JUDGMENT
Rajaratnam, J. (Presiding Officer)
1. The appeal was taken up with the consent of both parties.
2. This appeal is against the order dated 28th September, 2004 of the Respondent No.1 which interalia reads as under:
Shri Kevin Desouza
Chief General Manager, Membership,
The Stock Exchange, Mumbai
Phiroze Jeejeebhoy Towers,
Dalal Street,
Mumbai – 400 001.
Dear Sir,
Sub: Application for Registration of M/s. Cydal Investments Pvt. Ltd.,(CIPL) as a Stock Broker of The Stock Exchange, Mumbai.
Please refer to the correspondences resting with your letter No.MEB/SJV/1910/2003 dated August 01, 2003 on the above subject.
The Circular Nos.SMD/BDA-II/CIR-22/2002 dated September 12, 2002 and MIRSD/MSS/Cir-30/13289/03 dated July 09, 2003, requires the submission of applications for registration of transferee to SEBI within 5 months of the date of prior approval by SEBI. In the instant case, the prior approval for sale of membership of Mr. Ramesh Seth was granted on January 24, 2003. Therefore, it was necessary that the application for registration of transferee i.e. SIPL, was filed with SEBI by July 23, 2003. The application was however, forwarded after the expiry of the validity of the prior approval.
In view of the above, the application of CIPL with the enclosures is returned herewith.”
3. Aggrieved by the above order of the Respondent No.1, the appellant filed the present appeal requesting the Tribunal to quash and set aside the impugned order dated 28/09/2004 passed by the Respondent No.1.
4. The facts of the case are that the appellant is a private limited company incorporated under the Companies Act, 1956 and is in the business of brokering. The appellant has been admitted as a Member of the Respondent No.2 i.e. BSE.
5. During July, 2001, one Shri Ramesh Seth (the Transferor) who was the Member of Respondent No.2 having Registration No.INB 01002404 expressed his willingness to the appellant for sale of membership card of Respondent No.2 to the appellant. On July 19, 2001 the transferor sought prior approval of the Respondent No.2 for nomination of his Membership rights in favour of the appellant.
6. On 12/11/2001 the transferor executed a general power of attorney in favour of Mr. Nagji Rita wherein it was inter alia stated that the transferor had entered into agreement with the appellant for approval of all the right, title and interest in his membership rights of Respondent No.2. It was also stated in the said agreement that the transferor nominates Mr. Nagji Rita to complete the formalities for transfer of membership rights in favour of the appellant and to settle the dues and claims of the investors pending against him.
7. On 31.1.2002 the transferor submitted the requisite papers to Respondent No.2 inter alia nominating the membership right in favour of the appellant.
8. The Respondent No.2 forwarded the said documents pertaining to transfer of Membership rights in favour of the appellant to the Respondent NO.1 for grant of prior approval in terms of Rule 4 (c) of SEBI (Stock Broker & Sub Broker) Rules, 1992.
9. The Respondent No.1 vide its letter dated January 24, 2003 granted prior approval in terms of Rule 4 (c) as requested by the transferor through Respondent No.2.
10. On receipt of the said prior approval from the Respondent NO.1, the appellant applied to the Respondent NO.2 for transferring membership rights in his favour.
11. In the meanwhile the transferor filed some complaints with Respondent No.2 with regard to transferring of membership in favour of the appellant and disputed execution of any documents for transfer. According to the appellant the Governing Board of the Respondent No.2 gave adequate opportunities to the transferor to substantiate its complaints. It is represented by the appellant that the transferor never availed of this opportunity of hearing provided by the Governing Board of Respondent No.2 on one pretext or the other, and did not bother to appear before the Governing Board.
12. The Governing Board finally approved the nomination of the Exchange’s membership right in favour of the appellant. Thereafter, Respondent No.2 vide its letter dated 26/4/2003 inter alia informed the appellant that the Governing Board in its meeting on 9.4.2003 has elected the appellant as Member under the terms of and subject in all respects to the Rules, Bye-laws and Regulations of the Respondent No.2. Further the appellant was also advised to deposit various fees applicable for such membership. The appellant paid the amounts as required by the Respondent No.2 within the stipulated time.
13. Thereafter the Respondent No.2 vide its letter dated 15/5/2003 inter alia noted that the appellant has paid the amount as advised by it to the appellant. An extract from the copy of the letter dated 15/5/2003 issued by the Respondent No.2 indicates as under:
“I note that you have paid the amount as above. Accordingly I am to advise you that you have been admitted as a member of the Exchange, with the clearing code No0.728. However, in order that you may start exercising the rights and privileges of a member, the following conditions have to be fulfilled by you:
(a) The two designated directors viz. (i) Shri Sameer G. Chhadwa and (ii) Shri Rasiklal P. Chhadwa who appeared before the Governing Board on 9th April, 2003 for the interview and future designated directors of your company appointed from time to time, shall not be engaged as principals or employees in any business other than that of securities or render professional services in any other capacity.
(b) Any change in the Memorandum of Association, name, designated directors/wholetime directors, capital or in the shareholding pattern of the company will be made only with the prior permission of the Exchange.
(c) You shall obtain a certificate of registration from SEBI. Application Form A for this purpose is sent herewith. In terms of Clause 9 thereof, you are requested to submit therein the application copies of all the documents/papers submitted by you to the Exchange in connection with your membership application. You are also required to send a cheque for Rs.5,000/- drawn in favour of the “Securities and Exchange Board of India” alongwith the application towards registration fee.
(d) You shall submit the required contribution to the Trade Guarantee Fund and complete the necessary formalities of the Fund before commencement of business.
(e) You shall submit the required contribution to the Stockbrokers Indemnity Insurance Scheme and complete the necessary formalities of the Fund before commencement of business.
You shall open a Pool Account with BOI Shareholding Ltd., or any Depository Participants, wherever permissible of Central Depository Services (India) Ltd., and National Securities Depository Ltd., for settlement purposes.
You must submit a proof of having opened these accounts before commencement of business.
You shall open Bank A/c with Bank of India, Main Branch or Stock Exchange Branch – for debiting the charges, related to safe custody of collateral, deposited by you with the Exchange.
You must submit proof of having opened these accounts before commencement of business.
14. The appellant submitted that on July 4, 2003 he submitted the application for registration and forwarded the Form A duly filled in along with the original SEBI Registration Certificate of the transferor to the Respondent No.2 as advised by the Respondent No.2 vide its letter dated 15.5.03 for obtaining the certificate of registration from SEBI.
15. On August 4, 2003 the Respondent No.2 forwarded all the requisite papers to the Respondent No.1 for registration of the Appellant as the stock broker.
16. In response to the said letter dated August 4, 2003 of Respondent No.2, the Respondent No.1 vide its letter No.BR1/15/15162/2003 dated August 11, 2003 inter alia informed the Respondent No.2 that the validity period of SEBI prior approval dated 24th January, 2003 had expired as the Exchange was required to forward the application for registration of the appellant within six months from the date of grant of prior approval. (i.e. before July 23, 2003.) There was admittedly a delay of 7 days in submitting the application.
17. The Respondent No.2 requested vide its letter dated September, 20, 2003 to condone the delay of 7 days in submitting the application of the appellant.
18. The Respondent No.1 however, did not consider the application as the same was received on August 4, 2003 after the expiry of the prior approval.
19. The appellant submitted that if delay is not condoned, then irreparable loss and injury will caused to t he appellant since it is not in a position to comply with the condition of obtaining prior approval.
20. The contention of the appellant is that the appellant had already on 15/5/2003 been admitted as a Member by the BSE and it would not be practicable for Mr. Ramesh Sheth (the Transferor) to apply for fresh prior approval as he ceases to be a Member of BSE. The appellant further submits that the Respondent is aware that as on date the application for prior approval cannot be made. Therefore, it was submitted by the appellant that if that be so, then the appellant cannot be denied registration merely on the ground of delay on the part of BSE in forwarding the application to the Respondent.
21. The appellant submitted that he has already paid an amount of approximately Rs.97 lacs and an amount of Rs.20,07,000/- to BSE. Further more, the appellant has already been admitted a Member of the Stock Exchange since 16/5/2003.
22. The appellant further submitted that the contention of SEBI that if SEBI accepts the present application deviating from earlier practice of requesting the exchange to apply afresh for prior approval in similarly situated cases then the erstwhile member may content that SEBI has colluded with the new member, specially when he is alleging that the transfer was based on signatures obtained under threat is unsustainable.
23. The appellant further submits that the so called apprehension of the Respondent that the erstwhile member may contend that SEBI has colluded with the new member, cannot be the ground for non condonation of delay in the facts and circumstances of the instant case. Thus, according to the appellant, the Respondent has rejected the application for registration of the appellant only on the ground of delay.
24. The appellant further submitted that prior approval was communicated to the Respondent on 24th January, 2003. Thereafter the transferor vide its letter dated 2/4/2003, 15/5/2003, 24/5/2003 and 28/5/2003 inter alia complained to the Respondent regarding the transfer of membership. However, the Respondent vide its order dated September 28, 2004 rejected the application of the appellant only on the ground of delay of 7 days in submission of the application.
25. The appellant submitted that for the last two years an amount of approximately Rs.1,20,00,000/- of the appellant is stuck and the appellant is not in a position to commence trading for want of receipt of registration from the Respondent for no fault of the appellant. Without prejudice, the appellant submitted that if at all there has been any default on the part of the appellant in submitting the application, it has already suffered for two years and, therefore, in all fairness and in the interest of natural justice, the Respondent be directed to condone the delay and grant registration.
26. As per the submission of The Respondent No.1 i.e. SEBI, the validity of prior approval had expired on 23rd July, 2003 whereas the application for fresh approval dated 1/8/2003 was received by SEBI on 4/9/2003. Therefore, the appellant has to apply afresh for prior approval.
27. With regard to the question of this Tribunal as to whether SEBI had in the past one year condoned delay of this type, it was submitted by the Representative of SEBI that during the last one year SEBI has not condoned any such delay as far as the grant of prior approval for sale of membership under rule 4(c) is concerned. Wherever such delay has occurred fresh application has been considered. It was reiterated by SEBI that if SEBI accepts the present application deviating from the earlier practice of requesting the exchanges to apply afresh for prior approval in similar situated cases then the erstwhile member may content that SEBI has colluded with the new member, specially when he is alleging that the transfer was based on signatures obtained under threat.
28. I have perused all the relevant documents submitted by the appellant and the Respondents. It is a fact that the appellant has paid various fees as required by BSE. The appellant has also submitted the application to BSE on July 4, 2003. In turn BSE forwarded the application on August 4, 2003. I, therefore, do not find any fault with the appellant. The fault, if any is with BSE, in send the applications as they are aware of the limitation clause as intimated by SEBI.
29. Taking all the facts and circumstances of the case into account I am of the opinion that the appellant on his part, has complied with the necessary requirements of the relevant provisions. There has been delay of 7 days for no fault of the appellant. The appellant has also paid an amount of more than Rs.1,20,00,000/- for which he has not received any return.
30. The representative of the Stock Exchange, Mumbai was heard in this matter. He fairly submitted that the delay had occasioned not by the appellant but by the Bombay Stock Exchange in forwarding the application to SEBI on account of some internecine litigation between the appellant and the third party which was ultimately resolved in favour of the appellant and that it was only after that the application was sent. The learned representative for Bombay Stock Exchange rightly drew our attention to the letter addressed to SEBI dated 1.6.2004 wherein the BSE had requested SEBI to condone the delay of 7 days. The letter at Annexure J addressed by the Stock Exchange to SEBI reads as follows:
“We refer to our letter dated March 19, 2004 clarifying the circumstances under which the application of CIPL for obtaining the SEBI registration could not be submitted to SEBI within the validity period of the prior approval. We have requested SEBI to condone the delay of 7 days and grant the registration to CIPL.
In this connection, we would once again reiterate the following facts:
Shri Ramesh Shet (erstwhile member of the Stock Exchange, Mumbai) vide his letter dated July 19, 2001 had sought prior approval for nomination of the Exchange’s membership right held by him and submitted the requisite papers to the Exchange inter alia nominating the sale membership right in favour of CIPL on 31st January 2002.
The Exchange had processed the application and had admitted CIPL as a member of the Exchange and had forwarded the application for obtaining the SEBI registration on August 4, 2003. However, the application for registration could not be forwarded to SEBI within the validity period of six months from the date of obtaining the prior approval (i.e. July 23, 2003) as explained in our letter dated March 19, 2004 (copy enclosed).
As CIPL is unable to commence business in the absence of SEBI registration, the Governing Board has requested SEBI to condone the delay in submission of the application to SEBI.
In view of the above, we once again request you to kindly consider our request to condone the delay of 7 days in submitting the said application and grant necessary registration to CIPL as a stock broker at an early date.”
31. An earlier letter by the Stock Exchange dated 19.3.2004 also indicates at Exhibit I that the appellant had applied in time and that the stock exchange submitted the application belatedly on account of certain litigation.
32. It is submitted by the learned counsel for the appellant that there is no time limit fixed under the Rules for change in the constitution or status. The learned counsel referred to SEBI (Stock Brokers & Sub-brokers) Rules, 1992 and in particular to Rule 4 which deals with condition for grant of certificate to stock brokers. Rule 4 reads as follows:
“4. The Board may grant a certificate to a stock-broker subject to the following conditions namely: –
(a) he holds the membership of any stock exchange; (b) he shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member; (c) in case of any change in the status and constitution, the stock broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchanges; (d) he shall pay the amount of fees for registration in the manner provided in the regulations; and (e) he shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the compliant and keep the Board informed about the number, nature and other particulars of the complaints received from such investors." 33. Rule 4(c) does not stipulate any time limit. Of course, SEBI relied on a circular dated 12.9.2002 at Exhibit H. In the circular, it stated that prior approval for sale of membership would have to be submitted within 6 months from the date of grant of prior approval. In this case, SEBI has granted prior approval dated 24.1.2003 and there was a delay for submitting the application for registration by about 7 days for no fault of the appellant.
34. It is rather strange and curious that SEBI should take an intransigent attitude in matters concerning the lifeline of the brokers when it was a specific stand of the BSE that on account of certain extraneous controversy they were not able to submit the application for registration within 6 months and there was a delay of 7 days. A lot of the time of the Tribunal would have been saved if SEBI had realised that the fault did not lie with the appellant. There is no bar in the rules and the circular has to be read harmoniously with the rules and any delay in submitting the application by the stock exchange will have to be excluded. When there is no fault on the appellant, it is not known why and how the appellant should suffer. The appellant has paid valuable consideration for getting a transfer in his name. Taking all these factors into account, SEBI has also given an approval. The appellant has admittedly applied within time to the stock exchange and the stock exchange has in turn recommended the case of the appellant. SEBI should not appear to espouse the cause of third parties if the third party was the cause for the delay for the stock exchange submitting the application for registration. Otherwise, it will give the impression that SEBI is intransigent and has tilted its support in favour of the third party litigant. Such impression should never be created in the mind of the public.
35. The BSE has filed a detailed affidavit explaining the reason for the delay and stating that the appellant is not at fault. They concluded their affidavit at paragraph 4 as follows:
“In the circumstances and in view of the facts stated herein above, the Exchange respectfully submits that there is no undue and/or intentional delay on the part of the Exchange while submitting the application of the Appellant for registration as a Stock-broker as per SEBI circular and request this Hon’ble Securities Appellate Tribunal to kindly condone the aforesaid delay, if any,, while submitting the application of the appellant to SEBI and further requests to advise the Securities and Exchange Board of India to consider the application of the appellant for registration as a Stock-broker.”
When the stock exchange itself has come forward to support the case of the appellant, SEBI should not be an obstacle.
36. For all these reasons, we have no hesitation in condoning the delay of 7 days. It is clear from the impugned order that SEBI has not given any reason for rejecting the application except to state that there was a delay of 7 days, which it is common ground, was caused by the stock exchange, Mumbai. When the stock exchange has come forward to explain the delay, it would not be appropriate for SEBI to reject the application on the ground of delay. No other reason has been cited in the impugned order.
37. A careful perusal of Rule 4, as extracted above, does not create the impression that there is no power for SEBI to condone the delay in extraordinary circumstances. All legislation is to discipline entities and at the same time help entities for the better health of the securities market. In these circumstances, SEBI ought to have condoned the delay of 7 days.
38. Not having condoned the delay, the impugned order is liable to be set aside in the facts and circumstances of the case.
39. It is to say that not in all cases inordinate delay can be condoned. Delay can be condoned when no fault lies with the person making the application and it depends on the facts of each case. In this case, admittedly the delay was occasioned not by the appellant but because of the circumstances beyond the control of The Stock Exchange, Mumbai.
40. Consequently, the impugned order dated 28.9.2004 declining to condone the delay is set aside. The delay is hereby condoned. The matter is remanded to SEBI for consideration of the application of the appellant for registration in accordance with law without reference to the question of delay as expeditiously as possible at any rate within 6 weeks from the date of the receipt of the order.
41. No order as to costs.