Shri Kamlesh R Shah vs Sebi

Date of Decision : 16.11.2016

Appeal No. 152 of 2016

Shri Kamlesh R Shah Prop. Of M/s. Ramanlal D. Shah 217, P J Towers, Dalal Street, Fort, Mumbai - 400 001. ...Appellant

Versus

1.

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

2. BSE Limited Floor 25, P J Towers, Dalal Street, Mumbai - 400 001. ...Respondents

Mr. Prakash Shah, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Advocate for Respondent No. 1.

Mr. Ajay Khaire, Advocate i/b The Law Point for Respondent No. 2.

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

Per : J.P. Devadhar (Oral)

1. This appeal is filed to challenge the communication of Securities and

Exchange Board of India ('SEBI' for short) dated March 14, 2016. By that

communication appellant is held liable to pay interest amount of

Rs. 9,93,624/- computed as per the undertaking given by the appellant

pursuant to the interim order passed by this Tribunal in Appeal No. 211 of

2004 on October 12, 2004.

2

2. Facts relevant for the present appeal are as follows:-

(a) Shri Ramanlal D Shah (father of the appellant) was carrying

on business as stock broker in the proprietary name of M/s.

Ramanlal D Shah. He had acquired stock broker membership

from the erstwhile, 'Bombay Stock Exchange' now known as

Bombay Stock Exchange Ltd. ('BSE' for short). On

November 27, 1995, the sole proprietary concern of M/s.

Ramanlal D Shah was converted into a partnership firm where

Ramanlal D Shah (father of the appellant) was entitled to 70%

share of profit and the appellant (son of Ramanlal D Shah)

was entitled to 30% share of profit. Accordingly, fresh

certificate of registration was issued to the firm by SEBI on

April 17, 1996. After the demise of Ramanlal D Shah on

September 5, 1996 the firm M/s. Ramanlal D Shah became the

sole proprietary concern of the appellant.

(b) As per the Securities and Exchange Board of India (Stock

Brokers and Sub Brokers) Regulations, 1992 ('Stock Brokers

Regulations' for short) stock brokers were required to pay

registration fees under Regulation 10 read with Schedule - III

of the Stock Brokers Regulations on the basis of the total

turnover of the previous year for a period of five years and

after the expiry of five financial years from the date of initial

registration as stock-broker, the said stock broker was liable to

pay a sum of rupees five thousand for every block of five

financial years commencing from the sixth financial year after 3

the date of grant of initial registration to keep his registration

in force.

(c) On December 16, 1998 the Stock Brokers Regulations was

amended to provide that if a stock broker fails to remit the

registration fees as stipulated therein, then the said stock

broker shall be liable to pay interest at 15% per annum on the

principal amount of registration fees for each month of delay

or part thereof.

(d) The stock brokers had challenged the aforesaid fee liability

under the Stock Brokers Regulations before various High

Courts. Finally, Apex Court by its judgement dated February

1, 2001 upheld the Stock Brokers Regulations and the power

of SEBI to levy fees for carrying out the purposes of SEBI

Act.

(e) Since various stock brokers during the period from 1992 to

2001 had defaulted in paying the registration fees as per the

Stock Brokers Regulations, the Securities and Exchange

Board of India (Interest Liability Regularisation) Scheme,

2004 ('2004 Scheme' for short) was introduced by SEBI to

provide a one time opportunity to enable the stock brokers in

the cash segment of the stock exchanges to regularize their

defaults. 2004 Scheme provides that if a defaulting broker

pays the entire outstanding principal amount of fee, if any,

with 20% of the outstanding interest during the regularization

period i.e. from October 15, 2004 to November 15, 2004 (both

days inclusive) then that stock broker would not be required to

pay the balance 80% of the outstanding interest. Admittedly, 4

SEBI had extended the last date for payment under the 2004

Scheme till November 30, 2004. Thus the principal amount of

registration fee payable for past years and 20% interest out of

the interest calculated @ 15% per annum on the principal

amount had to be paid on or before November 30, 2004 as one

time settlement under the 2004 Scheme. If the said amount

was not paid by November 30, 2004, then the principal

amount and 100% interest calculated at 15% on the principal

amount was payable.

(f) After introducing the 2004 Scheme, SEBI forwarded two fee

liability statements to the appellant. In one statement marked

as "Yes" statement it was stated that if the fee continuity

benefit (concession) was available to the appellant, then the

appellant would be liable to pay interest amounting to Rs.

814/- and in another statement marked as "No" statement it

was stated that if the fee continuity benefit (concession) was

not available, then the appellant would be liable to pay Rs.

49,83,919/- i.e. principal amount of Rs. 43,56,430/- plus

interest amount of Rs. 6,27,489/- (20% interest on the

principal amount as per 2004 Scheme).

(g) BSE under instruction from SEBI informed the appellant that

fee continuity benefit (concession) is not available to the

appellant and hence the appellant must pay Rs. 49,83,919/-

within the regularization period.

(h) Challenging the demand for registration fee, appellant filed

Appeal No. 211 of 2014, inter alia, on ground that on death of

Ramanlal D Shah, the partnership firm consisting of two 5

partners came to an end and the said partnership firm became

the sole proprietary concern of the appellant and in such a case

the registration fee was not payable. Basic argument of the

appellant was that SEBI had exempted registration fee when

the membership card of an individual or a partnership firm

was converted into a corporate entity and applying the same

reasoning registration fee has to be exempted in case of the

appellant where on death of Ramanlal D Shah, the partnership

firm became a sole proprietary concern of the appellant.

(i) In the said appeal an interim order was passed by this Tribunal

on October 12, 2004, relevant portion of which reads thus:-

"17. We accordingly direct the appellants to make an application as if the benefit of fee continuity is available to them and pay the principal and interest under the scheme and also give an undertaking to the respondent that they will make good the balance amount of principal and the interest thereon under the provisions of the scheme."

(j) In compliance of the above interim order, appellant paid to

SEBI interest amount of Rs. 814/- on October 20, 2004 as per

the fee liability statement prepared by SEBI on the footing that

the fee continuity benefit (concession) was available to the

appellant.

(k) On May 12, 2006 this Tribunal dismissed the appeal filed by

the appellant by holding that fee continuity benefit

(concession) was not available to the appellant.

(l) As a result, appellant became liable to pay Rs. 49,83,919/-

being the amount payable on the footing that the fee continuity

benefit was not available to the appellant. Since Rs. 814/- was

already paid on October 20, 2004, appellant, in compliance of 6

the order of this Tribunal dated May 12, 2006 paid to SEBI

balance amount of Rs. 49,83,105/- on June 7, 2006.

(m) After making the above payment, appellant filed SLP before

Apex Court to challenge the decision of this Tribunal dated

May 12, 2006. However, the said SLP was dismissed by the

Apex Court on May 15, 2008. Since the appellant had already

paid entire amount of Rs. 49,83,919/- as per the fee liability

statement of SEBI, there was no question of making any

payment to SEBI after the dismissal of SLP.

(n) However, after lapse of almost 10 years, SEBI issued the

impugned communication dated March 14, 2016 calling upon

the appellant to pay Rs. 9,93,624/- towards interest on the

principal amount of Rs. 43,56,430/- @ 15% for 555 days from

December 1, 2004 till June 7, 2006. According to SEBI, under

the 2004 Scheme appellant was liable to pay the principal

amount of Rs. 43,56,430/- by November 30, 2004, however,

the said amount was paid on June 7, 2006 and therefore, the

appellant was liable to pay interest @ 15% on the principal

amount of Rs. 43,56,430/- from December 1, 2004 till June 7,

2006.

(o) Challenging the aforesaid communication dated March 14,

2016, appellant has filed the present appeal.

3. Counsel for the appellant submitted that once the principal amount

with 20% interest on the principal amount as per the fee liability statement

of SEBI was paid by the appellant on June 7, 2006 in compliance of the

order of this Tribunal dated May 12, 2006, SEBI is not justified in treating 7

the appellant to be a defaulter and demanding 100% interest vide impugned

communication dated March 14, 2016.

4. Counsel for SEBI, on the other hand, submitted that under the 2004

Scheme principal amount of registration fee for the past years together with

20% of the interest payable on the principal amount at 15% had to be paid

by the appellant within the regularization period i.e. on or before November

30, 2004. If the principal amount with 20% interest payable on the principal

amount at 15% was not paid by November 30, 2004, then the appellant was

liable to pay the principal amount with 100% interest on the principal

amount calculated @ 15%. In the present case, appellant has paid the

principal amount on June 7, 2006 i.e. after delay of 555 days (from

December 1, 2004 to June 7, 2006) and, therefore, SEBI is justified in

demanding interest for 555 days @ 15% on the principal amount of Rs.

43,56,430/-.

5. Counsel for SEBI further submitted that pursuant to the interim order

passed by this Tribunal on October 12, 2004 in Appeal No. 211 of 2004, the

appellant had given an undertaking to SEBI stating that in the event the

appeal fails then the appellant would pay the balance amount of Rs.

49,83,105/- and interest on such amount as computed under the Interest

Liability Regularization Scheme or such other payment as may be

determined by this Tribunal or in any other appropriate proceedings as the

amount legitimately held to be due and payable to SEBI. In view of the

above, undertaking given by the appellant, counsel for SEBI submitted that

SEBI is justified in demanding interest @ 15% on the principal amount.

6. We have carefully considered rival submissions. 8

7. Although the Stock Brokers Regulation provides that failure to pay

registration fee within the stipulated time would be visited with 15% interest

liability, with a view to mitigate the grievances of the stock brokers due to

long drawn litigation relating to payment of registration fees, SEBI

introduced the 2004 Scheme. Under the 2004 Scheme, stock brokers were

given an opportunity to pay as one time settlement, the principal amount of

registration fees for past years with 20% interest payable on the principal

amount calculated @ 15% within the regularization period set out therein. In

the present case, admittedly two fee liability statements were issued by

SEBI to the appellant. One, on the footing that fee continuity benefit was

available to the appellant and another, on the footing that fee continuity

benefit was not available to the appellant. Very fact that SEBI itself had

issued two different fee liability statements to the appellant clearly shows

that there was ambiguity as to whether the appellant was entitled to fee

continuity benefit or not.

8. Since the appellant was asked to pay as per second statement,

appellant filed Appeal No. 211 of 2004 and this Tribunal by an interim order

dated October 12, 2004 directed the appellant to pay on the footing that fee

continuity benefit was available to the appellant and further directed the

appellant to give an undertaking to SEBI that if the appeal is dismissed the

appellant would pay the balance amount of principal and balance interest on

the footing that fee continuity benefit was not available to the appellant.

Accordingly, on October 20, 2004, that is, within the regularization period,

the appellant paid Rs. 814/- being the amount payable on the footing that fee

continuity benefit was available to the appellant. 9

9. On May 12, 2006 the appeal was dismissed and on June 7, 2006

appellant paid the balance principal amount and interest on the footing that

fee continuity benefit was not available to the appellant.

10. Once the appellant, pursuant to the order of this Tribunal had paid the

amount as demanded by SEBI on the footing that fee continuity benefit was

available, then, there was no question of paying any amount under the 2004

Scheme by treating that fee continuity benefit was not available to the

appellant. In other words, pursuant to the interim order of this Tribunal, the

appellant was liable to pay during the regularization period the amount due

and payable on the footing that fee continuity benefit was available to the

appellant and was liable to pay the amount on the footing that fee continuity

benefit was not available to the appellant only if the appeal was dismissed.

11. As per the 2004 Scheme, if the fee continuity benefit was not

available, then, the appellant had to pay the arrears of principal amount of

fees with 20% of the interest payable on the principal amount @ 15% within

the regularization period. In that event, balance 80% interest, was liable to

be waived. Since the question as to whether the fee continuity benefit was

available to the appellant or not, was yet to be decided, this Tribunal, during

the pendency of the appeal directed the appellant to pay the amount within

the regularization period on the footing that the fee continuity benefit was

available, and further directed the appellant to give an undertaking to pay

the balance principal amount and interest if this appeal is dismissed. Fact

that the appeal could not be disposed of by this Tribunal within the

regularization period, cannot be a ground for SEBI to deny the benefit of

2004 Scheme to the appellant and demand 100% interest from the appellant.

12. In the interim order of this Tribunal dated October 12, 2004 it is

specifically recorded that if the appeal ultimately fails, then the appellant 10

shall be liable to pay the balance principal and balance interest under the

2004 Scheme. It obviously means that even if the appeal is dismissed after

the regularization period was over, the benefit of 2004 Scheme would not be

denied to the appellant and that is why the interim order of the Tribunal

required the appellant to give an undertaking that the appellant would pay

the balance principal and the balance interest under the 2004 Scheme, if the

appeal is ultimately dismissed.

13. Neither in the interim dated October 12, 2004 nor in the final order of

this Tribunal dated May 12, 2006 it is stated that if the appeal is dismissed

after the regularization period, then the appellant would loose the benefit of

paying 20% interest as one time settlement under the 2004 Scheme and

would have to pay 100% interest on the principal amount @ 15%.

Therefore, in the absence of any direction given by this Tribunal to deny the

benefit of 2004 Scheme, SEBI is not justified in denying the benefit of 2004

Scheme to the appellant.

14. If we accept the contention of SEBI, it would mean that irrespective

of the order passed by this Tribunal, the appellant under the 2004 Scheme,

ought to have paid within the regularization period the amount due on the

footing that fee continuity benefit was not available to the appellant. If this

Tribunal so intended, then this Tribunal pending disposal of the appeal

would have directed the appellant to deposit the amount payable on the

footing that fee continuity benefit was not available without prejudice to his

contention to the contrary. Very fact that this Tribunal had directed the

appellant to furnish an undertaking to pay balance principal and balance

interest under the 2004 Scheme clearly shows that the benefit of 2004

Scheme was not to be denied to the appellant even if the appeal was

dismissed after the regularization period was over. 11

15. Argument of SEBI that as per the undertaking given on October 20,

2004, the appellant was liable to pay interest on the balance amount of

Rs. 49,83,105/- as may be determined by this Tribunal or by SEBI in any

other appropriate proceedings is without any merit. Liability to pay 100%

interest instead of paying 20% interest on the principal amount under the

one time settlement Scheme of SEBI would arise only if it was held that the

benefit of paying 20% interest under the one time settlement was not

available to the appellant. Neither in the impugned order nor in the final

order it is held that during the pendency of the appeal if the regularization

period gets over, then the appellant would loose benefit of one time

settlement irrespective of the outcome of the appeal. In other words, fact

that the appeal could not be disposed of within the regularization period

cannot be a ground to deny the benefit of one time settlement to the

appellant. Therefore, SEBI is not justified in denying the benefit of one time

settlement to the appellant, especially when the entire principal amount and

interest as quantified by SEBI under the 2004 Scheme is paid by the

appellant immediately after the dismissal of the appeal.

16. In the result, the appeal succeeds. Appeal is allowed by quashing the

impugned communication of SEBI dated March 14, 2016 with no order as

to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 16.11.2016 Prepared and compared by:

msb