The court clarified the definition of 'annual turnover' in regulatory fee calculations, emphasizing it includes all transaction values of securities, not merely brokerage.

1. This appeal under S.15Z of the Securities & Exchange Board of India Act, 1992 (for brevity, 'the SEBI Act') has been preferred by the Securities & Exchange Board of India (for brevity, 'the SEBI') to challenge the judgment and order dated 14.08.2006 passed by the learned Securities Appellate Tribunal (hereinafter referred to as 'the SAT') in Appeal No.56 of 2004.

2. The substantial question of law falling for determination involves interpretation of the term 'annual turnover' as it finds mention in the Explanation after paragraph 3 of Schedule III to the Securities & Exchange Board of India (Stock Brokers & Subbrokers) Regulations, 1992 (for brevity, 'the Regulations'). The aforesaid Explanation reads as follows :
“Explanation. - For the purpose of paragraphs 1, 2 and 3, “annual turnover” means the aggregate of the sale and purchase prices of securities received and receivable by the stock broker on his own account as well as on account of his clients in respect of sale and purchase or dealing in securities during any financial year.”

3. The factual matrix may be noted only in brief. The respondent is a stock broker in the wholesale debt market segment of the National Stock Exchange and deals in debt market securities. The stand of the respondent is that the price of the dealt with securities would not form part of the concerned broker's 'annual turnover' and the same cannot be the basis for computing the registration fee of stock brokers like the respondent. This stand is based on a circular of Reserve Bank of India (for brevity, 'RBI') dated June 20, 1992, issued with a view to regulate the wholesale debt market. The dispute in respect of quantum of registration fee demanded by the SEBI was brought before the SAT by way of challenge to SEBI's order dated November 28, 2003 directing the respondent to pay Rs.33,51,45,620/- towards principal and Rs.3,78,29,623/- towards interest as on November 30, 2003. As noticed above the SAT allowed the appeal of the respondent and set aside the order passed by SEBI vide its judgment and order under appeal.

4. The circular dated June 20, 1992 issued by RBI as a regulator of the wholesale debt market is the basis for the SAT to hold that for the permissible activity of bringing the parties together, no amount is received or receivable by the stock broker when he deals in the wholesale debt segment of the market and therefore the definition of “annual turnover” for the purpose of paragraphs 1, 2 and 3, as contained in the Explanation to Paragraph 3 of Schedule III to the Regulations is not satisfied. Before adverting to other relevant facts it is useful to notice the relevant part of this circular which reads as under:
“III. DEALINGS THROUGH BROKERS
(i) If a deal is put through with the help of a broker, the role of the broker should be restricted to that of bringing the two parties to the deal together.
(ii) While negotiating the deal, the broker is not obliged to disclose the identity of the counterparty to the deal. However, on conclusion of the deal, he should disclose the counter party and his contract note should clearly indicate the name of the counterparty.
(iii) On the basis of the contract note disclosing the name of the counterparty, settlement of deals between banks, viz., both fund settlement and delivery of security, should be directly between the banks, and the broker should have no role to play in the process.
(iv) With the approval of their top managements, banks should prepare a panel of approved brokers which should be reviewed annually, or more often if so warranted. Clear - cut criteria should be laid down for empanelment of brokers, including verification of their creditworthiness, market reputation, etc. A record of broker wise details of deals put through