ANOOP JAIN AND CO Vs. CHAIRMAN SECURITIES AND EXCHANGE BOARD OF INDIA
LAWS(SB)-2003-9-45
SECURITIES APPELLATE TRIBUNAL
Decided on September 19,2003

Appellant
VERSUS
Respondents

JUDGEMENT

C.Achuthan, - (1.) THE Appellant is a stock broker. It is a member of the Ludhiana Stock Exchange (the Exchange). THE Respondent had granted a certificate of registration to the Appellant in terms of section 12 of the Securities and Exchange Board of India Act (the SEBI Act) read with the provisions of the Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Regulation 1992 (the Stock Broker Regulations) to carry on the activities of stock broker. An inspection of the books of account, documents and other records of the Appellant was carried out by the Respondent some time in January 2000. THE inspection revealed certain irregularities on the part of the Appellant, which included irregularities in the issuance of Contract notes, failure to segregate the clients accounts and own accounts, non maintenance of client data base, failure to execute agreement with the clients, not reporting the off the floor transactions, dealing as sub Brokers without being registered with SEBI, delayed payments to clients and inadequate payment of registration fees. On the findings of the inspection, the Appellant's comments were sought by the Respondent vide its letter dated June 30, 2000. THE Appellant responded to the same vide letter dated September 18, 2000. Since the reply was found not satisfactory, the Respondent appointed an Inquiry Officer on March 5, 2001 to conduct an inquiry into the matter. THE Inquiry Officer after conducting the inquiry submitted his report on October 10, 2001 confirming the findings of the inspection. Though failures were established he recommended warning in certain cases. But he recommended suspension of the certificate of registration granted to the Appellant on the ground of irregularities in the issue of Contract notes, non reporting the off the floor transactions, non segregation of client account and own account, and entering into structured transactions. He had also recommended that in case the Appellant failes to pay the requisite fees within the specified period, the suspension period be allowed to run till such time the fee is paid. THE Respondent vide notice dated 12.10.2001 forwarded a copy of the Inquiry Report to the Appellant and asked to show cause in the matter as to why action as recommended by the Inquiry Officer should not be taken against it. THE Appellant, except informing the Respondent that it had paid the fees and requesting on that ground to take a lenient view, did not make any detailed representation. THE Appellant, despite the opportunity provided to make oral submissions, did not avail of the same. THE Respondent in that context based on the material available on record passed an order on 27.7.2002. By the said order the certificate of registration granted to the Appellant was suspended for a period of six months or till the payment of the balance fee whichever is later. THE order was made effective from 12.8.2002.
(2.) Claiming to be aggrieved by the Respondent's order dated 12.8.2002 the Appellant preferred the present appeal praying inter alia that the impugned order be revoked, it be declared null and void, and the Respondent be directed to refund the excess turnover fee paid. The Appellant's submission is as under: The Appellant is a member of the Ludhiana Stock Exchange since 1991 and there are no complaints against it from anybody. The inspection of the records carried out by the Respondent in January, 2000, revealed certain irregularities of minor nature. The Respondent had fixed a personal hearing in the matter on April 26, 2002 and adjourned the same on his own for June 7, 2002 and again adjourned the hearing for July 12, 2002, that on July 7, 2002 the Appellant sent a letter through courier to the Respondent requesting for adjournment and also a letter dated 7.7.2002 giving reply to the show cause notice, that the Respondent did not consider the same and passed the impugned order on 27.7.2002." The grounds of appeal are as under. "(i)That the order dated 27.7.2002 of the Hon'ble Chairman, SEBI is illegal, arbitrary and against the cannons of natural law and justice as the submissions dated 7.7.2002 have not been considered by the Chairman, SEBI. (ii) That the order passed by the Chairman, SEBI dated 27.7.2002 is beyond the time limit of 30 days. (iii)That the order dated 27.7.2002 has lost its relevance as the Ludhiana Stock Exchange where the Appellant has done alleged irregularities has closed its operation and not doing any business. (iv) That the Appellant has paid all the dues regarding the turn over fee to SEBI and hence order passed on this account that the Appellant be suspended till the payment of turn over fee is illegal, arbitrary and bad."
(3.) WHEN the appeal was taken up for consideration, the learned Authorised Representative of the Appellant, focussed his arguments only on the quantum of the fees worked out by SEBI and submitted that the said quantification is not correct as the same has not been calculated in terms of the Respondent's circular No. SMD/Policy/Cir-07/2002 dated March 28, 2002 addressed to all the Stock Exchanges regarding fees payable by Stock Brokers. In this context he referred to Part 'A' of the said circular "providing clarifications on the issues arising out of the various representations on fees to be paid by Brokers to SEBI" and in particular to the following portion: "The issues raised in the representations from Brokers with respect to the payment of fees to SEBI are clarified as under: I. Reckoning of first five years: It is clarified that the period of first five years as specified in the regulations shall be computed as under: Brokers who were already carrying on their activities in the financial year 1991-92 would have to pay the fees for the financial year 1992-93 on the basis of their turnover for the previous financial year i.e. 1991-92. The Brokers who have commenced their business from the financial year 1992-93 and onwards would pay a flat fee of Rs. 5, 000/- for the first financial year if they have a nil turn over in the preceding financial year. For the next four years, Brokers would pay fees based on their corresponding previous financial years turnover." II.................. According to the learned Representative from the cited circular it is clear that the Brokers who were already carrying on their activities have to pay fee for the financial year 1991-92 to 1995-96 (5 years) in the manner provided in the circular. He submitted that the Appellant is a member of the Exchange since August/September 1991 and doing the stock broking business since then and applied seeking registration as stock broker in the year 1992 and paid the requisite fee, but registration certificate was issued only in March, 1995. The Appellant has paid the turnover fee as per circular whereas Respondent has demanded turnover fee from the date of grant of registration. According to the learned Representative the said decision of the Respondent is illegal. In this context the learned Representative submitted that it is well settled that the Circulars issued by a department are binding on its officials, that the Respondent has intentionally ignored its own circular No. 07/2002 issued following the judgement of the Hon'ble Supreme Court in BSE Brokers Forum's case (2001 (3) SCC 482) and the recommendations of the R.S. Bhatt Committee. Learned Representative in support of his contention that the Circulars issued by the authorities are binding on their officials referred to the following observation made by the Hon'ble Supreme Court in Paper Products Ltd. v. Commissioner of Central Excise (AIR 1999 SC 3341): ".......apart from the fact that the Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgement of this court further precludes the right of the Department to file an appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force at the relevant point of time.";


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