SC throws out brokers plea on SEBI registration fee

SC throws out brokers plea on SEBI registration fee
ENS ECONOMIC BUREAU & PTI

MUMBAI/NEW DELHI, FEB 1: In a major judgment that could affect the operations of stock brokers, the Supreme Court today upheld the controversial registration fee charged from brokers by Securities and Exchange Board of India (SEBI), which would substantially enhance the income of the regulatory body.

Dismissing a petition by the Bombay Stock Exchange Brokers Forum challenging the SEBI decision, a three-judge Bench comprising Justice B N Kirpal, Justice N Santosh Hegde and Justice Brijesh Kumar said SEBI had the necessary legislative competence to impose the said fee.

The court accepted the contention of Additional Solicitor General Kirit Raval, who appeared for SEBI, that a large number of activities were being carried out by SEBI and hence the fee charges was not merely for registration of a broker but also for performance of its regulatory functions.

Forum's counsel P Chidamabaram had contended that SEBI had exceeded its powers by linking the fee to the tunrover of a broker for five year post-grant of registration. SEBI has charged a fixed amount plus one hundredth of one per cent of the turnover of brokers for a five year period. It has already collected Rs 49 crore as registration fee from brokers alone and another Rs 79 crore from other intermediaries.

Justice Hegde, writing the judgment for the bench, rejected the contention of Chidambaram that the fee charged from brokers was in the nature of a tax and thus, beyond the legislative competence of SEBI. The court held that SEBI has the necesary powers both, under Section 12 and Section 11(2)(K) of the SEBI Act, for levying such a fee and since "it is a fee, the question of any quid pro quo on services to be rendered by SEBI to the stock brokers does not arise".

Justice Hegde said the services to be rendered were to the vast body of persons coming in contact with the securities market of which the brokers formed a part and, therefore, SEBI's activities should not be examined only from the limited perspective of the borkers alone. The court also rejected the contention of senior advocate Ashok Desai, appearing on behalf of the National Stock Exchange, that they should be treated differently.

Justice Hegde said once it was held that SEBI had the necessary legislative power and competence to levy the fee, it was for the SEBI to consider and determine the reasonable fee. He also rejected the contention that linking of the fee to the annual turnover of the brokers was irrational saying it was only a measure of levy of fees and added "what measures is to be adopted has to be left to the regulatory body".

The court said since SEBI itself had stated that it has accepted the report of the Committee headed by R S Bhatt for determining what should be the method of calculating annual turnover, it was reasonable that the fees to be collected should be in accordance with Bhatt Committee report.

While issuing this direction, the Court clarified that it was doing so only in view of the fact that SEBI itself has accepted the recommendations of the Bhatt Committee.

The court did not go into the merits of the report vis-a-vis the Committee headed by Justice Modi, appointed by the Bombay High Court, on the ground that these were matters on which it would not like to interfere. Justice Hegde directed SEBI to collect the Brokers Registration Fee only in accordance with the Bhatt Committee recommendations.

Brokers fear huge liability; Sensex falls
MUMBAI:Even as the Supreme Court threw out the plea against the registration fee, brokers who now fear a huge liability unloaded shares across the board on the stock exchanges. Sensex which was down by over 100 points at one stage closed at 4286.11, netting a fall of 40.61 points.

Sensing negative judgment this morning, the market met with resistance at early stages and later witnessed two-way movements after the SC upheld the decision of the SEBI to charge stock brokers a turnover tax for the last five-year period prior to grant of registration.

Commenting on the judgment, dealers said the levy would create heavy liability to the tune of about Rs 900 crore out of which BSE brokers will have to pay Rs 52 crore as they had already been paying about Rs 50,000 per annum between 1996 and 1998 and Rs 5,000 per annum 1999 onwards, and rest by the NSE operators.

According to SEBI sources, fears that additional liability on account of turnover tax could exceed Rs 600-900 crore are baseless. When contacted, SEBI officials say the actual liability will have to be worked out, but it could be at the most Rs 100 crore. "It is still to be decided as to within what time frame the outstanding tax would be collected and whether there will be interest charged on the outstanding amount," said a SEBI source in reply to a query. As per the SEBI directive, brokers are liable to pay turnover fee based on different parameters for 5 years from the date of registration, starting from the year 1992.

After completion of the 5-year period, only an annual fee of Rs 1,000 is to be paid to the regulator by the brokers. While some of the brokers have paid the turnover fee, others have not paid it, awaiting the Supreme Court's decision in the matter.