- (1.) Challenge in this appeal is to order dated 18.5.2006 rendered by the Securities Appellate Tribunal, Mumbai (for short "SAT") whereby Appeal No.342/2004 preferred by the appellant was dismissed by holding that the appellant is not entitled to the fee continuity benefit claimed under the provisions of Securities & Exchange Board of India (Stock Brokers and Sub- Brokers) Regulations, 1992 [for short, "the Regulations"]. Since there is no dispute on the material facts which have been correctly recorded in the order under appeal, no useful purpose will be served by recollecting the facts in detail once again. It would suffice to note that in terms of policy decision by respondent no.1, the Securities & Exchange Board of India (for brevity, "the SEBI") reflected in its circulars dated 26.11.1999 and 16.12.1999, the Vadodara Stock Exchange Ltd. incorporated a subsidiary company named as VSE Securities Ltd. on 24.12.1999. It got membership of Bombay Stock Exchange (BSE) as well as registration under the SEBI resulting in commencement of operation on BSE from 29.5.2000 but failed to get membership of National Stock Exchange (NSE) for the specific reason that it was a company limited by guarantee and not by stock or shares. To overcome this handicap, the Vadodara Stock Exchange Ltd. corresponded with the SEBI as well as NSE but without success because apparently it had ignored the clarifications contained in circular dated 16.12.1999 indicating that a Stock Exchange could acquire the membership right of a major Stock Exchange through a subsidiary company but it should be a company limited by stocks. The bye-laws of NSE also permitted membership only to such a company and not to one limited by guarantee. Hence Vadodara Stock Exchange Ltd. incorporated another subsidiary company, the appellant herein, on 16.1.2002. Being limited by stocks, the appellant obtained membership of NSE on 16.4.2002. But SEBI refused to grant recognition to the appellant on the ground that as per its policy and circular dated 26.11.1999 only one subsidiary of Vadodara Stock Exchange Ltd. could claim registration as a broker. Such decision of the SEBI dated 31.12.2002 was accepted by the Vadodara Stock Exchange Ltd. and was never challenged.
(2.) In view of stand of the SEBI and clearly because the appellant wanted to operate on NSE, steps were taken to get the earlier subsidiary company " VSE Securities Ltd. amalgamated with the appellant. The High Court was moved and on completion of necessary formalities, amalgamation order was passed by the Gujarat High Court on 17.3.2003. Under the above scheme of amalgamation the appellant became a transferee company entitled to the assets and liabilities of the transferor company. Post amalgamation, the appellant obtained fresh registration from the SEBI in respect of its operation on BSE in the month of October 2003. On 30.04.2004, the SEBI granted registration for business on NSE on the usual conditions including payment of fees in the manner provided in the Regulations, particularly Regulation 10(1) read with Schedule III of the Regulations. The appellant paid the provisional fee liability but the demand of final fee by the SEBI was challenged before SAT on the ground that the appellant is entitled to fee continuity benefit in terms of circular of the SEBI dated 30.09.2002. The claim of the appellant, as noticed earlier, was rejected by SAT by the order under appeal.
(3.) The moot question falling for determination, as rightly noticed by SAT, is whether the appellant is entitled to the fee continuity benefit in terms of the Regulations. Regulation 10 mandates that every applicant eligible for grant of a certificate shall pay such fees and in such manner as specified in Schedule III. For non-payment of requisite fees the SEBI may suspend the registration certificate and in that situation the stock broker shall cease to buy, sell or deal in securities as a stock broker.;