/2023 INSC 0193/
REPORTABLE
IN THE SUPREME COURT OF INDIA
  CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 2402 OF 2008
GPSK CAPITAL PRIVATE LIMITED    ….APPELLANT(S)
(FORMERLY KNOWN AS MANTRI
FINANCE LIMITED)
                    VERSUS
THE SECURITIES AND EXCHANGE
BOARD OF INDIA ….RESPONDENT(S)
WITH
CIVIL APPEAL NO(S). 5636 OF 2007
J U D G M E N T
Rastogi, J.
Civil Appeal No(s). 2402 of 2008
1. The   instant   appeal   has   been   filed   under   Section   15(Z)   of   the
Securities and Exchange Board of India Act, 1992(hereinafter being
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referred   to   as   the   “Act   1992”)   assailing   the   judgment   and   order
dated   9 th
  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 the “Board”) dated 7 th
 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   Sub­Brokers)   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 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   30 th
  November,   1992.
Sometime in the year 1997, he decided to transfer his membership
card   of   CSE   in   favour   of   Mantri   Finance   Ltd.­the   appellant
herein(hereinafter being referred to as the “Company”).   It is not in
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dispute   that   the   company   was   registered   with   the   Registrar   of
Companies, Calcutta on 27 th
  December, 1998 under the name and
style of Ushagram Properties and Finance Ltd.  Later, it changed its
name   to   Mantri   Finance   Ltd.   on   13 th
  November,   1992.     The
Company   had   started   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 1 st
 April, 1998.
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   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.
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4.   The   claim   of   the   Company   was   rejected   by   the   Board   by   its
Order  dated   7 th
  May,  2007   holding   that   Srikant   Mantri  was   only  a
Director   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
dated 7 th
 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
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   and   therefore,   will   have   to   pay   the   fee   for   initial
registration   with   the   Board   and   set   aside   the   impugned   order   and
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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 17 th
 October, 1995.
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. 
8. Hence, appeals have been preferred by the appellant Company
as well as by the Board against the self­same impugned judgment of
the Tribunal dated 9 th
 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  proprietor   of   the  firm   M/s.   Govind  Prasad  Shrikant  &   Co.
which   was   registered   with   the   Board   since   30 th
  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.   1 st
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April, 1998.  Accordingly, the appellant fulfils the pre­conditions 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
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,   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,   mandates   that   in   a
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case of conversion, no fresh fee will be collected 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   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   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   entitled   to   claim   exemption   invoking   Para   4   of
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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.
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   is   concerned,   it   has   been   decided   by   this   Court   in
Securities   and   Exchange   Board   of   India   Vs.   National   Stock
Exchange   Members   Association   and   Another 1
  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
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   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
1   2022 SCCOnline SC 1392
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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   28 th
  March,   2002   and   fee   is   to   be   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.
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
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 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
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
placed   on   record   under   its   Order   dated   7 th
  May,   2007,   and   taking
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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
to   which   such   benefit   is   available   need   to   be   established   beyond
doubt.   From   the   true   copy   of   Annual   Returns   for   the   relevant
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
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   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   9 th
  August,   2007   as
follows:­
“….   The   Board   adopted   a   policy   to   encourage   the   brokers   to
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   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
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director therein but was only a director. This fact is being disputed
by   the   appellant   before   us.   It   is   not   necessary   for   us   to   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
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  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 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 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 18 th
  March, 1998 that Srikant Mantri was holding less
than 40% of the paid­up capital of the corporate entity.  It was also
recorded   by   the   Tribunal   that   from   the   true   copies   of   annual
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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 retrieved from ROC’s office in respect of AGM dated 28 th
  April,
1997 and 19 th
 May, 1999.
21. At the same time, appellant Company was granted registration
after   para   4   was   put   in   place   by   notification   dated   21 st
  January,
1998 and the appellant Company failed to satisfy that it fulfilled the
conditions of 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 reference has been made.
23. Consequently,   the   appeal   is   without   any   substance   and
accordingly dismissed.  No costs.
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24. Pending application(s), if any, shall stand disposed of.
Civil Appeal No. 5636 of 2007  
25. This   appeal   is   preferred   by   the   Board   against   the   self­same
impugned   judgment   dated   9 th
  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
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.
28. Pending application(s), if any, shall stand disposed of.
……………………………J.
(AJAY RASTOGI)
…………………………….J.
(BELA M. TRIVEDI)
NEW DELHI;
MARCH 20, 2023
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