Judgment:
1. KJMC Financial Services Ltd., appellant No.2 was a member of the National Stock Exchange (for short NSE) carrying on its business as a stock broker. It was registered with the Securities and Exchange Board of India (for short the Board) as a stock broker. In addition to broking business, it carried on business as a merchant banker as well.
Rule 8 (1)(f) of the Securities Contracts (Regulation) Rules, 1957 (for short 1957 Rules) provides that no person shall be eligible to be a member of a stock exchange if he is engaged as principal or employee in any business other than that of securities. Since appellant no.2 was not only engaged in the business of securities as a stock broker but was also carrying on business as a merchant banker, it decided to continue as a merchant banker and transferred its membership card of the NSE to KJMC Capital Market Ltd. which is appellant no.1 before us.
In other words appellant no.2 ceased to be a stock broker after the transfer of its membership and that appellant no.1 became a stock broker and was registered afresh with the Board in the year 1995.
Appellant no.1 now claims that since the membership of the stock exchange was transferred to it from appellant no.2, the former is entitled to claim the benefit of the registration fee which was paid by the latter and that the Board cannot claim fresh registration fee from appellant no.1 at the time of its registration as a stock broker in the year 1995. This claim of appellant no.1 is without any basis. Rule 3 of the Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Rules, 1992 provides that no stock broker shall buy, sell or deal in securities unless he holds a certificate granted by the Board under the Regulations. Rule 4 of these rules provides the conditions for grant of certificate to a stock broker and one of the conditions contained in clause (d) is that he shall pay the amount of fees for registration in the manner provided under the Regulations. Regulation 10 of the Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Regulations, 1992 (for short the Regulations) mandates that every applicant eligible for grant of certificate of registration shall pay such fees and in such manner as specified in Schedule III. When we look at Schedule III of the Regulations we find that every stock broker is required to pay registration fee on the basis of his annual turn over. If the turn over does not exceed Rs.1 crore during any financial year a sum of Rs.5,000/- has to be paid as fee for each financial year.
Where the annual turn over of the broker exceeds Rs.1 crore during any financial year, then a sum of Rs.5,000/- plus one hundredth of one per cent of the turn over in excess of Rs.1 crore for each financial year has to be paid. Clause (c ) of paragraph 1 of the IIIrd Schedule provides that in order to keep the registration in force the broker has to pay after the expiry of five financial years from the date of initial registration a sum of rupees five thousand for every block of five financial years commencing from the sixth financial year after the date of grant of initial registration. It is, thus clear that when appellant no.1 was registered as a broker in the year 1995 it was required to pay registration fee in terms of Schedule III to the Regulations. There is no provision in the Schedule which exempts the payment of fresh registration fee on the transfer of membership from one broker to another. After the transfer of the membership card, appellant no.1 had to be registered afresh and, therefore, it had to pay the fresh registration fee. The appellants also rely on paragraph 1 of the circular dated September 30, 2002 issued by the Board pertaining to fees payable by stock brokers. This paragraph reads as under: 1. TRANSFER OF MEMBERSHIP TO 100% SUBSIDIARY, GROUP COMPANY, HOLDING COMPANY ETC.2. Where brokers are forced by compulsion of law to transfer their membership to: they shall not be required to pay fees afresh. In such cases, the Exchange would have to enumerate circumstances under law resulting in the said transfer to 100% subsidiary/group/holding company for consideration by SEBI.3. A bare reading of the aforesaid paragraph makes it clear that if the brokers are forced by compulsion of law to transfer their membership to a 100% subsidiary company then the transferee will not be required to pay fees afresh. The argument of the learned Counsel for the appellants is that in view of the embargo contained in Rule 8 (1)(f) of the 1957 Rules, appellant no.2 could not carry on the business of stock broking together with the business as a merchant banker and it was forced by law to transfer its membership to appellant no.1 and, therefore, appellant no.1 is entitled to the benefit of the registration fee paid by appellant no.2. We do not think so. It is true that Rule 8 (1)(f) of the 1957 Rules does not permit a stock broker to carry on any other business and, therefore, appellant no.2 had two options before it. It could carry on business as a stock broker and give up its business as a merchant banker. It did not exercise this option. On the other hand, it gave up its business as a stock broker and continued working as a merchant banker. It was in these circumstances that appellant no.2 decided to transfer its membership card to appellant no.1 which is a 100% subsidiary company. We are, therefore, satisfied that there was no compulsion of any law as a result of which appellant no.2 had transferred its membership. It was a voluntary act on its part and, therefore, the circular dated September 30, 2002 will not come to the aid of the appellants.
5. For the reasons recorded above we find no merit in the appeal and the same stands dismissed leaving the parties to bear their own costs.