The main legal point established in the judgment is that stock brokers need to obtain a certificate of registration from SEBI for each stock exchange where they operate, and the ad valorem fee for an initial period of five years would recur with every such registration.

JUDGMENT :

AJAY RASTOGI, J.

Civil Appeal No. 435 of 2007

1. The instant appeal is directed against the judgment and order dated 7th November, 2005 passed by the Division Bench of the High Court of Delhi, setting aside the finding returned by the learned Single Judge of the High Court under judgment dated 26th October, 2004. The Division Bench has arrived at a conclusion that in terms of Section 12(1) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “the Act 1992”) a single registration with Securities and Exchange Board of India (hereinafter referred to as “SEBI”) is sufficient even if the stock broker has various memberships and functions from several stock exchanges and, therefore, will have to pay the fee for the initial registration with SEBI and, accordingly, set aside paragraph (vi) of Part A of the Circular dated 28th March, 2002 issued by SEBI.

Factual backdrop

2. SEBI has been established under provisions of the Act, 1992 with an object to protect the interest of investors in the securities market and to promote the development of, and to regulate the securities market. SEBI was created as a regulator to regulate the securities’ market which includes dealing in shares, debentures, derivates, etc. in recognised stock exchanges. It may be relevant to note that before SEBI was formed, each stock exchange admitted members and the brokers/sub-brokers could deal in securities in accordance with bye-laws of each of such stock exchanges. The law that governed prior to the Act, 1992 was the Securities Contracts (Regulation) Act, 1956 read with Securities Contracts (Regulation) Rules, 1957. The Act and the Rules provide for recognition of the stock exchange and qualifications of members of the stock exchange.

3. After the formation of SEBI, the Central Government in exercise of power under Section 29 of Act, 1992 framed Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Rules, 1992 and in exercise of powers conferred under Section 30, the Board framed Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as “Regulations 1992”).

4. When SEBI levied the fees on the stock brokers in terms of Regulation 10 read with Schedule III, it was challenged before this Court in BSE Brokers’ Forum, Bombay and Others vs. Securities and Exchange Board of India and Others, (2001) 3 SCC 482. This Court upheld the validity of Regulation 10 read with Schedule III to the Regulations, 1992 and further held that the fees charged by SEBI is not a tax but is a fee and that is regulatory in nature and the element of quid pro quo is not strictly necessary. This Court passed further directions requiring SEBI to amend Regulations to incorporate the recommendations of the R.S. Bhatt Committee.

5. That keeping in view the directions of this Court in the afore-stated judgment, SEBI issued a Circular dated 28th March, 2002 clarifying that every stock broker who has a certificate of registration has to pay the fees prescribed in Schedule III for each and every certificate of registration that he holds. The relevant extract of the Circular dated 28th March, 2002 is reproduced hereunder:

“SMD/POLICY/Cir-07/2002

March 28, 2002

The Executive Directors/Managing Directors

All Stock Exchanges

Dear Sir/Madam,

SUB: FEES PAYABLE BY STOCK BROKERS

SEBI has notified the SEBI (Stock Brokers and Sub-brokers) Regulations in 1992. Schedule III of the SEBI (Stock Brokers and Sub-brokers) Regulations 1992 which deals in detail with the payment of the fees was challenged by the brokers of the stock exchanges in their individual and representative capacity. The Hon’ble Supreme Court was pleased to deliver a judgment on February 01, 2001 on this issue inter-alia directing SEBI to amend the Regulations incorporating the recommendations of the R.S. Bhatt Committee Report.

SEBI has amended the regulations on February 20, 2002 as per the judgment of the Hon’ble Supreme Court incorpor