PREMIUM GLOBAL SECURITIES PVT. LTD. & ORS.versusSECURITIES & EXCHANGE BOARD OF INDIA & ANR.

                  •
                      [2015] 14 S.C.R. 201


   PREMIUM GLOBAL SECURITIES PVT. LTD. & ORS.                   A
                               v.
 SECURITIES & EXCHANGE BOARD OF INDIA & ANR.
              (Civil Appeal No. 3682 of 2006)
                                                                B
                      DECEMBER 09, 2015
    [VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]
     Securities Contract (Regulation) Rules, 1957: rr.8(1 )(f),
8(3)(f)- Fee Continuity Benefit- Circular dated 27.09.2002       c
contemplated that transfer of membership to group company/
100% subsidiary company would not attract any fresh
payment of registration fees - In view of bar under r.8(1 )(f),
transfer of membership to appellant company- SEBI refused
to grant fee continuity benefits to the appelfant - Whether D
there was any compulsion of law to transfer brokerage
business and whether appellant can be granted benefit of
fee continuity- Held: The restriction imposed under-circular
was to not have fund-based and trading activities together
under one roof- Thus, any action taken by the appellants to E
comply with restriction of not participating in both the activities
simultaneously would be under compulsion of law -
Appellants entitled to fee continuity benefits - Securities and
Exchange Board of India Act, 1992- s. 11 (2).
                                                                 F
      Disposing of the appeals, the Court
     HELD: 1. It is beyond cavil that SEBI, as a trade
regulator in the securities market, is entitled to charge
registration fees for enabling it to carry out its functions
as stipulated in Section 11(2) of the SEBI Act, 1992. G
However, it appears at present that SEBI has pounced
at the opportunity to charge fresh registration fees
choosing to ignore the exemption$ assured by it. [Para
12] [209-D·E]
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                              201
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202         SUPREME COURT REPORTS                  [2015) 14 S.C.R.


A      2. The restriction imposed was to not have fund·
  based and trading activities together under one roof.
  Thus any action taken by the Appellants to comply with ·
  restriction of not participating in both the activities
  simultaneously would be under compulsion of law. The
B compulsion of law under the 1957 Rules is directed
  towards the desired end and not concerned with the
  means, and it would be wrong for us to ascribe
  otherwise. [Para 13] [209-F, G·H]

c          SEBl.v. BSE Brokers' Forum (2001) 3 SCC 482;
           Ratnabali Capital Markets Ltd. v. Securities
           Exchange Board of India 2007 (11) SCA 629 :
           (2008) 1 sec 439 - referred to.

D
                          Case Law Reference
      c2001 > 3 sec 482          referred to            Para 8
      2007 (11) SCA 629          referred to            Para 9
E          CIVIL.APPELLATE JURISDICTION: Civil Appeal No.
      3682 of 2006.

           From the Judgment and Order dated 15.06.2006 of the
      Securities Appellate Tribunal, Bombay in Appeal N.o. 192 of
      2004
 F                                   WITH
           C.A. No. 3686 of 2006
           C. A. No. 231 o of 2007
           C. A. No. 6394 of 2009.
G          S. Ganesh, Sr. Adv., Sameer Parekh, Ms. Rukhmini
      Bobde, Ms. Nandita Bajpai, Ms. Aakanksha Nehra,
      M/s. Parekh &Co., Anand Sukumar, S. Sukumaran, Bhupesh
      Kumar Pathak, Ms ..Meera Mathur, Ashok Mathur for the
      Appellants.
H
       PREMIUM GLOBAL SECURITIES PVT. LTD. v.                     203
     . SECURITIES & EXCHANGE BOARD OF INDIA

    C. U. Singh, Sr. Adv., Bhargava V. Desai, Ms. S. A
Mehrotra, Dhawal Mehrotra, Rishi Gautam for the
Respondents.
     The Judgment of the Court was delivered by
      VIKRAMAJIT SEN, J.                                          B

     CIVIL APPEAL NO. 3682 OF 2006, CIVIL APPEAL
NO. 3686 OF 2006 AND CIVIL APPEAL NO. 6394 OF 2009
       1. These Appeals arise against the common Judgment C
 of the Securities Appellate Tribunal ('SAT' for brevity) which
 affirmed the stance of SEBI refusing to grant fee continuity
.benefits to the Appellants herein. Common question of law and
 facts arise and for the sake of convenience we shall keep in
 perspective the factual matrix in Civil Appeal No. 3682 of 2006; D
 in which the arguments in the main have been addresse.d.
       2. Premium Capital Market &Investments Pvt. Ltd. was
incorporated on 24.6.1992, which on 9.2.1994 changed its
name to Premium Capital Market & Investments Ltd
(hereinafter 'PCMIL', Appellant No. 3). On an application for     E
Trading Membership of National Stock Exchange of India Ltd.
(hereinafter 'NSE') in the Capital Markets Segment by PCMIL,
vide letter dated 16.5.1994, NSE sent them an offer of
membership subject to certain conditions enclosed in Annexure     F
'A'. In its letter dated 4.10.1994 SEBI made observations on
the Draft Prospectus for Public Offer submitted by PCMIL,
including the conditions for NSE membership, namely that the
company could not carry on any other activities apart from
broking. Pursuant to this observation, the draft prospectus was   G
amended with an undertaking that PCMIL would promote a
new company to which it would transfer the NSE membership.
Thereafter on 16.12.1994, PCMIL was admitted to the
membership of NSE and was regist~red as a stock broker
withSEBI.                                                         H
204       SUPREME COURT REPORTS                 [2015] 14S.C.R.


A         3. On 27.4.1995 SEBI reaffirming the applicability of
  Rule 8(1 )(f) and 8(3)(f) of Securities Contract (Regulation)
  Rules, 1957 (hereinafter '1957 Rules') to corporate members,
  via a letter directed all corporate members to "sever
  connections with businesses other than securities business
B forthwith" and requested NSE to report on compliance. In order
  to comply with this direction, Premium Global Securities Ltd.
  (later Premium Global Securities Pvt. Ltd., hereinafter 'PGSL',
  Appellant No. 1) was incorporated on 16.5.1995 for taking over
  the membership card of PCMIL. On 30.9.1995 PCMIL ceased·
C all its fund-based activities. On 8.8.1996 NSE was informed
  about the formation of PGSL and an application was made for
  transfer of NSE membership from PCMIL to PGSL. On
  14.3.2000 NSE issued a show-cause notice to PCMIL under
  Rule 8(1 )(f) and (3)(f) of the 1957 Rules in pursuance of a
0
  complaint that PCMIL was not allowed to engage in any
  business other than that of securities. To this PCMIL replied
  that PCMIL had not transacted any other business and thatthe
  last leasing transaction was carried out in September 1995
E and that PCMIL was only receiving lease amounts.

          4. Thereafter on 4.4.2000 a fresh application was made
   for transfer of membership to PGSL and the NSE approved
   the aforesaid application on 12.4.2000 without any transfer
   fees. Steps for registration with SEBI were initiated and PGSL
 F was issued the Registration Certificate on 20.9.2000.
   Meanwhile PCMIL received a letter from the NSE Disciplinary
   Committee dated 7.6.2000 directing PCMIL to cease all
   business in the nature of fund-based activities and to initiate
 G steps to segregate it within two months. Alternatively the
   Committee also advised that PCMIL could set up a separate
   subsidiary to take up the broking activity.

         5. On 30.9.2002 SEBI issued a Circular on Fee
   Continuity benefits. The relevant portions of the Circular read
 H as follows:
   PREMIUM GLOBAL SECURITIES PVT. LTD. v. SEBI                 205
             [VIKRAMAJIT SEN, J.]

      TRANSFER OF MEMBERSHIP TO 100% A
      SUBSIDIARY, GROUP COMPANY, HOLDING
      COMPANY, ETC.
      Where brokers are forced by compulsion of law to .
      transfer their membership to:-                     B
      i. 100% subsidiary company or
      ii. Group company      or
      iii. holding company
                                                               c
      they shall not be required to pay fees afresh. In such
      cases, the Exchange would have to enumerate the
      circumstances under law resulting in the said transfer
      to 100% subsidiary/group/holding company for
      consideration by SEBI.                                 D
      For this purpose,
      A company would be classified as a group company of
      another company, if the controlling persons/entities in E
      both the companies are same i.e. such persons/entities
      hold atleast 51 % of the paid-up capital (40% in case of
      listed company) in both the companies.
      A Company would be classified as a holding company
      of the trading member corporate, if its shareholding in F
      the member corporate was above 51 %.
      6. In response to the request for turnover details by NSE,
PGSL vide letter dated 12.3.2003 elucidated that there had
been a transfer of membership due to compulsion of law and G
as per SEBI circular dated 27:9.2002, such transfer to group
company would not attract any fresh payment of registration
fees. SEBI however, refused to grant PGSL the fee continuity
benefits sought. On 4.12.2003 PGSL submitted another
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206       SUPREME COURT REPORTS                   [2015] 14S.C.R.


A detailed representation to SEBI seeking grant of fee continuity.
  However no response was received from SEBI. Meanwhile
  on 15.7.2004, SEBI (Interest Liability Regularisation) Scheme
  2004 came into force. The Scheme envisaged a waiver of
  80% outstanding interest if the broker paid the outstanding
B principal along with 20% outstanding interest during a specified
  period. SEBI issued a Provisional Fee Liability Statement
  demanding payment of fees and NSE along with its cover letter
  sent it to PGSL and PGSL filed an appeal before the SAT.
c       7. The primary issue before SAT was whether the
  Appellants were under any compulsion of law to transfer their
  brokerage business to a subsidiary. SAT ruled in favour of
  SEBI stating that since the Appellants were subject to the bar
  in Rule 8(1 )(f) they were therefore required to sever themselves
D from their fund-based activities to keep in line with the provision.
  As a natural corollary thereof, SAT stated that although there
  was a compulsion of law on the Appellants, it did not extend to
  the extent that they were compelled to sever their brokerage
  business and transfer it to their subsidiary as they have in the
E present scenario; rather the Appellants could have severed
  their non-brokerage businesses, either give it up in entirety or
  transfer it to a subsidiary. The Appellants have assailed this
  common judgment of the SAT.
 F       8. The issue for determination before this Court is a neat
  one - Whether the Appellants can be granted the benefit of fee
  continuity? To determine the answer we must first refer to the
  Circular under which these Appellants have made their
  respective claims. The Circular titled, "Fees Payable by Stock
G Brokers" dated 30.9.2002 was issued in the form of a
  clarification pursuant to the direction passed by this Court in
  SEBI v. BSE Brokers' Forum (2001) 3 SCC 482, to implement
  the recommendation of the R. S. Bhatt Committee. The benefit
  in the said circular can be granted only when the two essential
H
     PREMIUM GLOBAL SECURITIES PVT. LTD. v. SEBI                    207
               [VIKRAMAJIT SEN, J.]

 conditions are satisfied. First that the company to which the A
 transfer was made is indeed a 100% Subsidiary Company,
 Group Company or a Holding Company and secondly, whether
 there was a compulsion of law to transfer the said membership.
 There are no disputes on the satisfaction of the first essential
 condition. Thus we find the sole question for determination B
 before us to be whether there was a compulsion of law to
 transfer the membership to PGSL.
          9. Mr. S Ganesh, learned Senior Counsel for the
   Appellant, has relied on Ratnabali Capital Markets Ltd. v. c
   Securities Exchange Board of India (2008) 1 SCC 439, where
   the term 'compulsion of law' for the first time came to be
   discussed in light of the SEBI Circular dated 30.9.2002. The
 . appellants in Ratnabali Capital Markets Ltd. underwent an
   amalgamation in order to increase their reserves and qualify D
   themselves to enter the derivatives market. On the prevailing
. facts it was held that raising money to qualify for membership
   of a segment did not constitute a compulsion of law for the
   said merger. Mr. Ganesh submitted that in Ratnabali Capital
    Markets Ltd. this Court clearly demarcated that any action .E
   taken by the benefit-seeker must not be solely for profit-motive;
    its roots must emerge from a survival instinct which is so in the
    case before us·. He stated that PGSL was put in the ·
    predicament of choosing one business over another; letting
    go or transferring of the financial activities would have brought F
    with it a difficulty of having to transfer the main busines.s
    whereas transfer of the brokerage business would involve the
    transfer of the trading license. PGSL therefore chose to transfer
    its brokerage business to a new group company. This he said G
    purported to merely re-organisation, not for commercial profit
    but for compliance with the provisions of Rule 8(1 )(f) and 8(3)(f)
   of the 1957 Rules. Mr. Sameer Parekh, one of the other
    Counsels for Appellants, submitted that PCMIL faced 4 options
    when told to comply with the aforesaid 1957 Rules. They could H
208         SUPREME COURT REPORTS                   (2015] 14 S.C.R.


A either: a) give up the fund-based business; b) give up the
  brokerage business; c) transfer the fund-based business to
  another company, which would cause great hardship to all
  involved as numerous contracts would have to be changed;
  or, d) transfer the brokerage business, and of the 4 the last
B was the path of least resistance and hence the brokerage
  business was transferred to PGSL.
              10. Learned Senior Counsel for the Respondents, Mr.
      CU Singh, submitted that the Appellants are precluded from
c     claiming compulsion of law as they themselves have admitted
      that they had other options besides transferring their brokerage
      membership to a group company. He submits that the mere
      existence of other op\ions means that there was no compulsion
      imposed by law to follow this specific course and the
D     Appellants' plea of impossibility is neither a compulsion of law
      nor has it been raised earlier. Mr. Singh placed reliance on
      Rules 8(1 )(f) and 8(3)(f) of the 1957 Rules to submit that right
      from the start, the Appellants were under the restriction to not
      engage themselves in a business other than that of securities.
E     He further brought to our attention 'Annexure Pl of the letter of
      acceptance of membership to the Capital Market Segment of
      the NSE which placed certain conditions on Appellants to be
      fulfilled within three months and one of which was the
      requirement to sever all fund based activities. Mr. Singh was
 F    also of the opinion that the Appellants' reliance on Ratnabali
      Capital Markets Ltd. is misplaced. According to him, this
      Court held that for an action to be compulsion of law, it needed
      to have been an alternative to liquidation or a correspondingly
G     calamitous situation, essentially to prevent winding-up.
            11. To these submissions, Mr. Sameer Parekh
      responded by placing forth on record a copy of the original
      advertisement placed in the newspapers calling for applications
      for Trading Membership of the Capital Markets Segment of
 H
    PREMIUM GLOBAL SECURITIES PVT. LTD. v. SEBI                   209
              [VIKRAMAJIT SEN, J.]

NSE. He points out that this advertisement was published on A
11.2.1994 and the last date for submitting applications was
25.2.1994, leaving a gap of merely 14 days. He states that
this becomes relevant in light of the submissions placed on
record by SEBI that only those companies who had no other
business involving financial liabilities could apply. He submits B
that SEBI could not have had the expectation that new
companies would be incorporated and be ready with their
applications for trading membership all within a span of 14
days. He also submitted that Rules 8(4) and 8(4A) are the
provisions relevant to companies and on areading of 8(4A)(iv) C
which specifically exempts the Directors of the companies from
the provisions of 8(1 )(f) and 8(3)(f) it can be concluded that it
was not intended initially that Rules 8(1 )(f) and 8(3)(f) would
apply to companies.
                                                                    D
        12. It is beyond cavil that SEBI, as a trade regulator in
the securities market, is entitled to charge registration fees
for enabling it to carry out its functions as stipulated in Section
 11 (2) of the SEBI Act, 1992. However it appears at present
that SEBI has pounced at the opportunity to charge fresh E
 registration fees choosing to ignore the exemptions assured
 by it.
        13. We find merit in the arguments furnished by the
  Appellants. In our opinion, the restriction imposed was to not F
  have fund-based and trading activities together under one roof.
  Thus any action taken by the Appellants to comply with
, restriction of not participating in both the activities
  simultaneously would be under compulsion of law:The
  Respondents would have us say that only one line of action G
  was compulsion of law but that would have the effect of adding
  'process' to compulsion of law. The compulsion of law under
 the 1957 Rules is directed towards the desired end and not
  concerned with the means, and it would be wrong for us to
  ascribe otherwise.                                              H
210          SUPREME COURT REPORTS              [2015] 14 S.C.R.


A           14. We thus set aside the impugned Judgment of SAT
      and direct that the Appellants be given the benefit of fee
      continuity. These Appeals stand allowed accordingly. There
      will be no orders as to costs.
B           C.A. 2310 of 2007
         15. The original trading membership of the NSE had
  been obtained by Onida Finance Ltd. on 16.9.1994 but when
  the NSE raised objections about its fund-based activities, the
  license was transferred to OFL Securities Ltd. on 7.2.1995.
C Thereafter in 1999-2000, OFL Securities Ltd. transferred its
  trading license to Gulita Securities Ltd. (Appellant No. 1). Thus
  the trading membership was transferred twice but only the first
  transfer was under compulsion of law. Therefore, we find neither
0 any merit in the Appeal nor any infirmity in the order of the SAT
  with regard to the Appellants in C.A. No.2310 of 2007. Thus
  this Appeal is dismissed accordingly. There will be no orders
  as to cost.
      Devika Gujral                              Appeals disposed of.