LexRATNABALI CAPITAL MARKETS LTD. versus SECURITIES & EXCHANGE BOARD OF INDIA AND ORS.
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I RA 1NABALI CAPITAL MARKETS LTD. A V. SECURITIES & EXCHANGE BOARD OF INDIA AND ORS. OCTOBER 23, 2007 (~.H. KAPADIA AND B. SUDERSHAN REDDY,JJ.] B )'-- ._,lr Securities and Exchange Board of India Act, 1992: s.11 (2)-Circular dated 30. 9. 2002 stating that fresh registration c fee not payable by transferee entity if merger takes place due to compulsion of law-Merger of two companies for increasing reserve component of net worth in order to enter derivative market- Entitlement of transferee entity, to claim benefit of Circular dated 30.9.2002-Held: Not entitled as merger had not taken place due to D compulsion of law-Object of the Act-Discussed-Companies Act, y 1956-ss.391 to 394-SEBI (Stock-brokers and Sub-brokers) Regulations, 1992-Schedule Ill-Circular dated 30. 9. 2002-Para 7. Securities and Exchange Board of India and Stock Exchange- Functions performed by the two entities~Distinction between- E Explained Companies Act, 1956: Object of the Companies Act and Securities and Exchange Board of India Act, 199 2-Discussed F -../,.....,.. Words and phrases: 'compulsion of law '-Meaning of-In the context of winding up proceedings under Companies Act, 1956. In 1995, RSL was registered as a broker with NSE. It had paid G ~, initial registration fees for the first year and thereafter paid fees on turnover basis for subsequent four years. SEBI had adopted recommendations of Gupta Committee which stated that the 629 H ~ \ 630 SUPREME COURT REPORTS [2007] 11 S.C.R. --( A company whose net worth was less than rupees three crores would not be allowed to trade as a broker in the derivative segment of the Stock Exchange. To meet this net worth criteria, RSL and RCML, the appellant company merged under the Scheme of Amalgamation sanctioned by the order of the High Court. B On 30.9.2002, SEBI issued a circular stating that in th~ case of merger carried out as a result of compulsion oflaw, fresh fees would .,-\ not be payable by the transferee entity. After the merger of RSL ,.,. with RCML, a demand was made by SEBI for registration fees on c turnover basis. RCML claimed that it is entitled to the benefit of registration fees which RSL had paid from time to time as a broker in the cash and spot market. This claim ofRCML was rejected by the Securities App~llate Tribunal. In appeals to this Court, the appellants contended that the two D companies were required to merge because of acceptance of the recommendations of Gupta Committee by SEBI according to which, 'Y if a broker desires to enter derivative market then he is required to have a net worth of at least rupees three crores; that this pre- condition of possessing net worth of rupees three crores constituted E compulsion oflaw, which made RSL merge into RCML and, in the circumstances, the appellants were entitled to the benefit .of Circular dated 30.9.2002 issued by SEBI. Thus, the two points which have arisen for determination are : whether the merged entity, on amalgamation, duly sanctioned by High F Cou.-4 was entitled to claim the benefit offee continuity and, whether ~- -~ the demand made by SEBI imposing fresh turnover/registration fees on the merged entity constituted an act in derogation of the provisions of any other law for the time being in force in terms of s.32 of the Securities and Exchange Board oflndia Act, 1992. G Dismissing the appeals, the Court ....; HELD: I. The licence from NSE/BSE only provided a platform / to RSL/RCML to carry on the business of buying and selling shares on the stock exchange. However, trade had to be regulated by SEBI. H __ I J., ( RA TNABALI CAPITAL MARKETS LTD. v. SECURITIES & 631 EXCHANGE BOARD OF INDIA r· ... The Companies Act has been enacted with a view to consolidate and A amend the law relating to companies and certain other associations. The Securities and Exchange Board of India Act, 1992 has been enacted to provide for the establishment of a Board to protect the investors' interests in securities and to regulate the securities market and for matters connected thereto. Under the said 1992 Act, SEBI 8. ""' is required to provide for regulating the business in stock exchanges, registering and regulating the working of stock brokers and ? numerous other functions which are enlisted in s.11(2) of the 1992 Act. Unders.llB of the 1992 Act, SEBI is also empowered to issue directions to any person associated with the securities market. As
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