the sanction of law to be an effective order. A noting by an officer is an
expression of his viewpoint on the subject. It is no more than an opinion
by an officer for internal use and consideration of the other officials of
the department and for the benefit of the final decision-making authority.
Needless to add that internal notings are not meant for outside exposure.
Notings in the file culminate into an executable order, affecting the rights
of the parties, only when it reaches the final decision-making authority in
the department; gets his approval and the final order is communicated to
the person concerned.
15. In Bachhittar Singh v. The State of Punjab AIR 1963 SC 395, a
Constitution Bench of this Court had the occasion to consider the effect
of an order passed by a Minister on a file, which order was not
communicated to the person concerned. Referring to the Article 166(1) of
the Constitution, the Court held that order of the Minister could not
amount to an order by the State Government unless it was expressed in
the name of the Rajpramukh, as required by the said Article and was then
communicated to the party concerned. The court observed that business
of State is a complicated one and has necessarily to be conducted through
the agency of a large number of officials and authorities. Before an action
is taken by the authority concerned in the name of the Rajpramukh,
which formality is a constitutional necessity, nothing done would amount
to an order creating rights or casting liabilities to third parties. It is
possible, observed the Court, that after expressing one opinion about a
particular matter at a particular stage a Minister or the Council of
Ministers may express quite a different opinion which may be opposed to
the earlier opinion. In such cases, which of the two opinions can be
regarded as the "order" of the State Government? It was held that opinion
becomes a decision of the Government only when it is communicated to
the person concerned.
16. To the like effect are the observations of this Court
in Laxminarayan R. Bhattad and Ors. v. State of Maharashtra and
Anr. 2003 (3) SCR 409, wherein it was said that a right created under an
order of a statutory authority must be communicated to the person
concerned so as to confer an enforceable right.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 7607 OF 2005
SECURITIES & EXCHANGE BOARD OF INDIA
V
M/s. PREBON YAMANE (I) LTD.
Dated:November 03, 2015.
Citation:(2015) 16 SCC89
1 This Appeal assails the Judgment dated 17.8.2005 pronounced by the Securities
Appellate Tribunal (hereinafter ‘SAT’) directing the Appellant as well as the National
Stock Exchange (NSE for brevity) to continue to grant the Respondent the “fee
continuity benefit” as was available to them before the NSE decided to permit
segmental surrender of membership to its members. In response to the fee demanded
by the Appellant, namely the Securities and Exchange Board of India (SEBI for short),
the Respondent has paid, albeit under protest, the principal amount of 4,37,20,256/-
together with 26,96,590/- being the interest accrued thereon. The factual matrix is
that on 27.5.1994, Oracle Stocks and Shares Ltd. (hereinafter ‘Oracle’) was registered
by the NSE as a Trading member in two segments, that is the Wholesale Debt Market
(WDM) as well as in the Equity Market/Capital Market (EM/CM). Subsequently, on
14.1.1999, Oracle informed the NSE that it had entered into a 50:50 Joint VenturePage 2
with Prebon Holdings B.V. (Prebon Group), namely Prebon Yamane (India) Ltd. (the
Respondent), but restricted in respect to the WDM segment alone. NSE advised
Oracle to bifurcate the WDM and the EM/CM segments whereupon Oracle forwarded
a proposal in writing seeking the approval of NSE for the segregation of its
Membership of WDM and of the EM/CM segments. By its letter dated 11.2.1999,
NSE approved the proposal of Oracle for segregation but subject to certain conditions,
inter alia, that if the trading member Oracle was desirous of surrendering its trading
membership, both the entities viz. Oracle and the Respondent would have to surrender
their respective memberships simultaneously. As is palpably apparent, NSE looked
after its own financial interests by demanding 10 Lacs as approval fee together with
an interest free security of 50 Lacs. Both entities were also required to maintain
their shareholding pattern and comply with the net worth and all other requirements -
Oracle in respect of corporate trading of the Capital Market and the Respondent in
respect of the corporate trading in the WDM segment. The Respondent was also
called upon to submit its shareholding pattern. It seems facially obvious to us that
even the NSE was alive to the possibility of Oracle hiving off or transferring its WDM
operations to the Respondent without complying with all the applicable Rules and
Regulations. NSE maintained this position even later on, as is evident from a perusal
of its letter to the Respondent positing that both memberships, though vesting in
separate parties, were treated as ‘concomitant’. It is also relevant to underscore that
the Appellant was not privy to these negotiations.Page 3
2 We must hasten to add that shortly subsequent to these events, the Appellant by its
letter dated 4.4.1999 to the Respondent had granted registration to it “as a stock
broker”. The Appellant made its permission conditional inter alia, upon payment of
fees for registration provided in the Securities and Exchange Board of India [StockBrokers
and Sub-Brokers] Regulations, 1992, the salient parts of which we shall
extract for ease of reference. However, the relevant terms contained in the letter dated
4.4.1999 are these -
2 d) It shall pay the amount fees for registration in the manner
provided in the Securities and Exchange Board of India [Stock
Brokers and Sub Brokers] Regulations, 1992; and
5. You are now, in terms of clause [d] of the conditions of grant of
registration certificate, required to pay the fees in accordance with
regulation 10[1] read with Schedule-III of the Securities and
Exchange Board of India [Stock Brokers and Sub Brokers]
Regulations, 1992 and remit the same through the stock exchange
of which you are a member. All the stock exchange have been
separately given necessary instructions in regard to collection of
fees from the stock brokers and remittance thereof to the Board.
3 In this continuum NSE, in its letter dated 30.1.2002, again conveyed to the
Respondent that both the memberships, though vesting in different entities, were
‘concomitant’. This reiterated stand of the NSE was submitted by the Respondent to
the Appellant with a request to grant fee continuity benefit on the basis of the facts of
the case. The Appellant has admitted that on receipt of this request from the
Respondent, it recorded in its file notings that the two membership cards could be
treated as composite and that the turnover of the two cards may be taken together for
the purpose of turnover fees. It is not in dispute that till 2003 the Respondent hadPage 4
been availing of the benefits permissible under the fee continuity provisions. This
position was also accepted by the Appellant, as both the membership cards were
treated as composite and ‘concomitant’ and the turnover of the two cards of Oracle
and the Respondent were taken together on the predication that the Respondent’s
WDM membership was a continuation of WDM segment of Oracle’s membership.
4 On 18.9.2003, the Respondent applied to the NSE for membership in the
Derivatives Segment which the NSE, as per procedure, forwarded to the Appellant for
its approval. On 24.6.2004, the Appellant returned the application and issued a
provisional fee liability statement disclosing that after making the necessary
adjustments of the amount paid with respect to its membership in the WDM Segment,
there were unpaid dues in the name of the Respondent to the tune of 5,59,45,054
towards principal and interest. It was indicated that the application may be
resubmitted only after payment of the outstanding fees. In its letter dated 23.8.2004 to
the Respondent, NSE clarified that although segmental surrender of the trading
membership was permissible since December, 2002, it had nevertheless to be kept in
perspective that when the Respondent and Oracle had made the subject proposal in
January, 1999, it was accepted on the condition that “should any one of the entities
decide to surrender their membership, then both the entities have to surrender their
respective membership simultaneously”.
5 After receiving the provisional fee liability statement which stated a fee liability
of 5,59,45,054, Respondent filed an Appeal on 8.11.2004 under Section 15T of thePage 5
SEBI Act, 1992. This was contested by the Appellant before the Securities Appellate
Tribunal (SAT), which observed that at the time that NSE had granted fee continuity
to the Respondent, there was no provision for segmental surrender, as a result of
which, subject to certain conditions, fee continuity was granted to Respondent despite
it being a new entity. The SAT held that this letter did not have the effect of revocation
or cancellation of the earlier conditions which were specifically imposed while
granting assignment of WDM Segment from Oracle to the Respondent. Counsel for
the Respondent brought to the notice of the SAT that the Respondent had already paid,
albeit under protest pending disposal of the appeal, a sum of 4,37,20,256 towards the
principal amount of the Appellant’s claim and a further sum of 26,96,590 as interest.
However, the SAT directed the Appellant to refund both the amounts to the
Respondent. Hence, the present Appeal.
6 Learned Senior Counsel for the Appellant has relied on Regulation 10 and
Schedule III of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, which
are reproduced for the facility of reference:
10. (1) Every applicant eligible for grant of a certificate shall pay such
fees and in such manner as specified in Schedule III or Schedule IIIA, as
the case may be: Provided that the Board may on sufficient cause being
shown permit the stockbroker to pay such fees at any time before the
expiry of six months from the date on which such fees become due.
(2) Where a stock-broker fails to pay the fees as provided in
Regulation 10, the Board may suspend the registration certificate,
whereupon the stock-broker shall cease to buy, sell or deal in securities as
a stock-broker.
SCHEDULE III
Regulation 10
I. Fees to be paid by the Stock Broker.
1. Every stock broker shall subject to paragraphs 2 and 3 of this Schedule
pay registration fees in the manner set out below :
(a) where the annual turnover does not exceed rupees one crore during any
financial year, a sum of rupees five thousand for each financial year;
(b) where the annual turnover of the stock-broker exceeds rupees one crore
during any financial year, a sum of rupees five thousand plus one
hundredth of one per cent of the turnover in excess of rupees one crore
for each financial year;
xxx xxx xxx
(c) After the expiry of five financial years from the date of initial
registration as a stock-broker, he shall pay a sum of rupees five
thousand for every block of five financial years commencing from the
sixth financial year after the date of grant of initial registration to keep
his registration in force. (currently deleted)
xxx xxx xxx
4. Where a corporate entity has been formed by converting the 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 a minimum of 40 per
cent shares of the paid-up equity capital of the corporate entity for a period
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 corporate entity for the period for which the erstwhile entity
has paid the fee as per the regulations.
7 The learned senior Counsel for the Appellant has contended that a membership
of the Stock Exchange is an essential pre-requisite, for which the fee prescribed in
Regulation 10 is payable by every such member. The amount that is payable as fee isPage 7
determined as per the provisions under Schedule III. Emphasis has been placed on
Clause 4 of Schedule III (supra) as it provides the only exception to the payment of
fees. Facially, it appears to us, this exception has been carved out only for the
enablement of persons who are vulnerable to unlimited personal liability in respect of
their business debts, to avail of the advantages of converting their mode of transacting
business into a corporate structure, provided this conversion is not misused to
essentially transfer the business and yet escape payment of transfer fees; hence the
insistence of retention of forty per cent share holding. It also manifests that for all
other transfers, fees are payable to the Appellant, which depends on these collections
for defraying its manifold expenditures. The legal propriety of these pecuniary
demands by SEBI have received the attention of the Court and have been found proper
in B.S.E. Brokers Forum vs. SEBI (2001) 3 SCC 482.
8 Reliance has also been placed on letter dated 4.4.1999 issued by the Appellant to
the Respondent, by which a certificate of registration was issued to the Respondent
subject, inter alia, to condition (d) which provides that the Respondent and similarly
situated entities shall pay the amount of fees for registration in the manner provided in
SEBI (Brokers and Sub Brokers) Regulations, 1992. This letter also requested the
Respondent to study the Rules and Regulations carefully. Learned Senior Counsel for
the Appellant contended that the Respondent could not claim “fee continuity” on the
basis of internal file notings. Reliance has been placed on the well entrenched legal
principle that estoppel has no efficacy against a statute. Sethi Auto Service Station
vs. Delhi Development Authority 2009 (1) SCC 180 clarifies this position thus -Page 8
13. Thus, the first question arising for consideration is whether the
recommendation of the Technical Committee vide minutes dated
17th May, 2002 for re-sitement of appellants petrol pumps constitutes an
order/decision binding on the DDA?
14. It is trite to state that notings in a departmental file do not have
the sanction of law to be an effective order. A noting by an officer is an
expression of his viewpoint on the subject. It is no more than an opinion
by an officer for internal use and consideration of the other officials of
the department and for the benefit of the final decision-making authority.
Needless to add that internal notings are not meant for outside exposure.
Notings in the file culminate into an executable order, affecting the rights
of the parties, only when it reaches the final decision-making authority in
the department; gets his approval and the final order is communicated to
the person concerned.
15. In Bachhittar Singh v. The State of Punjab AIR 1963 SC 395, a
Constitution Bench of this Court had the occasion to consider the effect
of an order passed by a Minister on a file, which order was not
communicated to the person concerned. Referring to the Article 166(1) of
the Constitution, the Court held that order of the Minister could not
amount to an order by the State Government unless it was expressed in
the name of the Rajpramukh, as required by the said Article and was then
communicated to the party concerned. The court observed that business
of State is a complicated one and has necessarily to be conducted through
the agency of a large number of officials and authorities. Before an action
is taken by the authority concerned in the name of the Rajpramukh,
which formality is a constitutional necessity, nothing done would amount
to an order creating rights or casting liabilities to third parties. It is
possible, observed the Court, that after expressing one opinion about a
particular matter at a particular stage a Minister or the Council of
Ministers may express quite a different opinion which may be opposed to
the earlier opinion. In such cases, which of the two opinions can be
regarded as the "order" of the State Government? It was held that opinion
becomes a decision of the Government only when it is communicated to
the person concerned.
16. To the like effect are the observations of this Court
in Laxminarayan R. Bhattad and Ors. v. State of Maharashtra and
Anr. 2003 (3) SCR 409, wherein it was said that a right created under an
order of a statutory authority must be communicated to the person
concerned so as to confer an enforceable right.
9 The manner in which the Respondent understood its role and participation in the
Wholesale Debt Market (WDM) segment along with Oracle is comprehensively
contained in the Respondent’s letter dated February 4, 2002. (This letter, although
copiously relied upon by the parties in the course of argument was not available on the
Court records. On 18.9.2015 we called upon the Appellant to furnish a copy thereof
which was done by its learned Senior counsel who has assured us that copies thereof
had already been served on the learned counsel for the Respondent) We think it
appropriate to reproduce the contents thereof as it is a summation of the case of the
Respondent:
“The National Stock Exchange (NSE) was formed in 1993-94 with a
view to promote the Debt Market and Capital Markets. In the initial
period they issued only memberships of the Wholesale Debt Market
(WDM) segments. M/s. Oracle Stocks and Shares Limited (Oracle)
applied for and was granted registration of the WDM segment of the
NSE. Subsequently, the NSE issued membership in the Equity Market
segment wherein the members who were holding membership of the
WDM segment were automatically entitled to membership in this
segment by paying an additional deposit.
Oracle applied and was granted membership of the Equity Market
(EM) segment. NSE did not issue a new registration number to Oracle
and the company continued to do business in both the segments. Thus,
the memberships of the WDM and the EM segments were treated as
concurrent and there was no fresh registration with SEBI separately for
the EM segment.
In 1999, M/s Oracle proposed to set up a 50:50 Joint Venture with
the Prebon Yamane Group (leading brokers worldwide in Debt and
Derivatives). Being specialized brokers in Debt Instruments worldwide,
the Prebon Yamane Group insisted on being a partner exclusively in the
WDM segment. Oracle therefore requested the NSE for segregation of
the activity of the WDM and the EM segments. During that period, the
NSE, as a matter of policy, was not issuing separate memberships for
WDM and EM. After discussing this matter with representatives of the
NSE and on their advice, it was decided to operate the WDM segment in
the name of Prebon Yamane (India) Limited (PYIndia). As a part of the
procedural formalities, a separate registration number was issued by thePage 10
NSE (in the name of Prebon Yamane India Ltd.). Oracle would continue
to hold 50% of the subscribed capital in the new entity.
Although Oracle and PYIndia were given two separate registration
numbers for EM and WDM respectively, the NSE did not collect the
deposit of Rs.15 million which it would normally have done for new
WDM members. Instead, the NSE merely transferred (without refunding
the amount to Oracle) a part of the total deposits of Oracle, amounting to
Rs.10 million, in favour of PYIndia. PYIndia did not bring in fresh
deposits for the WDM membership of NSE.
Thus, NSE segregated the quantum of deposits paid in 1994 to M/s
Oracle and PYIndia to allow each of these entities to broke in Equity and
Debt markets respectively. It was also stipulated by the NSE that neither
of these entities can surrender one of the memberships without
surrending the other. Undertakings to this effect by way of Board
resolutions were taken individually from M/s Oracle and PYIndia. Thus,
in essence, the NSE treated both these companies as one composite
member with the same promoter group.
The NSE treats the induction of the Prebon Group and the
consequent assignment of the WDM segment of Oracle Stocks & Shares
Ltd. to Prebon Yamane India Ltd. as a continuation of the original WDM
membership that was granted to M/s Oracle Stocks & Shares Ltd. The
view of the NSE in this regard, confirming that both the memberships are
concomitant, is enclosed herewith.
In view of the facts mentioned above and the NSE’s view in this
regard, we would request you to give the status of fee continuity to the
composite membership taken by M/s Oracle and PYIndia.
In other words, if Oracle has paid turnover fees from 1994, and the
broking business has commenced from 1994, any fees be levied in either
Oracle and/or PYIndia for the balance period, as a composite entity.”
10 Learned Senior Counsel for the Respondent has contended that transfer from
one juristic person to another is not the appropriate test and that since the Regulations
employ the term “entity”, it is necessary to determine whether the entities are
essentially the same. Senior Counsel has submitted that since Oracle, who was an
existing member, had a 50% stake in the Respondent, in effect the Respondent was
another manifestation or avatar of Oracle. Further, the Appellant had conducted
inspections of the Respondent but had not raised any issue or recorded any objectionsPage 11
at that time. Reliance has been placed on the letter dated 30.1.2002 issued by the
NSE to the Respondent, which had stated that as per the policies of the NSE,
segmental surrender of trading membership was not permitted, and therefore the
assignment of WDM segment to the Respondent has been treated as a continuation of
the WDM membership that was originally granted to Oracle. It has been strenuously
contended that the Appellant had a change of mind and heart consequent upon the
issuance of its Circular dated 28.3.2002 which stated that in case a broker had more
than one registration certificate from any stock exchange, he would be required to pay
fees as per the Regulations for each and every certificate that he held. The Circular
further stated that in the event of a broker holding only one Registration Certificate
but more than one card on any Exchange, registration fee would be payable on the
registration certificate and not on the number of cards held by the broker, and the
broker’s turnover would be reckoned as the aggregate turnover of all cards. It appears
that this provision had been relied upon in the Judgment dated 3.6.2010 in WP (C)
No.17349/2004, which was struck down by the Delhi High Court in Association for
Welfare of Delhi Stock Brokers vs. Union of India, and an Appeal thereagainst is
pending before this Court. However, we find that issue which were in contemplation
in those proceeding are dissimilar to what we have in hand.
11 Reliance has also been placed on the affidavit filed by the Appellant before the
SAT. Therein the Appellant admitted that the Respondent had applied for fee
continuity vide letter dated 4.2.2002 which had enclosed the letter of the NSE
confirming that both the memberships had been considered concomitant by it. The
Appellant, based on the same, approved in the file that the two cards could be treated
as composite for all practical purposes and the turnover of the two cards may be taken
together for the purpose of ad-valorem fee. We have already noted that Sethi Auto
Service Station enunciates that file notings cannot be relied upon with the intent of
binding the concerned Authority or Department.
12 Counsel for the Appellant has pointed out that the Respondent has not paid fee
as per Schedule III, Clause 1(c). The Respondent only paid the basic fee indicating
that its turnover for the financial year was not beyond 1 Crore. However, the fixed
basic fee of 5000 was paid by the Respondent in 1999, 2000 and 2001. Had the
Respondent indeed believed that it had been granted continuity, then as per Clause
1(c) of Regulation 10, the Respondent would have paid 5000 only once, for the
block of 5 years. Furthermore, to prove that the Respondent was under no
misconception with regard to it not having been granted “fee continuity”, reference
was made to two letters dated 4.2.2002 and 18.9.2003. Both these letters were
applications seeking grant of fee continuity. Thus, the Respondent was never under an
understanding that it had been granted fee continuity.
13 After considering the submissions of the learned Senior Counsel for both parties
and appreciating the facts of the case, it is evident to us that as per Clause 4 of
Schedule III, the Respondent was not an ‘entity’ as envisaged in the Regulations as
would be entitled to “fee continuity” or exemption from payment of fees. The
Regulation 4 clearly refers to a newly formed entity through conversion from either a
sole proprietorship or a partnership to a limited Company, which alone has been
bestowed the benefit of continuity. Given that the Respondent is barred by the
provisions, the Appellant’s internal file notings are of no consequence and the
Appellant is not estopped from coming to a contrary conclusion. The Respondent’s
argument that the Appellant experienced a change of heart after the issuance of the
Circular dated 28.3.2002 is untenable, because if that was indeed what the Respondent
believed, it would not have written a letter requesting fee continuity on 4.2.2002, a
date prior to the issuance of the circular dated 28.3.2002. Thus, the Respondent has
failed to prove that it believed it was granted fee continuity, in light of its letter to the
Appellant requesting the same. Further, it appears to us that the Respondent was an
entity quite distinct from Oracle, with the consequence that it would be bound to pay
the fee in accordance with Schedule III, Clause (a) or (b) as the case may be, and
would not be entitled to claim the advantage of Clause (c). In fact, this is the very
understanding of the Respondent since fees were deposited by them under Clause (a)
in sharp contradistinction of Clause (c).
14 The amounts deposited by the Respondent have been properly calculated. The
Respondent is not entitled to any refund therefrom. The Appeal is accordingly
allowed. The Interim Order granted by the Court stands recalled.
…………………………………J.
[VIKRAMAJIT SEN]
…………………………………J.
[SHIVA KIRTI SINGH]
New Delhi,
November 03, 2015.
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