Holding

The merger was not a compulsion of law; therefore RCML could not claim fee continuity and SEBI’s demand for fresh registration fees was not derogatory of the Companies Act.

Summary

Ratnabali Capital Markets Ltd. (RCML) sought to claim fee‑continuity under a SEBI circular dated 30 September 2002, arguing that its merger with Ratnabali Securities Ltd. (RSL) was compelled by law because SEBI’s Gupta Committee required a net‑worth of Rs 3 crore to trade in derivatives. The merger was effected under the Companies Act, 1956 (ss. 391‑394) and approved by the Calcutta High Court. SEBI, however, demanded fresh turnover‑based registration fees from RCML, rejecting the claim. The Supreme Court held that the merger was not a "compulsion of law" since the companies were not on the brink of liquidation; consequently RCML was not entitled to the circular’s fee‑continuity benefit and SEBI’s demand did not contravene the Companies Act. Both civil appeals were dismissed.

Issues considered

Whether the amalgamation of RSL into RCML qualifies as a 'compulsion of law' within the meaning of SEBI’s circular of 30 September 2002, thereby entitling RCML to fee continuity.
Whether SEBI’s demand for fresh turnover/registration fees from the merged entity amounts to an act derogatory of the Companies Act under s.32 of the SEBI Act, 1992.

Legislation cited

Companies Act, 1956s. 391, s. 392, s. 393, s. 394
SEBI (Stock Brokers and Sub Brokers) Regulations, 1992s. Schedule III
Securities and Exchange Board of India Act, 1992s. 11(2), s. 32

Subjects

fee continuitymergercompulsion of lawSEBI circularregistration feesderivative marketCompanies Actsecurities regulation

Judgment

I
RA1NABALI CAPITAL MARKETS LTD. A
V.
SECURITIES & EXCHANGE BOARD OF INDIA AND ORS.

OCTOBER 23, 2007
B
(~.H. KAPADIA AND B. SUDERSHAN REDDY,JJ.]
)'--
._,lr
Securities and Exchange Board ofIndia Act, 1992:
s.11 (2)-Circular dated 30. 9. 2002 stating that fresh registration c
fee not payable by transferee entity if merger takes place due to
compulsion oflaw-Merger oftwo companies for increasing reserve
component of net worth in order to enter derivative market-
Entitlement of transferee entity, to claim benefit of Circular dated
30.9.2002-Held: Not entitled as merger had not taken place due to
D
compulsion of law-Object of the Act-Discussed-Companies Act,
y 1956-ss.391 to 394-SEBI (Stock-brokers and Sub-brokers)
Regulations, 1992-Schedule Ill-Circular dated 30. 9. 2002-Para 7.
Securities and Exchange Board of India and Stock Exchange-
Functions performed by the two entities~Distinction between- E
Explained
Companies Act, 1956:
Object ofthe Companies Act and Securities and Exchange Board
ofIndia Act, 1992-Discussed F
-../,.....,..

Words and phrases:
'compulsion oflaw '-Meaning of-In the context ofwinding up
proceedings under Companies Act, 1956.
G
In 1995, RSL was registered as a broker with NSE. It had paid
~, initial registration fees for the first year and thereafter paid fees on
turnover basis for subsequent four years. SEBI had adopted
recommendations of Gupta Committee which stated that the
629 H
~
\
630 SUPREME COURT REPORTS [2007] 11 S.C.R.
--(
A company whose net worth was less than rupees three crores would
not be allowed to trade as a broker in the derivative segment of the
Stock Exchange. To meet this net worth criteria, RSL and RCML,
the appellant company merged under the Scheme of Amalgamation
sanctioned by the order of the High Court.
B
On 30.9.2002, SEBI issued a circular stating that in th~ case of
merger carried out as a result of compulsion oflaw, fresh fees would .,-\
not be payable by the transferee entity. After the merger of RSL ,.,.
with RCML, a demand was made by SEBI for registration fees on
turnover basis. RCML claimed that it is entitled to the benefit of
c registration fees which RSL had paid from time to time as a broker
in the cash and spot market. This claim ofRCML was rejected by
the Securities App~llate Tribunal.
In appeals to this Court, the appellants contended that the two
D companies were required to merge because of acceptance of the
recommendations of Gupta Committee by SEBI according to which,
if a broker desires to enter derivative market then he is required to 'Y
have a net worth of at least rupees three crores; that this pre-
condition of possessing net worth of rupees three crores constituted
E compulsion oflaw, which made RSL merge into RCML and, in the
circumstances, the appellants were entitled to the benefit .of Circular
dated 30.9.2002 issued by SEBI.
Thus, the two points which have arisen for determination are :
whether the merged entity, on amalgamation, duly sanctioned by High
F Cou.-4 was entitled to claim the benefit offee continuity and, whether ~-
-~

the demand made by SEBI imposing fresh turnover/registration fees
on the merged entity constituted an act in derogation of the
provisions of any other law for the time being in force in terms of
s.32 of the Securities and Exchange Board oflndia Act, 1992.
G
Dismissing the appeals, the Court
....;
HELD: I. The licence from NSE/BSE only provided a platform /
to RSL/RCML to carry on the business of buying and selling shares
on the stock exchange. However, trade had to be regulated by SEBI.
H
__J

I

(
J.,
RA TNABALI CAPITAL MARKETS LTD. v. SECURITIES & 631
EXCHANGE BOARD OF INDIA
r·...
The Companies Act has been enacted with a view to consolidate and A
amend the law relating to companies and certain other associations.
The Securities and Exchange Board of India Act, 1992 has been
enacted to provide for the establishment of a Board to protect the
investors' interests in securities and to regulate the securities market
and for matters connected thereto. Under the said 1992 Act, SEBI 8.
is required to provide for regulating the business in stock exchanges,
""'? registering and regulating the working of stock brokers and
numerous other functions which are enlisted in s.11(2) of the 1992
Act. Unders.llB of the 1992 Act, SEBI is also empowered to issue
directions to any person associated with the securities market. As c
a regulator, therefore, SEBI is entitled to charge registration fees
for enabling it to carry out the functions stipulated in s.11(2) of the
1992 Act. There is a dichotomy between functions of stock exchange
and the functions performed by SEBI. The licences given by the
stock exchange enables the stock-broker to buy and sell securities D
on the exchange whereas the regulation of the trade per se is done
by SEBI for which it is entitled to charge requisite registration fees.
[Para 11] (635-F-H; 636-A-C]
2.1. RSL had merged into RCML after complying with the
provisions of ss.391 to 394 of the Companies Act. The Scheme of E
Amalgamation has been approved by the High Court. However, what
is "compulsion of law" has not been defined by SEBI. The reason
is obvious. Under s.391 of the Companies Act, a compromise or
arrangement is proposed generally as an alternative to liquidation.
~
't
Where a scheme appears to be feasible and workable, it is preferred F
to a winding up order. [Para 15] [637-F-G]
Himalaya Bank Ltd v. L. Roshan Lal Mehra, AIR (48) (1961)
PUNJAB 550, referred to.
2.2. It would depend on the facts of each case whether a scheme G
under ss.391 could be construed as an alternative to liquidation. It
~"' is not in every matter that the scheme under s.391 would constitute
an alternative to liquidation. Under circular dated 30.9.2002 what
SEBI intends to say is that fresh turnover/registration fees would
not be payable by a company which goes for amalgamation/merger H
632 SUPREME COURT REPORTS [2007] 11 S.C.R.

A as an alternative to liquidation. In other words, ifthe company's net
worth is negative and if that company is on the brink ofliquidation,
whiclt compels it to go for a scheme under s.391, then in such cases
SEBI exempts such companies from payment of fresh turnover/
registration fees. Such is not the case herein. On the contrary, in
B the present case, amalgamation has taken place in order to increase
the "reserve" component of the net worth. Tlte transferee companies
were not on the brink ofliquidation. The scheme under s.391 was
not an alternative to liquidation. Hence, the transferee companies
were not entitled to claim the benefit of Circular dated 30.9.2002.
c [Para 17] [640-C-F]
3. The demand raised by SEBI for fresh turnover/registration
fees does not constitute an act derogatory of the provisions of the
Companies Act. On the emergence of a new entity, which was entitled
D to operate in derivative market, SEBI was certainly entitled to
regulate its trade in the derivative segment for which it was entitled
to charge requisite fees. Under the 1992 Act, a duty is cast on SEBI
to protect the interest of investors in securities and to regulate the
trade in securities on the Stock Exchange. Such Regulation is not a
E part of the Companies Act. Derivative market is highly speculative.
It carries lot ofrisks. In fact, history shows that many investors and
traders lost money earlier when badla transactions were prevalent.
Derivative market, to a certain extent, replaces badla. The Gupta
Committee recommended the net worth of rupees three crores in
F order to secure the interests of investors and traders who regularly
play in derivatives. In the circumstances, it cannot be said that .,J-
raising of an amount of rupees three crores as net worth constituted
legal compulsion for RSL to merge into RCML. The Government
decided to vest SEBI with statutory powers in order .to deal
effectively with all matters relating to capital market. The main
G function of SEBI is to regulate the trade which takes place in the
securities market and for that purpose it is entitled to charge
registration fees. [Para 17) (640-G-H; 641-A.-C)
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4945 of
H 2007.
RA TNABALI CAPITAL MARKETS LTD. v. SECURITIES & 633
EXCHANGEBOARDOFINDIA[KAPADIA,J.]

From the Judgment and final Order dated 4.5.2007 by the Securities A
Appellate Tribunal Mumbai in Review Petition No. 8 of2006 in Appeal
No. 267 of 2006.
WITH
C.A. No. 3674 of 2007. B
!"- R.F. Nariman, Ranjeet Kumar, Ratnako Banerjee, Dheeraj Nair,
_,. Mayank Mishra, Bina Gupta, Karan Bharioke, Shweta Verma, Gaurav
Singh, Suruchii Aggarwal and Viraj Kadam for the appearing parties.
The Judgment of the Court was delivered by c
KAPADIA, J. 1. Delay condoned.
2. Admit.
3. The above two civil appeals are directed against the decisions
D
dated 18.5.2006 and 4.5.2007 delivered by the Securities Appellate
y Tribunal, Mumbai in appeal Nos. 267/04 and 245/04 respectively.
I

4. The short question that arises for our consideration in these civil
appeals filed under Section 15Z of the Securities and Exchange Board
of India Act, 1992 (for short the "1992 Act") is whether the appellants E
were entitled to the benefit of fee continuity under para 7 of Circular dated
30.9.2002 issued by SEBI.
5. For the sake of convenience, we may mention hereinafter the facts
in the case ofRatnabali Capital Markets Ltd. ("RCML") which are as
~~ under. F

6. In 1995 Ratnabali Securities Ltd. ("RSL") was registered as a
broker with National Stock Exchange ("NSE"). In terms of Schedule III
of SEBI (Stock-brokers and Sub-brokers) Regulations, 1992 ("the
Regulations"), RSL had paid initial registration fees for the first year a!ld G
thereafter it had paid fees on turnover basis for subsequent four years.
~\.., No further fees on turnover basis was paid by RSL under the said
Regulations for continuation of registration except a fee of rupees five
thousand for a block of next five years. RSL operated in cash and spot
market.
H
A
634 SUPREME COURT REPORTS [2007] 11 S.C.R.

--r
A 7. SEBI adopted recommendations of Gupta Committee stating that
no company whose net worth was less than rupees three crores would
be allowed to trade as a broker in the derivative segment of the Stock
Exchange. To meet this net worth criteria, RSL and RCML merged under
the Scheme of Amalgamation sanctioned by the order of the Calcutta High
B Court. Under that order, all rights, licences, assets, properties and
registrations ofRSL stood transferred by operation of law to RCML.
,,Ji..
8. On 30.9.2002 SEBI issued a circular stating that in the case of .,
merger carried out as a result of compulsion oflaw, fees would not have
to be paid afresh by a transferee entity provided that majority shareholders
c of transferor entity (RSL) continues to hold majority shareholding in the
transferee entity (RCML).
9. After the merger of RSL with RCML, a demand was made by
SERI for registration fees on turnover basis. Under the said Regulations,
D no stock-broker can buy, sell or deal in securities unless he holds a
certificate granted by SEBI under its Regulations. Under the said
Regulations, the stock-broker is required to pay fees for registration in
the manner provided in the Regulations. Under Regulation 10, every
applicant eligible for grant of a certificate has to pay fees in_the manner
E specified in Schedule III. Under that Schedule, every stock-broker whose
annual turnover does not exceed rupees one crore during any financial
year has to pay rupees five thousand as registration fees for each financial
year and whereas the annual turnover exceeds rupees one crore during
any financial year he has. to pay rupees five thousan9 plus one hundredth
F of one per cent of the turnover in excess of rupees one crore for each
financial year. We quote hereinbelowclause (c) of para 1 of Schedule ..,.\-
III, which reads as under:
"After the expiry of five financial years from the date of initial
registration as a stock-broker, he shall pay a sum of rupees five
G thousand for every block of five financial years commencing from
the sixth financial year after the date of grant of initial registration
/-(
to keep his registration in force"
A reading of clause (c) makes it clear that where the stock-broker has
paid registration fees either under clause (a) or clause (b) he shall have
H
j

RA TN AB ALI CAP ITAL MARKETS LTD. v. SECURITIES & 635
y~
EXCHANGE BOARD OF INDIA [KAPADIA,J.]
to pay rupees five thousand for every block of five financial years A
commencing from the sixth financial year after the date of initial registration
in order to keep his registration in force.
10. What RCML is now claiming is the benefit of initial registration
ofRSL as a stock-broker. According to RCML, when the above two
companies stood merged on 9.2.2000, which merger was approved by B
/' Calcutta High Court, all assets and liabilities, including benefits in the form
? of licences obtained by RSL, stood transferred by operation of law in
the hands of RCML. According to RCML, the concept of merger
constitutes transfer by operation oflaw. According to RCML, the concept
of merger operates on account oflegal compulsion or compulsion in law. c
According to RCML, in the case of merger, which takes place after
complying with the procedure prescribed by Sections 391to394 of the
Companies Act, duly approved by the High Court, the assets and liabilities
of the transferor company comes into the hands of RCML on account of
legal compulsion. There is nothing voluntary in such cases of merger. D
y According to RCML, the registration fees once paid by RSL should be
given the benefit of continuity vide para 7 of Circular dated 30.9.2002
issued by SEBI. In other words, RCML now claims that it is entitled to
the benefit of registration fees which RSL had paid from time to time as
a broker in the cash and spot market. This claim of RCML has been E
rejected by the impugned decision. Hence, this civil appeal.
11. In the present case, the two companies merged because after
2000, derivative markets opened out. RSL basically operated under the
licences in cash and spot markets. They did not operate in the derivative
markets. When the two companies merged, a new entity emerged. That F
I
..., 't

entity was RCML. At this stage, it is important to bear in mind that licence
from NSE/BSE only provided a platform to RSL/RCML to carry on the
business of buying and selling shares on the stock exchange. However,
trade had to be regulated by SEBI. The Companies Act has been enacted
with a view to consolidate and anlend the law relating to companies and G
~- certain other associations. On the other hand, the 1992 Act has been
" enacted to provide for the establishment of a Board to protect· the
investors' interests in securities and to regulate the securities market and
for matters connected thereto. Under the said 1992 Act, SEBI·is required
H
636 SUPREME COURT REPORTS (2007] 11 S.C.R.

A to provide for regulating the business in stock exchanges, registering and
regulating the working of stock brokers and numerous other functions
which are enlisted in section 11(2) of the said 1992 Act. Under section
l IB of the 1992 Act, SEBI is also empowered to issue directions inter
alia to any person associated with the securities market. As a regulator,
B therefore, SEBI is entitled to charge registration fees for enabling it to
carry out the functions stipulated in section 11 (2) of the 1992 Act. We
repeat that there is a dichotomy between functions of the stock exchange
and the functions performed by SEBI. The licences given by the stock
exchange enables the stock-broker to buy and sell securities ,on the
C exchange whereas the regulation of the trade per se is done by SEBI for
which it is entitled to charge requisite registration fees. In the present case,
we have no doubt in our mind that, on merger of the above two
companies, a new entity stood emerged/constituted, which was given a
right to operate in the derivative segment and, therefore, it had to pay
D fresh registration fees on the turnover basis. That new entity (RCML) was
not entitled to the benefit of continuity of fees deposited earlier by RSL,
which got merged into RCML. According to RCML, the two companies
were required to merge because of acceptance of recommendations of
Gupta Committee by SEBI. According to the report of the said
E Committee, if a broker desires to enter derivative market then he is
required to have a net worth of at least rupees three crores. According
to RCML, the said requirement constituted a pre-condition for entering
the derivative market. According to RCML, this pre-condition of
possessing net worth of rupees three crores constituted compulsion of
F law, which made RSL merged into RCML and, in the circumstances, the
appellants were entitled to the benefit of Circular dated 30.9.2002 issued
by SEBI. Under the said circular, mergers/amalgamations carried out as
a result of compulsion of law stood excluded from payment of fees afresh.
12. We quote hereinbelow the said provision, which reads as under:
G "Merger/Amalgamations
Where mergers/amalgamations. are carried out as a result of
compulsion oflaw, fees would not have to be paid afresh to hold
majority shareholding in transferee entity. The Exchange would
H have to enumerate what constitutes "compulsion oflaw" resulting
f
RA TNABALI CAP ITAL MARKETS LTD. v. SECURITIES & 637
y- EXCHANGE BOARD OF INDIA [KAPADIA, J.]
in such merger/amalgamations, for consideration of SEBI." A

13. Placing reliance on the aforesaid clause, RCML contended that,
in ·the present case, RSL had merged into RCML on account of
compulsion of law and, therefore, they were entitled to the benefit of
continuity of fees earlier paid by RSL. According to RCML, but for tht:i
B
recommendations of Gupta Committee, RSL would not have merged into
)'-.
,, RCML. According to RCML, because of Gupta Committe~ prescribing.
the net worth of rupees three crores for entering into derivative market,·
RSL had to merge in RCML, which, according to the appellant,
constituted legai compulsion.
c
14. We do not find any merit in the above arguments. Two points
arises for determination in the present case. They are interconnected.
Firstly, whether RCML, on amalgamation, duly sanctioned by Calcutta ·
High Court, was entitled to claim the benefit of Fee Continuity and,
secondly, whether the demand made by SEBI imposing fresh turnover/ D
y registration fees on the merged entity (RCML) constituted an act in
derogation of the provisions of any other law for the time being in force
in terms of section 32 of the said 1992 Act.
15. As stated above, on 30.9.2002 SEBI had issued a circular stating I
that in the case of amalgamation/merger carried out as a result of E
compulsion of law, fresh turnover/registration fees would not have to be
paid afresh by a transferee entity. We are concerned with the expression
"compulsion of law" in that circular. It is true that, in the present case,
RSL had merged into RCML after complying with the provisions of
~~ sections 391 to 394 of the Companies Act. It is equally true that the F
Scheme of Amalgan1ation has been approved by the Calcutta High Court.
However, what is "compulsion of law" has not been defined by SEBI.
The reason is obvious. Under section 391 of the Companies Act, a
compromise or arrangement is proposed generally as an alternative to
liquidation. Where a scheme appears to be feasible and workable, it G
should be preferred to a winding up order.
~"
16. In the case of Himalaya Bank Ltd. v. L. Roshan Lal Mehra
reported in AIR (48) ( 1961) PUNJAB 550 it has been held vide para 6
that the scheme of arrangement under section 391 is an alternative to
H
638 SUPREME COURT REPORTS [2007] 11 S.C.R.

A liquidation. We quote hereinbelow para 6 of the said judgment:
"(6) Mr. D.N. Avasthy, learned counsel for the bank has next
· drawn my attention to Section 37 of the Banking Companies Act
which provides that the High Court may on the application of a
banking company which is temporarily unable to meet its
B obligations, make an order staying commencement or continuance
~f?ll.actions and proceedings against the company for a fixed
period of time on such terms and conditions as it shall think fit and
proper.

c The High Court is empowered under Section 37(3) to appoint
a special officer who is required to take into custody or control
the assets, books etc., including actionable claims to which the
banking company may be entitled. Section 38 empowers the High
Court to order the winding up of banking company if it is unable
D to pay its debts. Mr. D.N. Avasthy also maintains that the scheme
of arrangement is an alternative mode of winding up and, therefore,
such powers as the High Court possesses under Section 45-D of
the Banking Companies Act, 1949, will also entitle it to exercise
the same powers for enforcement of the scheme of arrangement
E etc.
He has rested his argument on three decisions reported in
Madan Gopal v. Peoples Bank of Northern India, Ltd, AIR
(1935) Lah 779 (SB), .Motilal Kanji and Co. v. Nat~1arlal M
Jhaveri, AIR (1932) Born 78, In re Travancore National and
F Qui/on Bank Ltd., AIR (1939) Mad 318. In AIR 1935 Lah 779
(SB), Tek Chand J. said:
'Section 153, Companies Act, makes provision not merely for
schemes for the 'resuscitation' or 're-organisation' of companies,
but it also provides for 'schemes of arrangement', which in the words
G
of Vaughan Williams J. (used in reference to the corresponding
section of the English Act) provide an alternative mode of
liquidation, which the law allows the statutory majority of creditors
to substitute for winding-up whether voluntary or under the Court.
In re London Chartered Bank of Australia, ( 1893) 3 Ch. 540 at
H
I
l.
RA TNABALI CAPITAL MARKETS LTD. v. SECURITIES & 639
'r"
EXCHANGE BOARD OF INDIA [KAPADIA,J.]
p. 546.' A
On the strength of these decisions, it was argued that the
scheme of arrangement was an alternative mode ofliquidation. This
does not appear to be so either under the Companies Act, 1956,
or under the Indian Companies Act, 1913, which preceded the ,B
present statute. Provisions of the Companies Act relating to
j.,
"Arbitration, Compromises, Arrangements and Reconstruction"
r' covered by Sections 389 to 396 are placed in Chapter V of Part
VI which deals with Management and Administration. Part VII is
devoted to Winding Up. A scheme, therefore, cannot be said to
be an alternative mode of liquidation but only an alternative to c
liquidation. The incidents of scheme of arrangement and of winding
up are distinct both in principle and in consequences.
The dictum of Vaughan Williams, J., which was cited in the three
decisions referred to above, was examined by a Full Bench ofthis D
y Court in Sm. Bhagwanti v. New Bank of India Ltd., Amritsar,
AIR (1950) EP 111. It was held by the Full Bench that in the
corresponding English Act all the sections relating to the scheme
were contained within the bar dealing with winding-up; and,
therefore, a scheme of that particular kind was correctly described E
as an alternative mode of winding up. That particular provision
which was being considered was applicable only to a company in
liquidation.
This is also clear from the observations of Vaughan Williams, J.,
--< "r only a portion of which was noticed in the three decisions referred F
to above. He said:
'The scheme of arrangement under the Act of 1879 is -- as I
have had occasion to point out in several cases -- an alternative
mode ofliquidation which the law allows the statutory majority of
G
Creditors to substitute for the pending winding-up, whether

' voluntary or under the Court, just as the Bankruptcy Act, 1869,
allowed the creditors the substituted liquidation by arrangement
under Section 125, or composition under Section 126, of that Act,
for a pending bankruptcy ........ '
H
/-\
640 SUPREME COURT REPORTS [2007] 11 S.C.R.
.......,,
A In view of this, I am riot persuaded by this argument of the learned
counsel for the bank, that the scheme of arrangement should be
treated as a specie ofliquidatioR I am, therefore, satisfied that this
Court has jurisdiction to entertain the petition and to pass
appropriate order in view of the provisions of section 392 of the
B Companies Act read with Section 391."
17. We make it clear that it would depend on the facts of each case ~-
whether a scheme under section 391 could be construed as an alternative ~ ....
to liquidation. It is not in every matter that the scheme under section 391
would constitute an alternative to liquidation. Therefore, it would depend
c on the facts of each case. Under circular dated 30.9.2002 what SEBI
intends to say is that fresh turnover/registration fees would not be payable
by a company which goes for amalgamation/merger as an alternative to
liquidation. In other words, if the company's net worth is negative and if
that company is on the brink ofliquidation, which compels it to go for a
D scheme under section 391, then in such cases SEBI exempts such
companies from payment of fresh turnover/ registration fees. Such is not
the case herein. On the contrary, in the present case, amalgamation has
~ t-

taken place in order to increase the "reserves" component of the net
_,
worth. The difference between the amount recorded as fresh share capital
E issued by the transferee company on amalgamation and the amount of
share capital of the transferor company to be reflected in the Revenue
Reserve(s) of the transferee company was the sole object behind
amalgamation. (see page 429 of vol. II in civil appeal No. 3674/07).
Therefore, SEBI was right, in the present case, in refusing to give the
F benefit of exemption to the transferee companies. These transferee ,., \_
companies were not on the brink of liquidation. The scheme mider section
391 was not an alternative to liquidation. Hence, the transferee companies
were not entitled to claim the benefit of Circular dated 30.9.2002. Further,
we do not find any merit in the argument that the demand raised by SEBI
G for fresh turnover/registration fees constituted an act derogatory of the
provisions of the Companies Act. In our view, on the emergence of a
new entity, which was entitled to operate in derivative market, SEBI was ,/..../
certainly entitled to regulate its trade in the derivative segment for which
it was entitled to charg~ requisite fees. Under the 1992 Act, a duty is
H cast on SEBI to protect the interest of investors in securities and to
RA TNABALI CAPITAL MARKETS LTD. v. SECURITIES & 641
EXCHANGEBOARDOFINDIA[KAPADIA,J.]
regulate the trade in securities on the Stock Exchange. Such Regulation is A
not a part of the Companies Act. Derivative market is highly speculative. 1

It carries lot of risks. In fact, history shows that many investors and traders
lost money earlier when badla transactions were prevalent. Derivative
market, to a certain extent, replaces badla. The point to be noted is that
Gupta Committee recommended the net worth of rupees three crores in, B
order to secure the interests of investors and traders who regularly play
in derivatives. In the circumstances, it cannot be said that raising of an
amount of rupees three crores as net worth constituted legal compulsion
for RSL to merge into RCML. As stated above, the Government decided
to vest SEBI with statutory powers in order to deal effectively with all i c
matters relating to capital market. The main function ofSEBI is to regulate
the trade which takes place in the securities market and for that purpose
it is entitled to charge registration fees. In the present case, we are
concerned with merger of two distinct independent companies. In the1
present case, we are not concerned with merger of firms. In the present D
case, we are ·not concerned with joint ventures. After the merger of RSL
into RCML a new entity has emerged. In the circumstances, SEBI was
entitled to charge the stipulated fees. For the aforestated reasons, we finq
no merit in these two civil appeals.
18. Before concluding, we may note that, according to the appellants, E
in the past SEBI has not charged registration charges at the rates
prescribed in case of two other companies. According to the appellants1
SKP Securities Ltd. and BNK Securities Pvt. Ltd. were given in the past
the benefit of fee continuity under para 7 of Circular dated 30.9.2002
whereas the said benefit has been denied to RCML. We do not know all F
the facts of those transactions. Be that as it may, we are concerned with
the position in law. We reiterate that there is no merit in these civil appeals:.
19. For the aforestated reasons, we see no reason to interfere with
the impugned orders passed by the Securities Appellate Tribunal, Mumbai.
Accordingly, both the civil appeals stand dismissed with no order as tQ G
costs.
D.G. Appeals dismissed.