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.
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.
