefit of the scheme, waiver of interest as envisaged under the scheme cannot be accorded to the Notice at this juncture.

18. It is noted from a letter dated November 09, 2004 (i.e., during the scheme period) from the Noticee addressed to the CSE that the Noticee wanted the stock exchange to consider the turnover data submitted in 1998 pursuant to the notice for creation of Broker Database. As per the said document the Noticee had calculated the fee liability and paid an amount of `5000/-. Similarly, it is observed from the reply dated August 28, 2009 submitted by the Noticee to the Enquiry Officer that the Noticee wanted SEBI to consider the aforesaid turnover data submitted in 1998.

19. As the Noticee did not submit the turnover data during the scheme period as specified in SEBI (Interest Liability Regularisation) Scheme, the turnover furnished by the CSE was taken on record and fees liability of the Noticee was computed accordingly. It is noted that as per the Broker Regulations, the minimum fees for the first five years of registration for a stock broker is `5000/- per year without taking into account the turnover. Further, it is observed that the Noticee did have turnover for the first five years and accordingly he has to pay higher fees as per the fees statement. The turnover details of the Noticee are as under:

Turnover Details Total Turnover Turnover in Member Regn. No Year Fee Year Crores Shanker Lal Agarwala INB030052511 1991-92 1992-93 24.87 Shanker Lal Agarwala INB030052511 1992-93 1993-34 21.39 Shanker Lal Agarwala INB030052511 1993-94 1994-95 28.35 Shanker Lal Agarwala INB030052511 1994-95 1995-96 92.96 Shanker Lal Agarwala INB030052511 1995-96 1996-97 83.82 * No turnover for SLA Securities Ltd

20. It is noted from the fees liability statement in respect of the Noticee that as on January 2015, the registration fees due from the Noticee are as under: In (`)

Bal. Balance Total Sl. Fee Fee Fee Int. Int. Int. amount No. Name of the member Regn. No. payable paid payable payable Paid payable payable 1 Shanker Lal Agarwala INB030052511 2,71,390 5,000 2,66,390 6,44,810 0 6,44,810 9,11,200 2 SLA Securities Ltd. INB030878837 35,000 0 35,000 77,675 0 77,675 1,12,675 Total 3,06,390 5,000 3,01,390 7,22,485 0 7,22,485 10,23,875

21. It is noted that during the personal hearing also, the Noticee did not submit any details in respect of payment of fees as per the demand of SEBI. Further, the Noticee did not provide any details of calculation of `5,000/- as registration fees contended by it against SEBI's demand of `3,01,390/- towards the outstanding fees payable by the Noticee. Further, vide written arguments submitted on September 20, 2014, the Noticee repeated their contentions that the WTM had no jurisdiction to deal with the instant proceedings, etc.

22. I have also noted that the directions of the Hon’ble SAT dated March 31, 2010 were for remanding back the matter only for "fresh proceedings" and not for "fresh enquiry" relying on the judgment in the matter of Jagruti Securities Ltd (Appeal No. 239 of 2009). The Order of Hon’ble SAT in respect of the Noticee is reproduced for the purpose of ready reference: i. SLA Securities Limited Vs. Whole Time Member, SEBI and another (Appeal No. 23 of 2010) dated March 31,2010 “ Same Order as in Appeal No 43 of 2010 decided on March 31, 2010” ii. The order dated March 31, 2010 in Appeal No. 43 of 2010 in the matter of Shree Nath Kapoor vs. Whole Time Member, SEBI and Another is as under: " This order will dispose of two Appeals no. 23 and 43 of 2010 both of which are directed against the common order dated December 7, 2009 passed by the Whole Time Member of the Securities and Exchange Board of India suspending the certificates of registration of the appellants as stock brokers till such time the outstanding registration fee paid by them.

Counsel for the parties are agreed that the issues involved in these appeals are squarely covered by our order dated February 17, 2010 passed in Appeal no.239 of 2009 by which orders of identical nature were set aside and the cases were remanded to the respondent Board for initiating fresh proceedings in accordance with law. For the reasons stated in our order dated February 2010, we set aside the impugned order qua the appellants and remit the cases to the respondent Board for taking fresh proceedings in accordance with law. The Calcutta Stock Exchange Ltd. which is respondent no.2 is directed to restore the certificate of registration of the appellants forthwith. No costs." iii. As the aforesaid appeals were decided on the basis of reasons stated in the Order of Hon’ble SAT in the matter of Jagruti Securities Limited Vs. SEBI (appeal No 239 of 2009) dated February 17,2010, the said Order is also reproduced hereunder for ready reference: "This order will dispose of two appeals no. 239 and 241 of 2009 both of which are directed against the order dated October 29, 2009 passed by the Whole Time Member of the Securities and Exchange Board of India suspending the certificates of registration of the appellants as stock brokers for a period of six months or till such time the outstanding registration fee paid by them. Since the impugned order does not deal with the pleas raised by the appellants and only relies upon the enquiry report which was not supplied to them, we have no hesitation in setting aside that order qua the two appellants which we hereby do and remit the case to the Whole Time Member to pass a fresh order in accordance with law. What is contended by the learned senior counsel appearing for the respondent is that since the Whole Time Member agreed with the recommendations made by the enquiry officer, it was not necessary for him to record the reasons afresh and that he should be deemed to have adopted those given by the enquiry officer. Since we are remanding the case, we leave this issue open for the present. It goes without saying that the Whole Time Member before proceeding to pass a fresh order shall serve a copy of the enquiry report on the appellants and only after affording them an opportunity of making a written representation that report proceed to pass a fresh order. No costs."

23. In this regard, fresh notices dated April 7, 2010 and January 11, 2011 were given to the Noticee along with copies of the enquiry report and the requisite annexures thereto. Thereafter, a personal hearing was also granted on September 4, 2014 and an additional opportunity was also given to furnish written submissions till September 22, 2014. The Noticee availed all these opportunities, but apart from the preliminary contentions regarding jurisdiction, no contentions on merits to dispute the findings in the enquiry report was made by the Noticee. As already mentioned in para nos. 13 and 22, these contentions are not tenable as there is no ambiguity as to the delegation of power enshrined in Section 19 of SEBI Act. It is also pertinent to mention that the Noticee failed to furnish any documentary evidence to dispute the registration fees due to be paid by the Noticee as on date.

24. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the SEBI Act, 1992 read with Regulation 33B (5) and (6) of the SEBI (Intermediaries)

Regulations, 2008, hereby suspend the certificate of registration of M/s SLA Securities Ltd., (INB030878837) till the time the outstanding registration fees (as on the date of payment) are fully paid.

25. A copy of this Order shall be served on the Calcutta Stock Exchange where the Noticee is a member for necessary action.

26. This Order shall come into force on the expiry of 21 days from the date of this order.

Place: Mumbai S. RAMAN Date: January 07, 2015 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA