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Wednesday, November 4, 2015

‘levy’ and ‘collection’ are not synonyms and generally they occur at different stages. In the present case the legislative intention is to put an embargo on collection in future, in case the converted corporate entity is found entitled to the benefits of fee continuity. Such embargo is clearly to operate prospectively even if there existed some kind of liability in the past on account of fees leviable prior to insertion of paragraph 4 of Schedule III to the Regulations. In any case the rationale in not permitting retrospective operation of laws is only to ensure that subjects are not adversely affected by creation of legal liabilities and obligations for a period already bygone. In the present case the provisions do not create any obligation or liability. They only confer benefits by way of fee continuity on account of fees already paid by the earlier entity before its conversion into a new corporate entity. Even if we were to apply the test of fairness, no exception can be taken to extention of the benefit of fee exemption as provided by the relevant provision in the Regulations. Since the policy behind grant of benefits is to encourage corporatization of individual or partnership members of a stock exchange, the action of extending such benefits without any curb on the basis of date of conversions cannot be held as unfair. As noted earlier the SEBI itself extended the benefit to those converting not only from 21.1.1998 but from 1.4.1997. There is nothing in paragraph 4 or in the explanation to support the stand of the SEBI that the benefits must be confined to conversions taking place after a particular date when no such date finds place in the Regulations. As a result, appeals preferred by SEBI are dismissed and the judgments and orders under appeal passed by SAT are upheld. In the facts of the case the parties shall bear their own costs

                                                                  REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.4493 OF 2006



S.E.B.I.                                                …..Appellants


                                      Versus


Alliance Finstock Ltd. & Ors. Etc.     Etc.             …..Respondents


                                   W I T H

                            C.A.No. 4743 of 2006



                               J U D G M E N T



SHIVA KIRTI SINGH, J.


Both the appeals have been preferred under Section 15Z of the  Securities  &
Exchange Board of India Act, 1992 (for brevity ‘the  SEBI  Act’)  against  a
common judgment and order dated  09th  May  2006  rendered  by  the  learned
Securities Appellate Tribunal (for brevity ‘the SAT’) in  Appeal  No.123  of
2004 and other analogous appeals filed by  the  stock  brokers  (respondents
herein) to challenge the action of the Securities & Exchange Board of  India
(for short, ‘the SEBI’) denying them the benefit of fee continuity in  terms
of paragraph 4 of Schedule III to the Securities & Exchange Board  of  India
(Stock Brokers and Sub-Brokers) Regulations, 1992 [hereinafter  called  ‘the
Regulations’].
The SAT formulated the issue falling for determination  in  the  form  of  a
question   –   “whether   stock   brokers   who   have    converted    their
individual/partnership membership into a corporate  entity  prior  to  April
01, 1997 are entitled to the fee continuity benefit in terms of paragraph  4
of Schedule III ….”.  Since the SAT answered the question in favour  of  the
stock brokers (the respondents herein), SEBI is in appeal.
The basic facts are common in all the  matters  inasmuch  as  the  concerned
broker was previously member  of  the  Bombay  Stock  Exchange  (for  short,
‘BSE’) in his individual capacity or as a partnership  firm.   He  opted  to
form a corporate entity under the  provisions  of  the  Companies  Act  1956
prior to April 01, 1997 and carried on the brokers’ business under the  name
and style of new  corporate  entity  by  getting  its  membership  converted
through approval of BSE leading to registration by the SEBI as  a  corporate
entity.  Undoubtedly, no stock broker or sub-broker can buy,  sell  or  deal
in securities unless it is  granted  Certificate  of  Registration  by  SEBI
under the Regulations and for that, ordinarily the stock broker is  required
to pay the requisite fees in the manner provided  in  the  Regulations.   In
particular, Regulation 10 provides that every  applicant  eligible  for  the
grant of a certificate shall  pay  such  fees  and  in  such  manner  as  is
specified in Schedule III to the Regulations.
Although the controversy relates to paragraph 4 of Schedule III, some  other
paragraphs are also relevant and hence these  along  with  paragraph  4  are
extracted hereinbelow :
“I.   Fees to be paid by the Stock Broker.

1.    Every stock broker shall  subject  to  paragraphs  2  and  3  of  this
Schedule pay registration fees in the manner set out below :

where the annual turnover does  not  exceed  rupees  one  crore  during  any
financial year, a sum of rupees five thousand for each financial year;

where the annual turnover of  the  stock-broker  exceeds  rupees  one  crore
during any financial year, a sum of rupees five thousand plus one  hundredth
of one per cent of the turnover in excess  of  rupees  one  crore  for  each
financial year;

…… …… ……

after  the  expiry  of  five  financial  years  from  the  date  of  initial
registration as a stock-broker, he shall pay a sum of rupees  five  thousand
for every block of five financial years commencing from the sixth  financial
year  after  the  date  of  grant  of  initial  registration  to  keep   his
registration in force.

2.    Fees referred to in clauses (a) and (b) of paragraph 1 above shall  be
paid -

in  respect  of  the  financial  year  1992-93  within  one  month  of   the
commencement of these regulations;

in respect of the financial year beginning on the 1st  day  of  April,  1993
and the following financial years, on or before the first day of October  of
the financial year to which such payment relates,

and such fees shall be  computed  with  reference  to  the  annual  turnover
relating to the preceding financial year.

…… …… ……

Where a corporate entity has been formed by  converting  the  individual  or
partnership membership card of the exchange, such corporate entity shall  be
exempted from payment  of  fee  for  the  period  for  which  the  erstwhile
individual or partnership member, as the case may be, has already  paid  the
fees subject to the condition  that  the  erstwhile  individual  or  partner
shall be the whole-time director of the corporate member  so  converted  and
such director will continue to hold a minimum of 40 per cent shares  of  the
paid-up equity capital of the corporate entity for  a  period  of  at  least
three years from the date of such conversion.

Explanation:  It  is  clarified  that  the  conversion  of   individual   or
partnership membership card of the exchange into corporate entity  shall  be
deemed to be in  continuation  of  the  old  entity  and  no  fee  shall  be
collected again from the converted  corporate  entity  for  the  period  for
which erstwhile entity has paid the fee as per the regulations.

4A.   …… …… ……
If a stock broker fails to remit fees in accordance with  Paragraphs  1  and
2, he shall be liable to pay interest at 15% per annum  for  each  month  of
delay or part thereof.

Provided that the liability to pay interest as aforesaid may be in  addition
to any other action which the Board, may take  as  deemed  fit  against  the
stock broker under the Act, or the Regulations.

Provided further …… …… ……

…… …… ……

Manner of Fees to be paid.

The fees specified above shall be paid on or before the 1st day  of  October
each year payable by draft in favour of “The Securities and  Exchange  Board
of India” at Bombay, or at the respective regional office”.

Case of the SEBI is that since Para 4 of Schedule III was introduced  by  an
amending notification  dated  21.1.98  which  states  in  Para  2  that  the
amendment will be effective from the date of notification i.e, 21.1.98,  the
annual fee payable by registered brokers would  remain  unaffected  for  the
earlier year ending 31.3.97 and it can at best be effected only  in  respect
of fees payable for the year 1.4.97 onwards. On such  premise  it  has  been
forcefully contended on behalf of the appellants that the SAT has  erred  in
granting retrospectivity to  the  provisions  of  para  4  by  granting  the
benefit  of  fee  continuity  even  to  entities  which  acquired  corporate
membership on conversion even prior to 1.4.97.
The submission of Mr. C.U. Singh, learned Senior Counsel for the  SEBI,  are
to the following effect:-
      (1)   SEBI cannot make retrospective Regulations.
       (2)    Rules  and  regulations  are  generally   prospective   unless
      explicitly made retrospective.

       (3)    While  bestowing  a  new  benefit,  the  concerned   statutory
authority can always choose a cut off date.

       (4)    Unless  the  cut  off   date   suffers   from   arbitrariness,
there can be no interference.

       (5)    Materials  like  press  statement  or  letter  cannot  act  as
        estoppel   against   the   statutory   provisions   such   as    the
Regulations.

In support of the first and second submission it has been pointed  out  that
Section 30 of  the  SEBI  Act  vests  the  Board  with  the  power  to  make
regulations consistent with the Act and the rules made thereunder so  as  to
carry out the purposes of the Act and there  is  nothing  specific  in  this
Section granting power to frame regulations with  retrospective  effect.  To
further support this proposition, reliance has been  placed  upon  judgments
in the case of  (1) K Narayanan  v. State of Karnataka, 1994 Supp.  (1)  SCC
44, (2) Mohd. Rashid Ahmad v. State of  U.P.,  (1979)  1  SCC  596  and  (3)
Mahadeolal Kanodia v. The Administrator General of  West  Bengal,  (1960)  3
SCR 578 = AIR 1960 SC 936.  In K. Narayanan a retrospective rule was  struck
down on ground of unjust and unfair effect upon a section of  officials  and
therefore held discriminatory and violative of Articles 14 and 16. In  Mohd.
Rashid Ahmed the Court was dealing with service matter and was  called  upon
to decide whether a particular rule could  be  given  retrospective  effect.
Since the statute vested the State Government  with  power  to  frame  rules
even with retrospective effect,  the  relevant  provision  was  held  to  be
retrospective after reiterating an established rule  of  construction  “that
retrospective operation is not to be given to a statute so as to  impair  an
existing right or obligation other than as regards the matter of  procedure,
unless that effect cannot be avoided without doing violence to the  language
of enactment.” Similar view was expressed in the case of Mahadeolal.
Reliance was also placed upon a Constitution Bench judgment in the  case  of
K.S. Paripoornan v. State of Kerala & Ors., (1994)  5  SCC  593.  There  the
issue related to retrospectivity but in an  entirely  different  context  of
whether there must be clear intendment in the law if  an  amendment  dealing
with substantive rights is to apply to pending legal proceedings,  initiated
prior to the commencement of the amending Act. The majority  held  that  the
intendment in such a situation must be in clear terms. In  the  case  of  C.
Gupta v. Glaxo- Smithkline  Pharmaceuticals  Ltd.,  (2007)  7  SCC  171  the
Court, in the context of benefits  under  the  Workmen’s  Compensation  Act,
reiterated the well established law that an enactment in order  to  be  read
as retrospective, must have an express provision  to  that  effect  or  same
effect must flow by necessary implication or intendment.
The aforementioned case laws have been  noticed  out  of  deference  to  the
submissions but in fact they do not  serve  much  purpose  because  the  law
governing the field is otherwise also quite settled.  Although the  amending
notification  introducing  para  4  of  Schedule  III  is   effective   from
21.1.1998, on the plea of convenience and logic  the  appellant  has  itself
clarified that the provisions of para 4 will be effective  from  an  earlier
date, viz., 1.4.1997.  By relying upon some case laws such as  in  the  case
of National Council For Teacher Education v. Shri Shyam Shiksha  Prashikshan
Sansthan (2011) 3 SCC 238 it has been contended that appellant  is  entitled
to fix a cut-off date such as 1.4.1997.  It has been highlighted  that  fees
are to be computed and paid for every financial year hence  introduction  of
the concession under paragraph 4 w.e.f. beginning of a financial year  1997-
1998 is reasonable and serves a purpose.  Appellant emphasized  the  reasons
for introducing incentive for corporatisation of individual  or  partnership
entities for carrying out business of brokerage in shares etc. by  referring
to a speech of the then Finance Minister as well as a Memorandum  explaining
the provisions in the Finance Bill,  1997.   It  was  argued  on  behalf  of
appellant that capital gains exemptions were granted as a one  time  measure
during the concerned financial year to encourage  corporatisation  of  stock
brokers’ cards and hence the action of SEBI in introducing  paragraph  4  of
Schedule III in the Regulations needs to be construed only as a  prospective
measure and not as one conferring  benefit to even  such  entities  who  had
acquired corporate entity prior to 1.4.1997.
In reply Mr. Shyam Divan, learned senior advocate appearing for some of  the
respondents used the same background facts  to  contend  that  in  principle
SEBI accepted the proposition that if the same entity had  paid  fees  as  a
stock broker and it continues to do the same business by converting  into  a
corporate entity then fees paid for the earlier  years  needed  recognition.
On this principle the effect of paragraph 4 to Schedule III was to place  an
embargo on the powers of SEBI on and after the amendment  introduced  w.e.f.
21.1.1998 to collect any fees from the  new  entity  by  ignoring  the  fees
earlier paid by the previous avatar of the new  entity.   According  to  Mr.
Divan a fee is a  fiscal  levy  and,  therefore,  principles  applicable  to
interpretation of legal provisions governing a fiscal levy are attracted  in
the present case and not the rules of interpretation governing  other  laws.
According to him the plain language of paragraph 4 is decisive and that  led
to the decision under appeal against SEBI.  According to him  even  if  some
amount  of  ambiguity  is  found  in  the  relevant   provision   then   the
interpretation which is favourable to the brokers needs to be  adopted.   He
further made a distinction between power to a  levy  duty  or  fee  and  the
power of collection.  According to him a competent authority, in  this  case
SEBI, can decide for itself whether  to  proceed  with  collection  or  not.
Embargo on collection, according to  him,  is  clearly  prospective  in  the
present facts.
On behalf of respondents reliance was placed upon judgment in  the  case  of
Mathuram Agrawal v. State of Madhya Pradesh (1999) 8  SCC  667  wherein,  in
the context of municipal taxes, this Court held that the  intention  of  the
Legislature in a taxing statute is to be gathered from the express  language
particularly where it is plain and unambiguous.  It is  not  permissible  to
add or substitute words for giving  a  meaning  to  such  statutes  for  the
purpose of serving the perceived spirit or  intention  of  the  Legislature.
Reliance was also placed upon Somaiya Organics  (India)  Ltd.  v.  State  of
U.P. (2001) 5 SCC 519 for supporting the submission that in law there  is  a
clear distinction between levy and collection of  taxes.   In  the  case  of
Somaiya Organics the Constitution  Bench  noted  that  Article  265  of  the
Constitution uses the words ‘levy’ and ‘collect’.   The  Court  went  on  to
hold that these words  are  not  synonymous  terms.   This  distinction  was
required to be made  in  that  case  because  certain  provisions  had  been
declared illegal only prospectively.  In  that  context  it  was  held  that
while “levying” would mean the assessment or charging or  imposing  of  tax,
“collection” would  mean  the  fiscal  realization  of  the  tax  levied  or
imposed.  It was also pointed out that ordinarily collection  of  tax  is  a
stage subsequent to the levy of the same.  It is not necessary  to  multiply
case laws cited on these points.
Respondents referred to a Press Release  dated  28.12.2001  publicising  the
decisions that were taken in the meeting of the SEBI  Board  on  that  date.
In sub-para (e) of para 2 it is disclosed that  the  SEBI  Board  considered
the representations made by the brokers in the light of  relevant  materials
and decided the following :

“2.  Broker  Fees  –  Amendment  to  SEBI  (Stock  Broker  and  Sub  Broker)
Regulations

a.    ….. ….. …..
b.    ….. ….. …..
c.    ….. ….. …..
d.    ….. ….. …..

e.    the fee-continuity benefit which was given to  all  brokers,  who  had
corporatised after January 21, 1998 (the  date  on  which  the  SEBI  (Stock
Broker and Sub Broker) Regulations were  amended)  and  also  to  those  who
corporatised between April 1, 1997 and January 21, 1998  would  be  extended
to all brokers who had corporatised prior to April 1,  1997,  provided  that
SEBI has not collected fees from any such broking entity already.
f.    …. …. ….”

It was also pointed out that Explanation of paragraph 4 to Schedule  III  of
the Regulations was inserted through an amendment regulation of 2002  w.e.f.
20.2.2002 and submitted that the entire provision in the Explanation was  to
give  statutory  base  to  the  decision  contained  in  the  Press  Release
highlighted above.  The Explanation reads thus :

“Explanation :  It  is  clarified  that  the  conversion  of  individual  or
partnership membership card of the exchange into corporate entity  shall  be
deemed to be in  continuation  of  the  old  entity  and  no  fee  shall  be
collected again from the converted  corporate  entity  for  the  period  for
which the erstwhile entity has paid the fee as per the regulations.”

Reliance was placed upon judgments in the case of K.P.  Varghese  v.  Income
Tax Officer Ernakulam (1981) 4 SCC 173 and also in the case of  Commissioner
of Sales Tax, U.P. v. Indra Industries (2000) 9 SCC 66  in  support  of  the
submission that the Press Release may not be having statutory effect but  it
helps in  understanding  the  intention  of  SEBI  Board  which  issued  the
Release.  In other words, the respondents sought to rely upon the  principle
of contemporanea expositio as propounded in the case of K.P.  Varghese.   In
Indra Industries the circulars issued by  the  Income  Tax  Department  were
held to have binding effect upon the taxing authorities though  it  may  not
be binding on the courts or on the assessee.
For highlighting the general  principles  concerning  retrospectivity  of  a
statutory Act, Rule or notification, Mr. Divan relied  upon  a  Constitution
Bench judgment in the case of CIT v. Vatika Township (P) Ltd., (2015) 1  SCC
1. In paragraphs 27, 28  and  29  the  Court  recollected  the  clear  legal
position agreed to by the parties and thereafter some exceptions as to  when
and why the  general  rule  against  retrospectivity  is  inapplicable,  was
pointed out in paragraph 30 which is as follows:-

“30. We would also like to point out, for the  sake  of  completeness,  that
where  a  benefit  is  conferred  by  a  legislation,  the  rule  against  a
retrospective construction is different. If a legislation confers a  benefit
on some persons but without inflicting a  corresponding  detriment  on  some
other person or on the public generally, and where to  confer  such  benefit
appears to have been the legislators’ object, then the presumption would  be
that such a legislation, giving it a purposive construction,  would  warrant
it to be given a retrospective effect. This exactly is the justification  to
treat procedural provisions as retrospective. In Govt. of  India  v.  Indian
Tobacco Assn., (2005) 7 SCC 396 the doctrine of  fairness  was  held  to  be
relevant factor to construe a statute conferring a benefit, in  the  context
of it to be given a retrospective operation. The same doctrine of  fairness,
to hold that a statute was retrospective in nature, was applied in Vijay  v.
State of Maharashtra, (2006) 6 SCC 289. It was held  that  where  a  law  is
enacted for the benefit of community as a whole, even in the  absence  of  a
provision the statute may be held to be retrospective  in  nature.  However,
we are (sic not) confronted with any such situation here.”

The Court then concluded that “In such cases,  retrospectivity  is  attached
to benefit the persons in contradistinction to the provision  imposing  some
burden or liability where the presumption attaches  towards  prospectivity.”
The Court also extracted relevant explanation  in  respect  of  “declaratory
statutes” from the book Principles of Statutory  Interpretation  by  Justice
G.P. Singh to make the legal position clear that if a statute  is  curative,
explanatory or merely  declaratory  of  an  earlier  law,  it  is  generally
intended to have retrospective operation.


Learned counsel appearing  on  behalf  of  several  other  respondents  have
supported the contentions advanced by Mr. Divan that on  plain  construction
of the concerned Regulation i.e, para 4 of Schedule III, it  can  safely  be
held that the provisions  merely  look  at  some  past  happenings  but  the
benefits are to accrue to the eligible entities only  in  future  and  hence
the  provisions  do  not  operate  retrospectively.  Further  stand  of  the
respondents is  that  SEBI  itself  cannot  question  the  validity  of  the
circulars  and  policy  decisions  declared  by  the  SEBI  Board  and  such
circulars and declarations granting benefits even from a retrospective  date
cannot be held bad in law in view of law noticed and  laid  down  in  Vatika
case. The matter could have been different if SEBI had attempted  to  impose
liabilities or create obligations upon stock brokers  from  a  retrospective
date. In case of conferment of benefits,  no  vested  rights  are  adversely
affected  and  in  such  cases  retrospective  operation  is  protected  and
permissible on the principles noticed in Vatika case.
In reply Mr. C.U. Singh referred to policy circular  dated  28.3.2002  which
inter alia states that pursuant to a judgment of this Court  dated  1.2.2001
directing SEBI to amend the Regulations in light of recommendations  of  the
R.S. Bhatt Committee report, SEBI  had  examined  representations  from  the
brokers and issued clarifications contained in part A of the circular.  Part
A, inter alia, contains a clarification in respect of applicability  of  the
notification on exemption from fees on  corporatization.  The  clarification
reads thus “the spirit behind  notification  dated  21.1.1998  was  to  give
benefit of  this  amendment  to  stock  brokers  who  have  converted  their
individual  stock  partnership  membership  into  corporate  on   or   after
1.4.1997. Accordingly such stock brokers  shall  be  given  the  benefit  of
continuity subject to  the  satisfaction  of  conditions  mentioned  in  the
notification.”

On a careful consideration of rival submissions  and  keeping  in  view  the
relevant case laws relied upon by the parties we have examined  analytically
and carefully paragraph 4 as well as the explanations  thereto  in  Schedule
III of the Regulations. We find that para 4 was no  doubt  inserted  through
an amendment with effect from 21.1.1998 but it  does  not  disclose,  either
explicitly or even by necessary implication, that  although  possessing  the
required qualifications, a corporate  entity  formed  earlier  to  21.1.1998
would not be exempted from payment of fee  for  the  period  for  which  the
erstwhile individual or partnership members has already paid  the  fees.  In
respect of a legislation of fiscal character such as the  present  provision
which relates to fees, it will not be proper or permissible to read into  or
delete words which do not exist in the provision. Further even if  there  is
any scope of doubt, the benefit of such doubt will go to the  subject  i.e.,
the stock brokers and not to authority, in this case the  SEBI.  We  further
find that the explanation to para 4 introduced with  effect  from  20.2.2002
takes complete care of any doubt, if at all it could exist, by  providing  a
deeming  fiction  that  in  the  case  of  conversion  of  entities   having
individual or partnership membership  card  into  a  corporate  entity,  the
corporate entity shall be deemed to be  a  continuation  of  the  entity  in
respect  of  collection  of  fees  from  the  converted  corporate   entity.
Further, an embargo has been created against collection of fees  again  from
the converted corporate entity. This explanation is statutory in nature  and
like para 4 it  also  does  not  restrict  the  benefits  of  conversion  to
entities converted on or after any particular  date.  The  explanation  does
not talk of making any refund  nor  does  it  render  the  initial  levy  or
assessment of fee as bad but forbids the collection  of  such  fees  if  the
converted corporate entity is entitled to fee continuation benefit in  terms
of paragraph 4 of Schedule III to the Regulations.

Following the judgment in the  case  of  Somaiya  Organics,  we  agree  that
‘levy’ and ‘collection’  are  not  synonyms  and  generally  they  occur  at
different stages. In the present case the legislative intention  is  to  put
an embargo on collection in future, in case the converted  corporate  entity
is found entitled to  the  benefits  of  fee  continuity.  Such  embargo  is
clearly to  operate  prospectively  even  if  there  existed  some  kind  of
liability in the past on account of fees  leviable  prior  to  insertion  of
paragraph 4 of Schedule III to the Regulations. In any  case  the  rationale
in not permitting retrospective operation of laws is  only  to  ensure  that
subjects are not adversely affected by creation  of  legal  liabilities  and
obligations for a period already bygone. In the present case the  provisions
do not create any obligation or liability. They only confer benefits by  way
of fee continuity on account of fees already  paid  by  the  earlier  entity
before its conversion into a new corporate entity.

Even if we were to apply the test of fairness, no exception can be taken  to
extention of the benefit of  fee  exemption  as  provided  by  the  relevant
provision in the Regulations. Since the policy behind grant of  benefits  is
to encourage corporatization of  individual  or  partnership  members  of  a
stock exchange, the action of extending such benefits without  any  curb  on
the basis of date of conversions cannot be held as unfair.

As noted earlier the SEBI itself extended the benefit  to  those  converting
not only from 21.1.1998 but from 1.4.1997. There is nothing in  paragraph  4
or in the explanation to support the stand of the  SEBI  that  the  benefits
must be confined to conversions taking place after a  particular  date  when
no such date finds place in the Regulations. As a result, appeals  preferred
by SEBI are dismissed and the judgments and orders under  appeal  passed  by
SAT are upheld. In the facts of the case the parties shall  bear  their  own
costs.

…………………………….J.
[VIKRAMAJIT SEN]


..……………………………..J.
[SHIVA KIRTI SINGH]
New Delhi.
November 03, 2015.

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