Shree Nath Kapoor vs Sebi

Order Reserved On: 24.04.2018 Date of Decision : 07.05.2018

Misc. Application No. 236 of 2017 And Appeal No. 229 of 2017

SLA Securities Limited 4-A Pollock Street, Kolkata- 700 001 ...Appellant

Versus

1.

Mr. S, Raman, Whole Time Member Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051

2. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051

3. The Secretary, The Calcutta Stock Exchange Limited (CSE Ltd.) 7, Lyons Range, Kolkata- 700 001 ...Respondents

WITH Misc. Application No. 237 of 2017 And Appeal No. 230 of 2017

Shree Nath Kapoor Room No. 6-A, 3rd Floor, 7, Lyons Range, Kolkata- 700 001 ...Appellant

Versus

1. Mr. S, Raman, Whole Time Member Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 2

2. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051

3. The Secretary, The Calcutta Stock Exchange Limited (CSE Ltd.) 7, Lyons Range, Kolkata- 700 001 ...Respondents

Mr. Shanker Lal Agarwala, Authorised Representative for Appellants in Appeal Nos. 229 & 230 of 2017.

Mr. Mustafa S. Doctor, Senior Advocate with Mr. Shantanu Mitra and Mr. Anubhav Ghosh, Advocates i/b Desai & Diwanji for Respondents in Appeal Nos. 229 & 230 of 2017.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar (Oral)

Misc. Application Nos. 236 & 237 of 2017

There is delay of 913 days in filing the respective appeals. By

these Miscellaneous Applications, applicants seek condonation of the

said delay. For the reasons stated in the respective applications, the delay

is condoned.

Miscellaneous Applications are disposed of accordingly.

Appeal Nos. 229 & 230 of 2017

1. These two appeals are filed to challenge two orders both dated

07.01.2015 passed by the Whole Time Member ("WTM" for short) of

Securities and Exchange Board of India ("SEBI" for short). By the said

orders Certificate of Registration (Stock Brokers Registration) granted to 3

the respective appellant were suspended till the time outstanding

registration fees payable to SEBI were fully paid.

2. It is not in dispute that in implementation of the impugned orders

SEBI attached the amounts lying with the Calcutta Stock Exchange

("CSE") and on receiving from CSE entire amount of registration fees

determined as payable in the impugned orders, the Recovery Officer of

SEBI has issued release of attachment orders on 28.07.2015 and

04.08.2015 respectively. Thus, both appeals have become infructuous.

3. However, appellants have contended that the impugned orders

passed by SEBI are contrary to law and therefore, in the peculiar facts of

present case, we have deemed it fit to dispose of these two appeals on

merits.

4. Facts in these two appeals being similar both these appeals are

heard together and disposed of by this common decision. By consent

Appeal No. 229 of 2017 is taken as a lead matter and both parties agree

that the decision in Appeal No. 229 of 2017 would equally be applicable

to Appeal No. 230 of 2017. Shri Shanker Lal Agarwala, Director of

Appellant in Appeal No. 230 of 2017 appearing on behalf of both

appellants submitted that both appeals be decided on the basis of the

written submissions tendered by him in both the appeals.

5. Facts relevant for Appeal No. 229 of 2017 are as follows:- 4

a) SLA Securities Limited ('Appellant') was a member

of the cash segment in CSE. Its Directors were

Shri Shanker Lal Agarwala and Ms. Rita Agarwala.

Initially registration was granted to its proprietor

Shri Shanker Lal Agarwala with effect from

November 30, 1992 and later on the said registration

was converted to corporate registration with effect

from 06.02.1996.

b) As per regulation 10(1) of the SEBI (Stock Brokers

and Sub-Brokers) Regulations, 1992 ("Brokers

Regulations") every stock broker is required to pay

registration fees to SEBI as specified in Schedule III

thereof on or before 1st October for the preceding

financial year.

c) It was observed by SEBI that the appellant had made

an initial payment of ` 5,000/- on 07.01.1993 towards

registration fees and thereafter no payments were

made by the appellant. Therefore, summary

proceedings were initiated and the designated member

of SEBI vide order dated 07.12.2009 suspended the

Certificate of Registration of the appellant till the time

outstanding registration fees were fully paid. The said

order of suspension was passed in respect of 101 5

members of various stock exchanges including the

appellant.

d) On the appellant filing an appeal, this Tribunal by an

order dated 31.03.2010 set aside the order dated

07.12.2009 and remanded the case to SEBI for fresh

decision.

e) Accordingly, by a letter dated 07.04.2010 SEBI called

upon the appellant to submit written submissions

together with the relevant documents. A copy of the

Enquiry Report was also annexed to the said letter. In

response, apart from contending that the notice dated

07.04.2010 was illegal, appellant submitted that

annexures to the Enquiry Report have not been

furnished. Thereupon, by a letter dated 11.01.2011

annexures to the Enquiry Report and fee liability

statement as on January 2011 was also furnished by

SEBI to the appellant.

f) By a letter dated 05.02.2011 appellant reiterated that

the proceedings initiated by SEBI against the

appellant are illegal.

g) By a notice dated 04.04.2013 CSE informed the

trading members of the Exchange that SEBI vide

letter dated 03.04.2013 has directed the Exchange not 6

to continue with the clearing and settlement activities

of trades executed on the C-Star trading system

through its clearing house beyond 05.04.2013 till CSE

establishes a clearing corporation in compliance with

the provisions of SECC Regulations, 2012.

Accordingly trading in C-Star of the Exchange was

suspended with immediate effect from 04.04.2013.

h) By an application dated 08.06.2013 appellant

surrendered the Certificate of Registration and

demanded refund of the security deposit lying with

CSE inter alia on ground that there was no fee liability

in terms of the order passed by this Tribunal on

31.03.2010.

i) By an E-mail dated 17.07.2013 SEBI informed CSE

about the outstanding fees payable by the appellant.

By a letter dated 08.08.2013 CSE informed SEBI that

according to the appellant no amount was payable to

SEBI. Once again by an E-mail dated 01.10.2013

SEBI advised the appellant to pay the outstanding

fees. As the registration fees remained unpaid, the

application of the appellant seeking to surrender the

certificate of registration was not considered.

j) Thereafter, several opportunities of hearing were

given to the appellant. However, at each hearing 7

appellant contended that the WTM has no jurisdiction

to decide the case because, as per the decision of this

Tribunal dated 31.03.2010, on remand fresh

proceedings could be initiated only by the duly

constituted board of SEBI and not by the WTM.

k) In these circumstances, as the appellant failed to point

out any error in the fee liability statement furnished to

him, the WTM of SEBI passed impugned order on

07.01.2015 thereby suspending the Certificate of

Registration of the appellant till the time the

outstanding registration fees are fully paid.

l) Thereafter, the Recovery Officer drew up the

Recovery Certificate on 02.06.2015 for recovery of

` 10,43,454 being the outstanding dues payable by the

appellant to SEBI as a member of CSE along with

interest, costs, charges and expenses.

m) As the appellant failed to pay the said amount even

after receipt of the Recovery Certificate, attachment

proceedings were initiated on 26.06.2015 by attaching

the money of the appellant held by CSE. Thereupon,

in July 2015 CSE remitted the amounts to SEBI.

Thus, on recovering entire dues payable by the

appellant under the impugned order, the Recovery 8

Certificate has been marked as satisfied by issuing a

release of attachment order on 28.07.2015.

n) Belatedly thereafter in the year 2017, appellant filed

an appeal to challenge the aforesaid decision of SEBI

in demanding and recovering the arrears of

registration fees. The said appeal was withdrawn with

liberty to file fresh appeal. Accordingly, present

appeal is filed to challenge the impugned order dated

07.01.2015.

o) Although the appeal suffers from gross delay, in the

peculiar facts of present case, we have condoned the

delay with a view to dispose of the appeal on merits.

6. Basic argument of the appellants is that as per the order of this

Tribunal dated 31.03.2010 fresh proceedings on remand could only be

initiated by the Board and not by the WTM of SEBI. There is no merit in

the above argument because, in exercise of powers conferred under

Section 19 of SEBI Act, a General Order has been issued by SEBI on

03.05.2010 whereby powers and functions under the SEBI Act, inter alia,

relating to passing an order for suspending or cancelling the registration

under Section 12(3) of SEBI Act and the regulations made thereunder

have been delegated to the WTM of SEBI. Therefore, in the facts of

present case, proceedings initiated by the WTM of SEBI for suspending

the Registration Certificate granted to the appellants cannot be said to be

without jurisdiction. Accordingly, argument of the appellants that the 9

WTM of SEBI had no jurisdiction to pass the impugned order cannot be

accepted.

7. Even on merits, argument of the appellants that the demand and

recovery of the registration fees is based on erroneous turnover data

furnished by CSE is without any merit because, neither before the WTM

nor before this Tribunal appellants could demonstrate as to how the

turnover data furnished by CSE to SEBI was erroneous.

8. In para 17 to 19 of the impugned order, the WTM has specifically

recorded that the appellants did not submit the turnover data in the

prescribed format duly certified by the auditor and certified by CSE

within the timeline as specified in SEBI (Interest Liability

Regularization) Scheme, 2004 ("2004 Scheme") and that the appellants

wanted CSE to consider the turnover data submitted in the year 1998

pursuant to the notice for creation of Broker Database. As per the 2004

Scheme, the fee liability had to be computed on the basis of the turnover

data furnished as per the format at Annexure 'C' of SEBI Circular dated

30.09.2002. As the appellants failed to submit turnover data in the

prescribed format during the period as specified in 2004 Scheme, the

turnover of the appellants furnished by CSE was taken on record and fee

liability of the appellants was computed and a copy of the fee liability

statement was furnished to the appellant. Having failed to bring on

record any material to show as to how the turnover data furnished by

CSE was erroneous, appellants are not justified in contending that the

turnover data furnished by CSE was erroneous. Consequently the fee 10

liability determined on the basis of the turnover data furnished by CSE

cannot be faulted.

9. Argument that the appellants had furnished the turnover data as per

SEBI Circular dated 16.02.1998 read with notice of CSE dated

24.02.1998 is without any merit. Admittedly, appellants have not paid

registration fees to SEBI after 1993. After the decision of the Apex

Court in case of BSE Brokers Forum v/s SEBI reported in (2001) 30 SCL

31 it was obligatory on part of the appellants to submit the turnover data

in terms of the 2004 Scheme, for the relevant period in the prescribed

format duly certified by an auditor and the CSE. Having failed to submit

turnover data in the prescribed format at any point of time, appellants are

not justified in contending that they had furnished requisite turnover data

to the CSE.

10. Fact that SEBI in the year 2009 had demanded registration fee of

` 83,764/- vide notice dated 31.07.2009 cannot be a ground to find fault

with the impugned order, because, the said demand was raised on the

basis of the summary proceedings initiated during the period when the

appeal filed before the Apex Court challenging the levy of registration

fees by SEBI was pending. After the Apex Court decision, in terms of

2004 Scheme appellants could claim waiver of interest payable on the

arrears of registration fees by furnishing turnover data for the relevant

period in the prescribed format duly certified by an auditor and the CSE.

As the appellants failed to furnish turnover data in the prescribed format

within the period specified in the 2004 scheme, appellants were not 11

entitled to waiver of interest. Therefore, the registration fees determined

by SEBI on the basis of turnover data furnished by CSE with interest

cannot be faulted.

11. Although appellants in their written submissions have quantified

their fee liability on the basis of the turnover set out therein, the said

quantification cannot be accepted, because, firstly, the turnover set out

therein is not supported by any documentary evidence and secondly, the

said turnover data is not in the prescribed format duly certified by an

auditor and CSE.

12. Reliance placed by the appellants on the decision of this Tribunal

in case of Mangalore Stock Exchange v/s SEBI reported in (2006) 67

SCL 27 is misplaced because, that decision dealt with the maintainability

of appeal before this Tribunal, whereas, in the present case, no such

question arises. Similarly, decision of Delhi High Court in case of

Association for Welfare of Delhi Stock Broker and Ors. v/s Union of

India (W.P. (c) No. 17349 of 2004 decided on 03.06.2010) is

distinguishable on facts. In that case appellants therein wanted SEBI to

consider the turnover data furnished by the Association in the prescribed

format before the commencement of the regularization period for the

purpose of calculating the outstanding registration fees. In the present

case, turnover data in the prescribed format has not been furnished by the

appellants at any point of time. Hence, the aforesaid decision of the

Delhi High Court is also distinguishable on facts. 12

13. Similarly, reliance placed on a decision of the Apex Court in case

of OPG Securities Pvt. Ltd. v/s SEBI (Civil Appeal No. 3548 of 2010

decided on 04.12.2015) is also misplaced. In that case, basic dispute was

whether after Schedule III A was inserted to Stock Brokers Regulations

became applicable to the case of the appellant therein, SEBI could apply

the provisions contained in Schedule III of the Stock Brokers Regulations

to the case of the appellant therein. No such dispute arises in the present

case. Hence, reliance placed on the decision of the Apex Court in case of

OPG Securities Pvt. Ltd. (Supra) is wholly misplaced.

14. In the result, we see no merit in these two appeals. Accordingly

both appeals are dismissed with no order as to costs. As the entire fee

liability computed under the impugned orders have already been

recovered, SEBI is directed to cancel the Registration Certificate

surrendered by the appellants so that balance amount, if any, lying with

CSE could be refunded by CSE to the appellants expeditiously.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 07.05.2018 Prepared & Compared By: PK