SECURITIES & EXCHANGE BOARD OF INDIAversusICAP INDIA PVT. LTD.

                   (2015] 11 S.C.R. 65


     SECURITIES & EXCHANGE BOARD OF INDIA                   A
                            v.
                  ICAPINDIAPVT. LTD.
              Civil Appeal No. 5275 of2006
                                                            B
                  NOVEMBER 24, 2015
   [VIKRAMAJIT SEN AND SHIVA KIRTI SINGH, JJ.]
      Securities & Exchange Board of India (Stock Brokers
&Sub-brokers) Regulations, 1992-Schedule Ill Explanation c
after paragraph 3 - Term 'annual turnover' - Interpretation of
-Annual turnover of the stock broker- Computation for the
purpose of registration fee - Held: Annual turnover of the
stock broker must include the value of entire transaction for
the purpose of computing the registration fee - Term 'annual D
tu mover' cannot be interpreted so as to mean only the amount
earned by the stock broker by way of brokerage.

     Partly allowing the appeal, the Court
                                                          E
      HELD: On a careful analysis of the Explanation
occurring after paragraph 3 of Schedule Ill of the
Securities & Exchange Board of India (Stock Brokers &
Sub-brokers) Regulations, 1992 and the definition of
'annual turnover' contained therein as also the
                                            1
reasonings in the impugned order, the SAT erred in F
limiting the annual turnover of the respondent only to
the amount of brokerage earned by it. The earning by
way of brokerage represents only the part of price of
securities received by the stock broker on his own G
account. The other and more significant part of the
'annual turnover' as per the Explanation is the aggregate
of the sale and purchase prices of securities, received
or receivable by the stock broker on account of his
                           65                               H
66         SUPREME COURT REPORTS               [2015) 11 S.C.R.


A    clients in respect of sale and purchase or dealing in
     securities during the. financial year. The view taken by
     the SAT that since in the wholesale debt market segment
     the broker has a limited role as per the RBI circular and
     since the broker does not receive the sale or purchase
B    price because the payment is directly made to the seller,
     the broker will be saved from inclusion of the sale and
     purchase prices in his annual turnover, suffers from an
     apparent error. The error lies in not appreciating that the
     component of aggregate of sale and purchase prices
C    which is receivable by the stock broker even on account
     of his clients is included in the annual turnover. Such
     sale and purchase price receivable by the stock broker
     on account of his clients, under the directions of the RBI
     through the circular dated June 20, 1992 presently goes
0
     directly to the seller but it is of no significance. Even if
     such sale and purchase price had actually been received
     by the stock broker not on his own account but on
     account of his clients, it could not belong to the broker
E    and had to be passed on to the seller because such
     amount was receivable clearly on account of his clients
     in contradistinction to any part of sale and purchase
     price received or receivable by the stock broker on his
     own account. Thus viewed, the annual turnover- of the
F    stock broker as per the Explanation must include the
     value of entire transaction for the purpose of computing
     the registration fee as per Schedule Ill of the Regulations.
     In no case the term 'annual turnover' can be so
     interpreted as to mean only the amount earned by the
G    stock broker by way of brokerage. The impugned order
     passed by the SAT is.erroneous in law and is set aside.
     The matter is remitted back to the SAT for deciding the
     other relevant issues and grounds as per law. [Para 12,
     15] [74-C-H; 75-A-C; 76-B-C]
H
      SECURITIES & !=XCHANGE BOARD OF INDIA v. ICAP              67
                      INDiAPVf. LTD.

         B.S.E. Brokers' Forum v. Securities & Exchange          A
         Board of India (2001) 3 SCC 482 -relied on.
         K.P. Varghese v. Income-tax Officer, Emakulam
         1982 (1) SCR 629: (1981) 4 SCC 173; Income-
         tax Officer, Alleppey v. I. M. C. Ponnoose AIR 1970
                                                                 B
         SC 385: 1970 (1) SCR 678; Government of
         Andhra Pradesh v. P. Laxmi Devi 2008 (3)
         SCR 330: (2008) 4 SCC 720 - referred to.
                      Case Law Reference
                                                                 c
       1982 (1) SCR 629        referred to.          Para 7
       1970 (1) SCR 678        referred to.          Para 9
       2008 (3) SCR 330        referred to.          Para 9
       (2001) 3 sec 482        referred to.          Para 13
                                                                 D
       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
  5275 of2006

      From the Judgment and Order dated 14.08.2006 of the
  Securities Appellate Tribunal in.Appeal No. 56 of2004.
                                                                 E
      Chander Uday Singh, Dhaval Mehrotra, Bhargava V.
  Desai, Saumya Mehrotra, Rishi Gautam for the Appellant.

       Jayant Bhushan, Gaurav Agrawal, Prateek Rusia, Amar
  Dave, Vanita Bhargava, Ajay Bhargava, Abhisar Bairagi,         F
  Khaitan & Co. for the Respondent.

· 1     The Judgment of the Court was delivered. by

      · SHIVA KIRTI SINGH, J. 1. This appeal under Section G
 15Z of the Securities & Exchange Board of India Act, 1992
 (for brevity, 'the SEBI Act') has been preferred by the Securities
 & Exchange Board of India (for brevity, 'the SEBI') to challenge
 the judgment and order dated. 14.08.2006 passed by the
                                                                 H
68         SUPREME COURT REPORTS                    [2015] 11 S.C.R.


A    learned Securities Appellate Tribunal (hereinafter referred to
     as 'the SAT') in Appeal No.56 of 2004.

           2. The substantial question of law falling for determination
     involves interpretation of the term 'annual turnover' as it finds
B    mention in the Explanation after paragraph 3 of Schedule Ill to
     the Securities & Exchange Board of India (Stock Brokers &
     Sub-brokers) Regulations, 1992 (for brevity, 'the Regulations').
     The aforesaid Explanation reads as follows :

c         "Explanation. - For the purpose of paragraphs 1, 2 and
          3, "annual turnover" means the aggregate of the sale and
          purchase prices of securities received and receivable
          by the stock broker on his own account as well as on
          account of his clients in respect of sale and purchase or
o         dealing in securities during any financial year."

        3. The factual matrix may be noted only in brief. The
  respondent is a stock broker in the wholesale debt market
  segment of the National Stock Exchange and deals in debt
E market securities. The stand of the respondent is that the price
  of the dealt with securities would not form part of the concerned
  broker's 'annual turnover' and the same cannot be the basis
  for computing the registration fee of stock brokers like the
  respondent. This stand is based on a circular of Reserve Bank
F of India (for brevity, 'RBI') dated June 20, 1992, issued with a
  view to regulate the wholesale debt market. The dispute in
  respect of quantum of registration fee demanded by the SEBI
  was brought before the SAT by way of challenge to SEBl's
  order dated November 28, 2003 directing the respondent to
G pay Rs.33,51.45,620/-towards principal and Rs.3,78,29,623/
  -towards interest as on November 30, 2003. As noticed above
  the SAT allowed the appeal of the respondent and set aside
  the order passed by SEBI vide its judgment and order under
  appeal.
H
 SECURITIES & EXCHANGE BOARD OF INDIA v. ICAP                     69
      INDIAPVT. LfD. [SHIVAKIRTI SINGH, J.]

      4. The circular dated June-20, 1992 issued by RBI as a A
regulator of the wholesale debt market is the basis for the SAT
to hold that for the permissible activity of bringing the parties
together, no amount is received or receivable by the stock
broker when he deals in the wholesale debt segment of the
market and therefore the definition of "annual turnover" forthe B
purpose of paragraphs 1, 2 and 3, as contained in the
Explanation to Paragraph 3 of Schedule Ill to the Regulations
is not satisfied. Before adverting to other relevant facts it is
useful to notice the relevant part of this circular which reads as
under:                                                             C

     "Ill. DEALINGS THROUGH BROKERS
     (i) If a deal is put through with the help of a broker,
     the role of the broker.shouid be restricted to that of
                                                                  D
     bringing the two parties to the deal together.
     (ii) While negotiating the deal, the broker is not
     obliged to disclose the identity of the counterparty
     to the deal. However, on conclusion of the deal, he
     should disclose the counter party and his contract           E
     note should clearly indicate the name of the
     counterparty.
     (iii) On the basis of the contract note disclosing
     the name of the counterparty, settlement of deals
                                                                  F
     between banks, viz., both fund settlement and
     delivery of security, should be directly between the
     banks, and the broker should have no role to play
     in the process.
     (iv) With the approval of their top managements,             G
     banks should prepare a panel of approved brokers
     which should be reviewed annually, or more often if
     so warranted. Clear-cut criteria should be laid down
     for empanelment of brokers, including verification
     of their creditworthiness, market reputation, etc. A         H
70        SUPREME COURT REPORTS                 [2015] 11 S.C.R.


A        record of broker wise details of deals put through
         and brokerage paid, should be maintained.

         (v) Ad isproportionate part of the business should
         not be transacted through only one or a few brokers.
B        Banks should consider fixing aggregate contract
         limits for each of the approved brokers, and ensure
         that these limits are not exceeded."

         5. The stand of the appellants is that the SAT has mis-
c interpreted the Explanation to paragraph 3 to hold that the
  "turnover" for purpose of fee will not be the value of the stocks
  under transaction but only the value of brokerage earned by
  the stock brokers like the respondent. According to Mr. C.U.
  Singh, learned senior counsel for the SEBI the respondent is
0 bound by the provisions of the SEBI Act, the rules framed
  thereunder as well as the Regulations. The law does nc1t permit
  any one to act as a stock broker either in respect of shares in
  the equities segment or the Government securities in the
  wholesale debt segment until he is registered with the SEBI.
E Such registered broker has to pay the prescribed fee as per
  Schedule Ill of the Regulations. He highlighted clause 1(bb)(ii)
  of Schedule Ill which was inserted by the Amendment
  Regulations of 2002 w.e.f. February 20, 2002. It is the case of
  the appellant that clause 1(bb )(ii) was introduced in the
F Regulations because the SEBI accepted the Bhatt
  Committee's recommendations for fixing a lower rate of fees
  for transactions in bonds and securities. The lower rate for
  transactions in bonds and Government securities was on
  account of comparative higher value of such transactions
G leading to higher turnover and that justified imposition of lower
  rate of fees. The grievance of the appellant is thatthe SAT did
  not consider such clear substantive provision and its history
  while interpreting the Explanation in a manner which amounts
  to doing violence to the main provision itself. Learned counsel
H for the appellant also referred to judgment of this Court in the
 SECURITIES.& EXCHANGE BOARD OF INDIA v. ICAP                      71
      INDIAPVT. LTD. [SHIVAKIRTI SINGH, J.]

case of B.S.E. Brokers' Forum v. Securities & Exchange             A
Board of India (2001) 3 SCC 482 and pointed out that in
paragraph 43 the Court noted that the petitioners of that case
had strongly relied upon the Report submitted by the Bhatt
Committee. Further in paragraph 47 the Court rejected the
contention of the petitioners after noticing the                   B
recommendations of the Bhatt Committee to the effect that
"on Government securities, PSU bonds and units, the turnover
will have to be calculated sepa.rately and a fee of 1OOOth of 1%
may be charged on such turnover than the present scale of
1001h of 1%." Thereafter the Court observed that the Board         C
was bound to bring about the corresponding changes so as to
remove the anomalies pointed out by the Committee. It also
noted that the Board or the SEBI had accepted the
recommendations and they would be incorporated in the              D
Regulations. The Court concluded that subject to the
recommendations of the Bhatt Committee to be incorporated
in the Regulations, the challenge made to the levy based on
the measure of turnover had to be rejected.

      6. On behalf of appellant it was further pointed out that E
through Notification No.S.O. 184(E) issued by the SEBI and
Notification No.S.O.(E) issued by RBI, both dated March 01,
2000 it was made clear that all contracts for sale or purchase
of Government securities when entered into through F
recognized stock exchanges, would be subject to the SEBI
Act, Securities Contracts (Regulation) Act, 1956 as well as
rules, regulations, bye-laws and circulars made under those
Acts. It was also pointed out that Section 2(h) of the Securities
Contracts (Regulation)Act, 1956 defines "securities" to include G
not only Government securities but also rights or interests in
securities. Hence, according to appellant the physical receipt
of securities or payments is not necessary. It was further
contended on behalf of appellant that the circular· of RBI of 1992
cannot affect the statutory regime governing fees payable by H
72         SUPREME COURT REPORTS                 [2015] 11 S.C.R.


A    a registered broker to the SEBI as per provisions in the
     Regulations. Lastly it was submitted that the appellant has
     calculated and <lemanded the fee as per clause 1(b) instead
     of clause 1(bb) because the respondent did not disclose
     details of its different transactions.
B
         7. On behalf of appellant reliance was placed upon
  judgment of this Court in the case of K.P. Varghese v. Income-
  tax Officer, Ernakulam (1981) 4 SCC 173 to highlight various
  principles relating to interpretation of statutes. In particular,
C reliance was placed upon the principle that plain meaning or
  literal construction may not be relied upon if it results in
  absurdity, injustice and unconstitutionality. In such a situation
  Court should construe the real meaning having regard to the
  object and purpose behind enacting the provision as well as
D the context of the setting in which it occurs and with a view to
  suppress the mischief sought to be remedied by the
  Legislature.

           8. In reply Mr. Jayant Bhushan, learned senior advocate
E    submitted that in the case of B.S.E. Brokers' Forum this Court
     upheld the validity of the registration fees levied by the SEBI
     but there was no occasion in that case to interpret the term
     'turnover' as defined through the Explanation. He also referred
     to an Explanation to clause 2 of Schedule IV of the Regulations
F    only for comparing the two Explanations and pointing out that
     while laying down the Schedule of Fees to be paid by the
     Trading' or Clearing Member or Self Clearing Member the
     expression 'annual turnover' has been defined differently so
     as to take into account "the aggregate value of all trades
G    executed by the trading member ..... ". By placing reliance
     upon pleadings of the SEBI, the view taken by the SAT in the
     impugned judgment was sought to be supported further on the
     ground that in respect of wholesale debt market SE~I merely
H    'monitors' and does not 'regulate' and therefore there can be
 SECURITIES & EXCHANGE BOARD OF INDIA v. ICAP                      73
      INDIAPVT. LTD. [SHIVAKIRTI SINGH, J.)

no justification to include the entire value of stocks in tlile A
turnover for calculating the registration fee. It was conceded
however that the wholesale debt market was considerably
widened in 2003 and SEBI may claim that it is required to
regulate the wholesale debt market from 2003 onwards but
that should not affect the present case which is related to an B
earlier period, only upto December 2002. Mr. Bhushan took
us through the documents and pleadings to counter the
allegation that respondent did not disclose the details and
particulars of its business deals/accounts. According to him,
it is admitted in the inspection report that the respondent dealt C
only in the wholesale debt market segment.

      9. On behalf of respondent reliance was placed upon
case of Income-tax Officer, Alleppey v. l.M.C. Ponnoose
AIR 1970 SC 385 and case of Government of Andhra                   D
Pradesh v. P. Laxmi Devi (2008) 4 SCC 720 in support of a
well established proposition of law that unless the Statute
empowers the concerned authority to make a rule or regulation
with retrospective effect, such authority cannot make a rule,
regulation or bye-law with retrospective effect.                   E

      10. Lastly it was pointed out from the materials on record
that respondent had raised several other grounds for objecting
to the impugned action of the SEBI but the SAT allowed
respondent's appeal on the basis of interpretation of the term     F
'annual turnover' and did not deal with other grounds.

      11. We do not find any merit in the contention advanced
on behalf of the respondent that the Explanation under clause
2 of Schedule IV can be used in contradistinction of differently G
worded Explanation under paragraph 3 of Schedule Ill to
support the interpretation of the term 'annual turnover' given
by the SAT. While Schedule Ill relates to Regulation 10 which
governs fees to be paid by the stock broker or sub-broker,
Schedule IV relates to Regulation 16G(1) which governs fees H
74          SUPREME COURT REPORTS                    f2015] 11 S.C.R.


A    tote paid by the Trading or Clearing Member or Self Clearing
     Member of Derivatives Exchange/ Derivatives Segment/
     Clearing Corporation/ Clearing House. In such a situation, in
     our view, the term 'annual turnover' has to be understood only
     in the light of Schedule Ill and its contents including the relevant
B    Explanation.

           12. On a careful analysis of the Explanation occurring
     after paragraph 3 of Schedule Ill and the definition of 'annual
     turnover' contained therein as also the reasonings in the
C    impugned order we are constrained to hold that the SAT has
     erred in limiting the annual turnover of the respondent only to
     the amount of brokerage earned by it. The earning by way of
     brokerage represents only the part of price of securities
     received by the stock broker on his own account. The other
D    and more significant part of the 'annual turnover' as per the
     Explanation is the aggregate of the sale and purchase prices
     of securities, received or receivable by the stock broker on
     account of his clients in respect of sale and purchase or dealing
     in securities during the financial year. The view taken by the
E    SAT that since in the wholesale debt market segmentthe broker
     has a limited role as per the RBI circular and since the broker
     does not receive the sale or purchase price because the
     payment is directly made to the seller, the broker will be saved
F    from inclusion of the sale and purchase prices in his annual
     turnover, suffers from an apparent error. The error lies in not
     appreciating that the component of aggregate of sale and
     purchase prices which is receivable by the stock broker even
     on account of his clients is included in the annual turnover. Such
G    sale and purchase price receivable by the stock broker on
     account of his clients, under the directions of the RBI through
     the circular dated June 20, 1992 presently goes directly to the
     seller but it is of no significance. Even if such sale and
     purchase price had actually been received by the stock broker
H    not on his own account but on account of his clients, it could
                     •
 SECURITIES & EXCHANGE BOARD OF INDIA v. ICAP                  75
      INDIAPVT. LTD. [SHIVAKIRTI SINGH, J.)

not belong to the broker and had to be passed on to the seller A
because such amount was receivable clearly on account of
his clients in contradistinction to any part of sale and purchase
price received or receivable by the stock broker on his own
account. Thus viewed, the annual turnover of the stock broker
as per the Explanation must include the value of entire B
transaction for the purpose of computing the registration fee
as per Schedule Ill of the Regulations. In no case the term
'annual turnover' can be so interpreted as to mean only the
amount earned by the stock broker by way of brokerage.
                                                               c
      13. The same conclusion will emerge on considering the
legislative history leading to insertion of clause 1(bb) in
.Schedule Ill whereby transactions in Government securities,
bonds issued by any public sector undertaking and the units,
traded in a similar manner were placed in a separate category D
for which the fee is kept at a much lower rate of 10001h of 1%
of the turnover. The SAT erred in not considering the obvious
purpose of such a provision brought through an amendment in
the light of recommendations of the Bhatt Committee which
 had received not only approval of the SEBI but also of this E
Court as per judgment in the case of B.S.E. Brokers' Forum.

       14. So far as defence of the respondent that in the
wholesale debt market segment, at least prior to 2003, the
SEBI was required only to 'monitor' and not to 'regulate' such F
market cannot cut any ice because the provisions relating to
registration fee by the SEBI have already been held valid and
in the present proceedings there is no challenge to the relevant
provisions including those in Schedule Ill of the Regulations.
As already noted, in the case of B.S.E. Brokers' Forum this G
Court directed the SEBI to incorporate the relevant
recommendations of the Bhatt Committee in the Regulations
and as a result the rate of fee on Government securities etc.
dealt in the wholesale debt market was lowered and pegged H
76           SUPREME COURT REPORTS              (2015) 11 S.C.R.


A    at 1/1 Olh in comparison to fees payable by the stock brokers
     in other segment.

        15. In view of the above discussions and the interpretation
  of the term 'annual turnover' indicated by us earlier, we are
B constrained to hold the impugned order passed by the SAT
  as erroneous in law. It is accordingly set aside. There is a
  consensus that in case the impugned judgment and order is
  set aside, the matter deserves to be remanded back so that
  other grounds earlier raised by the respondent may now be
C considered by the SAT in accordance with law. For that
  purpose the matter is remitted back to the SAT for deciding
  the other relevant issues and grounds as per law at an early
  date, preferably within six months. The appeal thus stands
  allowed to the extent indicated above. In the facts of the case
D there shall be no order as to costs. The amount of Rs.2.9
  crores deposited by the SEBI with the Registry has been
  invested in an interest bearing account and the FDR is due to
  mature on 30.11.2015. As soon as the amount matures, the
  same should be refunded to the SEBI without any delay.
E
     Nidhi Jain                                 Appeal partly allowed.