{"id":242183,"date":"2008-05-15T00:00:00","date_gmt":"2008-05-14T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/nikhil-kanchanlal-vakharia-vs-s-e-b-i-anr-on-15-may-2008"},"modified":"2017-10-13T11:56:11","modified_gmt":"2017-10-13T06:26:11","slug":"nikhil-kanchanlal-vakharia-vs-s-e-b-i-anr-on-15-may-2008","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/nikhil-kanchanlal-vakharia-vs-s-e-b-i-anr-on-15-may-2008","title":{"rendered":"Nikhil Kanchanlal Vakharia vs S.E.B.I. & Anr on 15 May, 2008"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Nikhil Kanchanlal Vakharia vs S.E.B.I. & Anr on 15 May, 2008<\/div>\n
Author: D Bhandari<\/div>\n
Bench: Tarun Chatterjee, Dalveer Bhandari<\/div>\n
                                                  REPORTABLE\n\n\n\n       IN THE SUPREME COURT OF INDIA\n\n        CIVIL APPEALLTE JURISDICTION\n\n        CIVIL APPEAL NO. 4210 OF 2006\n\n\n\nNikhil Kanchanlal Vakharia             .. Appellant\n\n               Versus\n\nSecurities & Exchange Board of India\n\n& Another                                   ..\n\nRespondents\n\n                        WITH\n\n     CIVIL APPEAL Nos.2951, 3004, 3008, 3009,\n     3010, 3015, 3016, 3017, 3058, 3082 of\n     2006.\n\n\n\n                   JUDGMENT\n<\/pre>\n
Dalveer Bhandari, J.\n<\/p>\n
                                                      2<\/span><\/p>\n
1.   This batch of appeals involve the similar issue,<\/p>\n
therefore, all these appeals are disposed-of by this<\/p>\n
common judgment.      For the sake of convenience, the<\/p>\n
facts of Civil Appeal No. 4210 of 2006 are recapitulated.<\/p>\n
2.   This statutory appeal under section 15Z of the<\/p>\n
Securities and Exchange Board of India Act, 1992<\/p>\n
(hereinafter referred to as “the Act”) is directed against<\/p>\n
the order dated 12th May, 2006 passed by the Securities<\/p>\n
Appellate Tribunal, Mumbai in Appeal No.221 of 2004.<\/p>\n
3.   The impugned order is a one line order which<\/p>\n
makes a reference to the detailed order passed on 12th<\/p>\n
May, 2006 in a companion matter being Appeal No.211<\/p>\n
of 2004 titled as Kamlesh Ramanlal Shah v. SEBI and<\/p>\n
Another.\n<\/p>\n<\/p>\n
4.   The question which calls for adjudication in this<\/p>\n
case is regarding “fee continuity benefit”.    Under the<\/p>\n
SEBI (Stock Brokers and Sub-Brokers) Regulations,
\n                                                        3<\/span><\/p>\n
1992 (for short “the Regulations”) a fee is required to be<\/p>\n
paid by the stock brokers.          Broadly, the fee was<\/p>\n
structured in two distinct phases. In the first five years of<\/p>\n
operation of a broker, the quantum of the fee was linked<\/p>\n
to the turnover of the stock broker.           Greater the<\/p>\n
turnover, higher the fee.\n<\/p>\n<\/p>\n
5.   The second phase comprised blocks of five years<\/p>\n
from the sixth financial year after the grant of initial<\/p>\n
registration. During each block period of five years, the<\/p>\n
stock broker was required to pay a flat rate of Rs.5000\/-<\/p>\n
in order to keep the registration in force. The flat fee had<\/p>\n
no link to the turnover.\n<\/p>\n<\/p>\n
6.   The appellant claims that whenever the event of<\/p>\n
transmission occurs within five years, they should be<\/p>\n
given the fee continuity benefit and should not be made<\/p>\n
to pay the turnover basis fee for the remainder of initial<\/p>\n
period of five years.   The appellant is claiming that on<\/p>\n
account of transmission, since the business and trade
\n                                                         4<\/span><\/p>\n
continues in the same name or entity and the Stock<\/p>\n
Exchange permits continuation of the same membership<\/p>\n
under the same number and clearing code, they should<\/p>\n
also be given the benefit under the same registration of<\/p>\n
the earlier Stock-Broker and thus grant the benefit of fee<\/p>\n
continuity.\n<\/p>\n<\/p>\n
7.   According   to   the   appellant,   the   present   case<\/p>\n
involves a situation where at all material times the stock<\/p>\n
broking firm was a partnership firm carrying on business<\/p>\n
in the name and style of M\/s. Kanchanlal & Sons. The<\/p>\n
appellant along with his son, wife and daughter-in-law<\/p>\n
constituted a partnership firm. Late Shri Kanchanlal K.<\/p>\n
Vakharia because of his ill health decided to nominate<\/p>\n
the appellant in his place as a member of Stock<\/p>\n
Exchange, Mumbai (respondent no.2).            The appellant<\/p>\n
claimed that he is a partner of M\/s. Kanchanlal & Sons<\/p>\n
and, therefore, now the Security Exchange Board of India<\/p>\n
(for short SEBI) should give the benefit of fee continuity<\/p>\n
as for the first five years they have already been charged
\n                                                     5<\/span><\/p>\n
from the partnership on a turnover basis, therefore, they<\/p>\n
must now charge on a flat rate of Rs.5000\/- per annum<\/p>\n
for the registration. The appellant claims on account of<\/p>\n
transmission since the business and trade continued in<\/p>\n
the same name or entity and the stock exchange permits<\/p>\n
continuation of the same membership under the same<\/p>\n
number and clearing code.      They should also be given<\/p>\n
the benefit under the same registration of the earlier<\/p>\n
stock broker and the benefit of fee continuity.<\/p>\n
8.   Mr. Altaf Ahmed, learned senior counsel appearing<\/p>\n
for the SEBI submitted that there is no provision in the<\/p>\n
SEBI Act, Rules and\/or Regulations of the SEBI in this<\/p>\n
behalf which recognizes the registration of stock-brokers<\/p>\n
by inheritance and\/or transmission for the purpose of<\/p>\n
granting fee continuity benefit. The appellant who is son<\/p>\n
of Late Shri Kanchanlal K. Vakharia on transmission can<\/p>\n
be registered only as a new stock broker with SEBI in<\/p>\n
accordance with the Act, Regulations and the SEBI<\/p>\n
(Stock-Brokers and Sub-Brokers) Rules, 1992 (for short
\n                                                             6<\/span><\/p>\n
“the Rules”) and subject to payment of registration fee for<\/p>\n
a new stock-broker as per the schedule fixed in the<\/p>\n
Regulations.       He further submitted that there is no<\/p>\n
provision for grant of fee continuity benefit in cases of<\/p>\n
such transmission. The only situation under which fee<\/p>\n
continuity benefit is granted is under para 4 of Schedule<\/p>\n
III under Regulation 10 of the Regulations, which reads<\/p>\n
thus:\n<\/p>\n
        “4. Where a corporate entity has been
\n        formed by converting the individual or
\n        partnership membership card of the exchange,
\n        such corporate entity shall be exempted from
\n        payment of fee for the period for which the
\n        erstwhile individual or partnership member, as
\n        the case may be, has already paid the fees
\n        subject to the condition that the erstwhile
\n        individual or partner shall be the wholetime
\n        Director of the corporate member so converted
\n        and such Director will continue to hold
\n        minimum 40% shares of the paid-up equity
\n        capital of the corporate entity for a period of at
\n        least three years from the date of such
\n        conversion.\n<\/p><\/blockquote>\n
             Explanation.–It is clarified that the
\n        conversion of individual or partnership
\n        membership card of the exchange into
\n        corporate entity shall be deemed to be in
\n        continuation of the old entity and no fee shall
\n        be collected again from the converted
\n        corporate entity for the period for which the
\n                                                     7<\/span><\/p>\n
      erstwhile entity has paid the fee as per the
\n      regulations.”\n<\/p><\/blockquote>\n
9.    Mr. Ahmed further contended that it was an<\/p>\n
incentive for corporatisation since a corporate entity is<\/p>\n
required to maintain all records under law and as such it<\/p>\n
facilitates regulating of the stock brokers.   Under no<\/p>\n
other circumstances fee continuity benefit is available<\/p>\n
under the statutory regulations and hence the appellant<\/p>\n
cannot be granted benefit of fee continuity on account of<\/p>\n
transmission.\n<\/p>\n<\/p>\n
10.   Mr. Ahmed also submitted that every stock-broker<\/p>\n
who wants to deal in securities in the securities market<\/p>\n
is required to be a member of a stock exchange and then<\/p>\n
get himself registered with SEBI under section 12 of the<\/p>\n
Act in accordance with the procedure as provided in the<\/p>\n
Regulations subject to the payment of registration fee for<\/p>\n
a new stock-broker under rule 4 of the Rules and
\n                                                            8<\/span><\/p>\n
      Regulation 10 of the Regulations on the rates mentioned<\/p>\n
      in Schedule-III.\n<\/p>\n<\/p>\n
           Rule 4 of the Rules reads thus:\n<\/p>\n
           “4. Conditions for grant of certificate to
\n           stock-broker.– The Board may grant a
\n           certificate to a stock-broker subject to the
\n           following conditions namely:–\n<\/p>\n
(a)   he holds the membership of any stock exchange;<\/p>\n
(b)   he shall abide by the rules, regulations and bye-\n<\/p>\n
      laws of the stock exchange or stock exchanges of
\n      which he is a member;\n<\/p>\n
(c)   in case of any change in the status and
\n      constitution, the stock-broker shall obtain prior
\n      permission of the Board to continue to buy, sell or
\n      deal in securities in any stock exchange;<\/p>\n
(d)   he shall pay the amount of fees for registration in
\n      the manner provided in the regulations; and<\/p>\n
(e)   he shall take adequate steps for redressal of
\n      grievances of the investors within one month of
\n      the date of the receipt of the complaint and keep
\n      the Board informed about the number, nature and
\n      other particulars of the complaints received from
\n      such investors.”\n<\/p>\n<\/p>\n
           Regulation 10 of the Regulations reads thus:
\n                                                           9<\/span><\/p>\n
      “10. Payment of fees and the consequences
\n      of failure to pay fees.– (1)      Every applicant
\n      eligible for grant of a certificate shall pay such
\n      fees and in such manner as specified in
\n      Schedule III;\n<\/p>\n
           Provided that the Board may on sufficient
\n      cause being shown permit the stock-broker to
\n      pay such fees at any time before the expiry of
\n      six months from the date on which such fees
\n      become due.\n<\/p>\n
           (2) Where a stock-broker fails to pay
\n      the fees as provided in regulation 10, the
\n      Board may suspend the registration certificate,
\n      whereupon the stock-broker shall cease to
\n      buy, sell or deal in securities as a stock-
\n      broker.\n<\/p>\n<\/p>\n
11.   Mr. Ahmed contended that in order to become a<\/p>\n
member of the stock exchange, the person is required to<\/p>\n
be qualified as per rule 8 of the Securities Contracts<\/p>\n
(Regulations) Rules, 1957.        This right is also not<\/p>\n
inheritable, since every person on transmission may not<\/p>\n
even be qualified to become a member of a particular<\/p>\n
stock exchange.     It is pertinent to mention here that<\/p>\n
membership of a stock exchange is a privilege and not a
\n                                                             10<\/span><\/p>\n
matter of right and thus this cannot be claimed as<\/p>\n
inheritable.\n<\/p>\n<\/p>\n
12.     Mr. Ahmed also contended that SEBI has no<\/p>\n
discretion in implementation of the Act, Rules or<\/p>\n
Regulations and has to strictly adhere to the provisions<\/p>\n
as laid down and, therefore, has no power to waive the<\/p>\n
said requirement.       It may also be relevant to mention<\/p>\n
that out of the 19 stock brokers who prayed for waiver of<\/p>\n
the fresh registration or new entities upon transmission,<\/p>\n
only 9 or 10 have come to challenge the same before this<\/p>\n
court and balance have accepted the judgment of the<\/p>\n
learned Tribunal.\n<\/p>\n<\/p>\n
13.     Mr. Ahmed further submitted that the SEBI has<\/p>\n
applied the turnover regime for the period 1992-93 to<\/p>\n
1996-97 and, therefore, charged on the flat rate basis.<\/p>\n
Clause I(1)(c) of Schedule III of the Regulations reads<\/p>\n
thus:\n<\/p>\n
        “after the expiry of five financial years from the
\n        date of initial registration as a stock-broker, he
\n                                                        11<\/span><\/p>\n
      shall pay a sum of rupees five thousand for
\n      every block of five financial years commencing
\n      from the sixth financial year after the date of
\n      grant of initial registration to keep his
\n      registration in force.”\n<\/p><\/blockquote>\n
14.   Learned senior counsel also submitted that, under<\/p>\n
section 12 of the Act, no person can deal in securities in<\/p>\n
the securities market without being registered with the<\/p>\n
SEBI.     In the present case, admittedly, Late Shri<\/p>\n
Kanchanlal K. Vakharia, father of the appellant, was a<\/p>\n
member of the stock exchange and not the firm M\/s.<\/p>\n
Kanchanlal & Sons. Ordinarily, if M\/s. Kanchanlal &<\/p>\n
Sons is not a member of the stock exchange, the firm<\/p>\n
would not be entitled to deal with securities in securities<\/p>\n
market in the Bombay Stock Exchange.         The Bombay<\/p>\n
Stock Exchange does not enroll partnership firm as<\/p>\n
members.    As such, Late Shri Kanchanlal K. Vakharia<\/p>\n
alone was the member of the stock exchange and he<\/p>\n
alone was thus entitled to deal in securities in the<\/p>\n
Bombay Stock Exchange.       However, under rule 179 of<\/p>\n
the   Bombay    Stock   Exchange   Rules,   an individual
\n                                                                 12<\/span><\/p>\n
        member can do business in partnership with certain<\/p>\n
        categorized relations and, therefore, the Bombay Stock<\/p>\n
        Exchange permits trading by the individual in the name<\/p>\n
        of the partnership firm. Rule 179 of the Bombay Stock<\/p>\n
        Exchange reads thus:\n<\/p>\n
              “179.     No   partnership   shall be   formed
\n              except-\n<\/p>\n
(i)     between two or more members of the Exchange; or<\/p>\n
(ii)    between a member of the Exchange and his father
\n        or mother or wife or his son or sons or daughter or
\n        daughter-in-law or daughters-in-law or father’s
\n        brother or brothers or unmarried sister or sisters or
\n        brother’s or brother’s son or sons; or<\/p>\n
(iii)   between two or more members of the Exchange and
\n        their father, mothers or wives or son or sons or
\n        daughter or daughters or daughter-in-law or
\n        daughters-in-law or brother or brothers or father’s
\n        brother or brothers or unmarried sister or sisters or
\n        brother’s or brothers’ son or sons;\n<\/p>\n
              Provided that a son or daughter or son’s son or
\n              brother or father’s brother or unmarried sister
\n              of brother’s shall not be taken into partnership
\n              unless he or she be in all respects eligible for
\n              membership of the Exchange.”\n<\/p><\/blockquote>\n
        15.   It was contended by Mr. Ahmed that Late Shri<\/p>\n
        Kanchanlal K. Vakharia alone was a member and
\n                                                            13<\/span><\/p>\n
through his partnership, the entire partnership firm was<\/p>\n
allowed to trade on the Bombay Stock Exchange, the<\/p>\n
entire turnover of trade on the Bombay Stock Exchange<\/p>\n
is   relatable   to    the   individual   member     Late   Shri<\/p>\n
Kanchanlal K. Vakharia as otherwise the partnership<\/p>\n
firm and non-member partners would not have been able<\/p>\n
to deal in securities on the Bombay Stock Exchange.<\/p>\n
Consequently, this partnership firm could also not deal<\/p>\n
with securities unless the member of the stock exchange<\/p>\n
namely the individual member Late Shri Kanchanlal K.<\/p>\n
Vakharia gets registered with SEBI.        It is through that<\/p>\n
individual member Late Shri K. Vakharia that the<\/p>\n
partnership firm and registered partners are able to deal<\/p>\n
in securities on the Bombay Stock Exchange.                 Even<\/p>\n
otherwise, the entire turnover of the partnership firm on<\/p>\n
the stock exchange is on securities and, therefore,<\/p>\n
relatable   to   the   registered   member    i.e.   Late   Shri<\/p>\n
Kanchanlal K. Vakharia under whose membership of<\/p>\n
Bombay Stock Exchange and registration of SEBI, such<\/p>\n
trading is permitted.\n<\/p>\n
                                                          14<\/span><\/p>\n
16.   It was also submitted on behalf of the SEBI that the<\/p>\n
appellant wants only his turnover to be considered as a<\/p>\n
member of the Exchange and the other partners being<\/p>\n
non-member partners want to be outside the purview of<\/p>\n
the registration of the SEBI since they cannot be<\/p>\n
registered but at the same time want to deal in securities<\/p>\n
on the exchange under the membership and registration<\/p>\n
of Late Shri Kanchanlal K. Vakharia.\n<\/p>\n<\/p>\n
17.   According to the learned counsel for the SEBI, the<\/p>\n
entire dealing in securities by the non-member partners<\/p>\n
would be illegal and contrary to section 12 of the Act and<\/p>\n
liable to all such consequences in law.      In fact, if the<\/p>\n
stand taken is correct then the partnership firm is also<\/p>\n
the   non-member     partnership   and    cannot   deal      in<\/p>\n
securities but are dealing in securities in breach of law.<\/p>\n
18.   We have heard the learned counsel for the parties<\/p>\n
at length and carefully analysed the provisions of the Act,
\n                                                        15<\/span><\/p>\n
Rules and Regulations.     By clear interpretation of the<\/p>\n
Regulations, it is abundantly clear that no provision of<\/p>\n
succession to registration is permissible.       Nikhil K.<\/p>\n
Vakharia son of Late Shri Kanchanlal K. Vakharia in<\/p>\n
order to operate in the stock exchange has to obtain a<\/p>\n
fresh registration from the SEBI and for the first five<\/p>\n
years, he would be required to pay the quantum of fee<\/p>\n
linked to the turnover and thereafter at the flat rate of<\/p>\n
Rs.5000\/- in order to keep the registration in force.<\/p>\n
19.   In view of the provisions of the Act, Rules and<\/p>\n
Regulations, we have no difficulty in arriving at the<\/p>\n
conclusion that the appeal is devoid of any merit and is<\/p>\n
accordingly dismissed.\n<\/p>\n
CIVIL APPEAL Nos.2951, 3004, 3008, 3009, 3010,
\n3015, 3016, 3017, 3058, 3082 of 2006.\n<\/p>\n<\/p>\n
20.   In view of our decision in Civil Appeal No.4210 of<\/p>\n
2006, these appeals also stand disposed of accordingly.
\n                                                                  16<\/span><\/p>\n
21.   In the facts and circumstances of the case, we<\/p>\n
direct the parties in all the appeals to bear their own<\/p>\n
costs.\n<\/p>\n<\/p>\n
                               ………………………………….J.
\n                               (Tarun Chatterjee)<\/p>\n
                              …………………………………..J.
\n                               (Dalveer Bhandari)
\nNew Delhi;\n<\/p>\n
May 15, 2008.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Nikhil Kanchanlal Vakharia vs S.E.B.I. & Anr on 15 May, 2008 Author: D Bhandari Bench: Tarun Chatterjee, Dalveer Bhandari REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPEALLTE JURISDICTION CIVIL APPEAL NO. 4210 OF 2006 Nikhil Kanchanlal Vakharia .. Appellant Versus Securities & Exchange Board of India & Another .. Respondents […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-242183","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nNikhil Kanchanlal Vakharia vs S.E.B.I. & Anr on 15 May, 2008 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/nikhil-kanchanlal-vakharia-vs-s-e-b-i-anr-on-15-may-2008\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Nikhil Kanchanlal Vakharia vs S.E.B.I. & Anr on 15 May, 2008 - 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