IMPORTANT POINT
Benefit of fee continuity is available only to a newly formed entity through conversion from either a sole proprietorship or a partnership to a limited Company.

Judgment

Vikramajit Sen, J.

1. This Appeal assails the Judgment dated 17.8.2005 pronounced by the Securities Appellate Tribunal (hereinafter ‘SAT’) directing the Appellant as well as the National Stock Exchange (NSE for brevity) to continue to grant the Respondent the “fee continuity benefit” as was available to them before the NSE decided to permit segmental surrender of membership to its members. In response to the fee demanded by the Appellant, namely the Securities and Exchange Board of India (SEBI for short), the Respondent has paid, albeit under protest, the principal amount of Rs. 4,37,20,256/- together with Rs. 26,96,590/- being the interest accrued thereon. The factual matrix is that on 27.5.1994, Oracle Stocks and Shares Ltd. (hereinafter ‘Oracle’) was registered by the NSE as a Trading member in two segments, that is the Wholesale Debt Market (WDM) as well as in the Equity Market/Capital Market (EM/CM). Subsequently, on 14.1.1999, Oracle informed the NSE that it had entered into a 50:50 Joint Venture with Prebon Holdings B.V. (Prebon Group), namely Prebon Yamane (India) Ltd. (the Respondent), but restricted in respect to the WDM segment alone. NSE advised Oracle to bifurcate the WDM and the EM/CM segments whereupon Oracle forwarded a proposal in writing seeking the approval of NSE for the segregation of its Membership of WDM and of the EM/CM segments. By its letter dated 11.2.1999, NSE approved the proposal of Oracle for segregation but subject to certain conditions, inter alia, that if the trading member Oracle was desirous of surrendering its trading membership, both the entities viz. Oracle and the Respondent would have to surrender their respective memberships simultaneously. As is palpably apparent, NSE looked after its own financial interests by demanding Rs. 10 Lacs as approval fee together with an interest free security of Rs. 50 Lacs. Both entities were also required to maintain their shareholding pattern and comply with the net worth and all other requirements Oracle in respect of corporate trading of the Capital Market and the Respondent in respect of the corporate trading in the WDM segment. The Respondent was also called upon to submit its shareholding pattern. It seems facially obvious to us that even the NSE was alive to the possibility of Oracle hiving off or transferring its WDM operations to the Respondent without complying with all the applicable Rules and Regulations. NSE maintained this position even later on, as is evident from a perusal of its letter to the Respondent positing that both memberships, though vesting in separate parties, were treated as ‘concomitant’. It is also relevant to underscore that the Appellant was not privy to these negotiations.

2. We must hasten to add that shortly subsequent to these events, the Appellant by its letter dated 4.4.1999 to the Respondent had granted registration to it “as a stock broker”. The Appellant made its permission conditional inter alia, upon payment of fees for registration provided in the Securities and Exchange Board of India [Stock-Brokers and Sub-Brokers] Regulations, 1992, the salient parts of which we shall extract for ease of reference. However, the relevant terms contained in the letter dated 4.4.1999 are these –

d) It shall pay the amount fees for registration in the manner provided in the Securities and Exchange Board of India [Stock Brokers and Sub Brokers] Regulations, 1992; and

5. You are now, in terms of clause [d] of the conditions of grant of registration certificate, required to pay the fees in accordance with regulation 10[1] read with Schedule-III of the Securities and Exchange Board of India [Stock Brokers and Sub Brokers] Regulations, 1992 and remit the same through the stock exchange of which you are a member. All the stock exchange have been separately given necessary instructions in regard to collection of fees from the stock brokers and remittance thereof to the Board.

3. In this continuum NSE, in its letter dated 30.1.2002,