GPSK CAPITAL PRIVATE LIMITED (FORMERLY KNOWN AS MANTRI FINANCE LIMITED)versusTHE SECURITIES AND EXCHANGE BOARD OF INDIA

                        [2023] 2 S.C.R. 737                              737


GPSK CAPITAL PRIVATE LIMITED (FORMERLY KNOWN AS                          A
            MANTRI FINANCE LIMITED)
                                  v.
    THE SECURITIES AND EXCHANGE BOARD OF INDIA
                 (Civil Appeal No(s). 2402 of 2008)                      B

                         MARCH 20, 2023
       [AJAY RASTOGI AND BELA M. TRIVEDI, JJ.]
      Securities and Exchange Board of India Act, 1992: s. 15(Z) –
Securities and Exchange Board of India (Stock Brokers and Sub            C
Brokers) Regulations, 1992 – Sch. III, para 4 – Fees continuity
benefits under – Entitlement to – Conversion of individual
membership into a corporate entity – On facts, a member of Calcutta
Stock Exchange-CSE, registered as a stock broker, transferred his
membership of CSE in favour of the appellant company which was           D
a member of National Stock Exchange- NSE – Appellant company
then became the member of CSE and was registered as stock broker
of CSE – Appellant company claimed exemption from the payment
of registration fee for the period for which the erstwhile member
has already paid the fees and that the conditions prescribed under
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para 4 of Sch. III to the Regulations were satisfied – Board rejected
the claim – In appeal, the tribunal held that the single registration
with the Board is sufficient even if the stock broker has multiple
memberships and functions from several stock exchanges, thus will
have to pay the fee for initial registration with the Board and that
the Company failed to satisfy the conditions of clause (4) of Schedule   F
III and was not eligible to claim exemption from payment of fee
over the period for which the erstwhile individual paid the fees –
On appeal, held: When the erstwhile member transferred his
membership card of CSE to the appellant Company, he was not a
whole time Director but was only a Director – Date on which he           G
acquired 40% of the shareholding in the appellant Company is
unclear – Details provided nowhere indicate the erstwhile member
as a whole time Director for any of the relevant years – Thus, the
appellant Company failed to fulfil the conditions under Para 4 of
Sch. III and not entitled to claim fee continuity benefits.
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                                 737
738             SUPREME COURT REPORTS                           [2023] 2 S.C.R.


A           Securities and Exchange Board of India Vs. National
            Stock Exchange Members Association and Another
            2022 SCC Online SC 1392 – referred to.
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2402
      of 2008.
B          From the Judgment and Order dated 09.08.2007 of the Securities
      Appellate Tribunal, Mumbai in Appeal No. 76 of 2007.
            With
            Civil Appeal No. 5636 of 2007.
C           Chander Uday Singh, Sr. Adv., Bhargava V. Desai, Rahul Gupta,
      Ms. Viddushi Shandilya, Ms.
            Bidya Mohanty, Amjid, Zubin M John, Ms. Pallavi Maurya, Ms.
      Devina Bhandari, Amit Annappa Pai, Ramesh Babu M. R., Ashish Bhakta,
      Advs. for the appearing parties.
D
            The Judgment of the Court was delivered by
            RASTOGI, J.
            Civil Appeal No(s). 2402 of 2008
             1. The instant appeal has been filed under Section 15(Z) of the
E     Securities and Exchange Board of India Act, 1992(hereinafter being
      referred to as the “Act 1992”) assailing the judgment and order dated
      9th August, 2007 passed by the Securities Appellate Tribunal(hereinafter
      being referred to as the “Tribunal”) affirming the order of the Securities
      and Exchange Board of India, Mumbai(hereinafter being referred to as
F     the “Board”) dated 7th May, 2007 holding that the appellant did not satisfy
      the conditions of clause (4) of Schedule III of the Securities and Exchange
      Board of India(Stock Brokers and Sub-Brokers) Regulations,
      1992(hereinafter being referred to as the “Regulations”) hence the
      exemption from payment of fees for the period for which the erstwhile
      individual Srikant Mantri has paid to the Board cannot be converted to
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      the corporate entity MFL.
             2. The brief facts of the case culled out are that one Srikant Mantri
      became a member of the Calcutta Stock Exchange (hereinafter being
      referred to as the “CSE”) and was granted registration as a stock broker
      on 30th November, 1992. Sometime in the year 1997, he decided to
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GPSK CAPITAL PVT. LTD. (FORMERLY KNOWN AS MANTRI FIN. LTD.) v.               739
THE SECURITIES AND EXCHANGE BOARD OF INDIA [AJAY RASTOGI, J.]


transfer his membership card of CSE in favour of Mantri Finance Ltd.-        A
the appellant herein (hereinafter being referred to as the “Company”).
It is not in dispute that the company was registered with the Registrar of
Companies, Calcutta on 27th December, 1998 under the name and style
of Ushagram Properties and Finance Ltd. Later, it changed its name to
Mantri Finance Ltd. on 13th November, 1992. The Company had started
                                                                             B
the business of stock broking in 1995 and became a member of NSE
and thereafter sought registration with the Board as a stock broker and
obtained membership of NSE as a stock broker on 17 th October, 1995.
Thereafter, when the membership card of Srikant Mantri was transferred
in the name of the Company, the latter became a member of CSE and
was registered as a stock broker of CSE on 1st April, 1998.                  C
       3. After obtaining the membership of CSE on transfer of the card
from Srikant Mantri, the appellant Company claimed that it should be
exempted from payment of registration fee for the period for which
Srikant Mantri had already paid the fees. In other words, it claimed the
benefit of exemption of the fee already paid by Srikant Mantri. At the       D
same time, also claimed that all the conditions prescribed under para 4
of Schedule III to the Regulations were satisfied and, therefore, it was
entitled to claim exemption.
       4. The claim of the Company was rejected by the Board by its
Order dated 7th May, 2007 holding that Srikant Mantri was only a Director    E
in the Company during the three years period after the transfer of his
membership and since he was not the whole time Director, the conditions
prescribed under para 4 of Schedule III are not satisfied and accordingly,
was not entitled to claim exemption as prayed for by the appellant.
      5. The appellant Company filed appeal against order of the Board       F
dated 7th May, 2007 before the Tribunal on following two issues:-
      (i)    Whether the stock broker requires multiple registrations to
             operate on more than one stock exchange(s) or a single
             registration will suffice for all the stock exchanges.
      (ii)   Whether the appellant Company is entitled to fee continuity     G
             benefits provided under para 4 of Schedule III.
       6. In regard to issue no. (i), the learned Tribunal held that the
single registration with the Board is sufficient even if the stock broker
has multiple memberships and functions from several stock exchanges
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740             SUPREME COURT REPORTS                            [2023] 2 S.C.R.


A     and therefore, will have to pay the fee for initial registration with the
      Board and set aside the impugned order and remitted the matter to the
      Board for a fresh computation of the registration fee payable by the
      Company on the basis of its registration with effect from 17th October,
      1995.
B           7. So far as issue no. (ii) is concerned, learned Tribunal held that
      the appellant Company has failed to satisfy the conditions of clause (4)
      of Schedule III to the Regulations and was not eligible to claim exemption
      from payment of fee over the period for which the erstwhile individual
      Srikant Mantri has paid the fees.
C           8. Hence, appeals have been preferred by the appellant Company
      as well as by the Board against the self-same impugned judgment of the
      Tribunal dated 9th August, 2007.
             9. The main thrust of submissions advanced by learned counsel
      for the appellant is that Srikant Mantri, in the first instance, was the sole
D     proprietor of the firm M/s. Govind Prasad Shrikant & Co. which was
      registered with the Board since 30th January, 1992. Under Para 4 to
      Schedule III, it applies for conversion of membership to a corporate
      entity and membership of the old entity, i.e., M/s. Govind Prasad Shrikant
      & Co. (SEBI Registration No. INB030054715) was converted into a
      corporate entity w.e.f. 1st April, 1998. Accordingly, the appellant fulfils
E     the pre-conditions as indicated in para 4 of Schedule III annexed to the
      Regulations and this is the apparent error which has been committed by
      the Board in the first instance and the factual matrix has not been
      appreciated by the Tribunal as well.
            10. Learned counsel further submits that para 4 was added to
F     Schedule III pursuant to Board’s policy to corporatize individual stock
      brokers, and to institutionalize the stock broking activity and further
      submits that the interpretation ought to be in consonance with the intent
      and purport of the policy to which para 4 was added to Schedule III.
             11. Learned counsel further submits that in the case of conversion,
G     the individual registration has been converted into a corporate registration
      and, therefore, the exemption for the payment of fees is available and
      further submits that para 4 to Schedule III does not contemplate two
      registrations. The Explanation to para 4, by a deeming fiction, mandates
      a continuity from the erstwhile membership to the converted membership
      qua the payment of fees and further submits that the law, therefore,
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GPSK CAPITAL PVT. LTD. (FORMERLY KNOWN AS MANTRI FIN. LTD.) v.                  741
THE SECURITIES AND EXCHANGE BOARD OF INDIA [AJAY RASTOGI, J.]


mandates that in a case of conversion, no fresh fee will be collected           A
from the converted corporate entity. In the facts and circumstances, the
finding returned by the Tribunal needs to be interfered with by this Court.
       12. Per contra, learned counsel for the respondent, while supporting
the finding returned by the Board and affirmed by the Tribunal submits
that the material which has come on record has been appreciated at two          B
stages by the Board as well as by the Tribunal. It remains uncontroverted
that Srikant Mantri transferred his membership card of CSE to the
appellant Company and he was not a whole time Director therein but
only a Director and the corporate entity is entitled to claim exemption
from the payment of registration fee only if the individual or partnership
membership had been converted into a corporate entity. However, in the          C
instant case, Srikant Mantri did not convert himself into a corporate
entity, instead transferred his membership card of CSE to an existing
company and became a Director therein.
       13. Accordingly, it has rightly been held by the Board and confirmed
by the Tribunal in the order impugned holding that the appellant was not        D
entitled to claim exemption invoking Para 4 of Schedule III to the
Regulations and no evidence has been placed by the appellant on record
even in rebuttal before this Court. In the given circumstances, there
appears no reason or justification to disturb the concurrent finding of
fact in the appeal filed at the instance of the appellant Company.              E
       14. We have heard learned counsel for the parties and with their
assistance perused the material available on record.
       15. So far as issue no. (i) in reference to stock broker which
requires multiple registrations to operate on more than one stock
exchange(s) or a single registration will suffice for all the stock exchanges   F
is concerned, it has been decided by this Court in Securities and
Exchange Board of India Vs. National Stock Exchange Members
Association and Another1 and remains no more res integra in view of
the judgment of this Court wherein it has been held as under:-
         “47. Thus, in our considered view, the conjoint reading of the         G
         expression “a certificate” as referred to in Section 12(1) of the
         Act read with the scheme of Rules, 1992 and Regulations 1992,
         leads to an inevitable conclusion that the stock broker not only

1
    2022 SCCOnline SC 1392                                                      H
742             SUPREME COURT REPORTS                            [2023] 2 S.C.R.


A           has to obtain a certificate of registration from SEBI for each of
            the stock exchange where he operates, at the same time, has to
            pay ad valorem fee prescribed in terms of Part III annexed to
            Regulation 10 of the Regulations, 1992 in reference to each
            certificate of registration from SEBI in terms of the computation
            prescribed under Circular dated 28th March, 2002 and fee is to be
B
            paid as a guiding principle by the stock broker which is in
            conformity with the scheme of Regulations 1992.”
            16. The issue involved in the instant appeal confines as to whether
      the appellant Company is entitled to fee continuity benefits under Para 4
      of Schedule III of the Regulations 1992.
C
            17. To examine the said issue no. (ii), it will be apposite to first
      take note of para 4 of Schedule III of Regulations, 1992 which is as
      follows:-
            “Where a corporate entity has been formed by converting such
D           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
E           director will continue to hold minimum 40 per cent shares of the
            paid up equity capital of the corporate entity for a person 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
F           shall be deemed to be in continuation of the old entity and no fee
            shall be collected again from the converted entity for the period
            for which the erstwhile entity has paid the fee as per the
            regulations.”
              18. The Board, in the first instance, after appraisal of the evidence
G     placed on record under its Order dated 7th May, 2007, and taking into
      consideration para 4 of Schedule III of the Regulations, 1992 returned
      its finding as follows:-
            “3.11 Exemption from payment of fees confers a benefit to the
            corporate entity. For granting such benefit, the conditions subject
H           to which such benefit is available need to be established beyond
GPSK CAPITAL PVT. LTD. (FORMERLY KNOWN AS MANTRI FIN. LTD.) v.                 743
THE SECURITIES AND EXCHANGE BOARD OF INDIA [AJAY RASTOGI, J.]


      doubt. From the true copy of Annual Returns for the relevant             A
      period provided by MFL, it appears that Shri Shrikant Mantri was
      a director, but, not a whole time director during the relevant period.
      This fact has also been established from the copy retrieved from
      ROC’s office in respect of AGM dates April 28, 1997 and May
      19, 1999. MFL was granted registration after the issue of
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      notification dated January 21, 1998 i.e. after the conditions subject
      to which exemption can be granted to a converted corporate entity
      were in place. It is clear from the above that MFL did not satisfy
      at least one of the conditions of clause I (4) of Schedule III of the
      Regulations. Hence, MFL cannot become eligible for exemption
      from payment of fees for the period for which the erstwhile              C
      individual Shri Shrikant Mantri has already paid the fees.”
      19. On appeal being preferred by the appellant Company, the
Board, on reappreciating the evidence on record confirmed the finding
under its Order impugned dated 9th August, 2007 as follows:-
      “…. The Board adopted a policy to encourage the brokers to               D
      corporatize themselves so that their working becomes more
      transparent as corporate entities have more and better regulatory
      controls as compared to individuals and partnerships. With this
      object in view, the Board introduced paragraph 4 in Schedule III
      to the Regulations with effect from 21.1.1998 and it decided to          E
      give the benefit of the fee already paid by the individual or
      partnership prior to its becoming a corporate entity. In the case
      before us the Board has found that when Srikant Mantri transferred
      his membership card of CSE to the company, he was not a whole
      time director therein but was only a director. This fact is being
      disputed by the appellant before us. It is not necessary for us to       F
      record a finding in this regard because we are of the view that the
      company is not entitled to the benefit under paragraph 4 of the
      Schedule because there is no continuity. As already noticed, the
      corporate entity is not entitled to claim exemption from the payment
      of registration fee only if the individual or partnership had been       G
      converted into a corporate entity. In the instant case, Srikant Mantri
      did not convert himself into a corporate entity but instead,
      transferred his membership card of CSE to an existing company
      and became a director therein. The Regulations do not provide
      for exemption in such cases. The company before us was an
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744            SUPREME COURT REPORTS                           [2023] 2 S.C.R.


A           existing company and therefore, when it became a member of
            CSE on the transfer to membership card from Srikant Mantri it
            could not claim the benefit under paragraph 4. It could claim such
            a benefit only if Srikant Mantri had formed himself into a company
            and continued his broking business. Since that was not the case,
            we are clearly of the view that the company could not claim the
B
            benefit of paragraph 4. In this view of the matter, we have no
            hesitation in upholding the order passed by the Board rejecting
            the claim of the appellant.”
             20. It remains uncontroverted that when Srikant Mantri transferred
      his membership card of CSE to the Company, he was not a whole time
C
      Director but was only a Director. Neither CSE nor its internal auditors,
      were clear of the exact date on which Srikant Mantri had acquired 40%
      shareholding in the appellant Company. At the same time, it was informed
      by the Board to the CSE vide letter dated 18th March, 1998 that Srikant
      Mantri was holding less than 40% of the paid-up capital of the corporate
D     entity. It was also recorded by the Tribunal that from the true copies of
      annual returns provided by the appellant Company, it was revealed that
      the details of the Directors provided by them nowhere indicate Srikant
      Mantri as a whole time Director for any of the relevant years. The
      designation of Srikant Mantri has been indicated as “Director” in all the
      relevant years’ Annual Return. It was also established from the copy
E
      retrieved from ROC’s office in respect of AGM dated 28th April, 1997
      and 19th May, 1999.
             21. At the same time, appellant Company was granted registration
      after para 4 was put in place by notification dated 21st January, 1998 and
      the appellant Company failed to satisfy that it fulfilled the conditions of
F
      para 4 to Schedule III pursuant to which the appellant has claimed his
      entitlement of fee continuity benefits.
             22. After going through the material on record, we are satisfied
      that the appellant Company failed to fulfil the conditions as referred to
      under Para 4 of Schedule III appended to the Regulations of which a
G
      reference has been made.
            23. Consequently, the appeal is without any substance and
      accordingly dismissed. No costs.
            24. Pending application(s), if any, shall stand disposed of.
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GPSK CAPITAL PVT. LTD. (FORMERLY KNOWN AS MANTRI FIN. LTD.) v.                  745
THE SECURITIES AND EXCHANGE BOARD OF INDIA [AJAY RASTOGI, J.]


       Civil Appeal No. 5636 of 2007                                            A
       25. This appeal is preferred by the Board against the self-same
impugned judgment dated 9th August, 2007 as in Civil Appeal No. 2402
of 2008. Hence, the facts need not be reiterated for the purpose of
instant appeal.
      26. The appeal filed by the Board deserves to succeed as the              B
question remains no more res integra in view of judgment of this Court
in Securities and Exchange Board of India Vs. National Stock
Exchange Members Association and Another (supra).
       27. Consequently, the appeal succeeds and is allowed.
                                                                                C
       28. Pending application(s), if any, shall stand disposed of.

Nidhi Jain                                               Appeals disposed of.
(Assisted by : Shashwat Jain, LCRA)

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