The Bench of Justices Ajay Rastogi and BV Nagarathna while setting aside the order of the Delhi High Court dated 07.11.2005, held that a stock broker must obtain a certificate of registration from SEBI for each stock exchange. The Delhi High Court had earlier ruled that a single registration from SEBI is sufficient.

While allowing the appeal filed by the SEBI, the Apex Court held that "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 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 paid as a guiding principle by the stock broker which is in conformity with the scheme of Regulations 1992."

The SEBI had raised the question the Supreme Court that (i) Whether under the Act 1992, a stockbroker has to obtain a certificate of registration from SEBI for each of the stock exchanges where he operates or whether a single certificate of registration from SEBI is sufficient and the same would enable him to trade in all other stock exchanges? (ii) Whether the ad valorem fee to be paid for an initial period of five years will recur with every such registration?

The Supreme Court while reading the scheme of the statute SEBI Act,n199 found that the Board has been established under Section 3 of the Act, 1992 and it has various functions to discharge. The primary duty of the Board is to protect the interests of the investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. Section 11 provides various functions of the Board, including to register and regulate the working of stock brokers, sub-brokers and such other intermediaries who intend to associate with the securities market. Section 12 of Chapter V reinforces that every stock broker who fulfils the conditions of eligibility has to obtain a certificate of registration from the Board in accordance with the regulations made thereunder.

Every stock exchange has to obtain recognition by the Central Government under Section 4 of the Securities Contracts (Regulation) Act, 1956 and the scheme contemplates/ recognises such of the stock brokers who are members of the stock exchange. No stock broker or sub-broker shall abide by and deal in securities unless he holds a certificate of registration granted by the Board. The Central Government has laid down the conditions of eligibility which the stock broker has to fulfil for the purpose of obtaining certificate of registration under the guiding principles prescribed under Rule 4 of Rules 1992.

Under the Regulations 1992 which have been duly notified, stock broker (in terms of Rule 2(e) a member of stock exchange), has to apply for grant of a certificate in Form ‘A’ which is to be routed through the stock exchange or stock exchanges of which he is a member and after the fee being deposited.

While dealing with the judgment of the Delhi High Court, the Top Court said "The Division Bench of the High Court was primarily persuaded with the expression ‘a certificate’ as referred to under Section 12(1) of the Act, 1992 and arrived at a conclusion that the expression ‘a certificate’ signifies a single certificate of registration irrespective of the fact that a stock broker is a member of various stock exchanges and the rules/regulations which are being framed either by the Central Government or the Board in exercise of power under Sections 29 and 30 of the Act, 1992 have to be in conformity with the mandate of the Act, 1992 and that will prevail over the subordinate legislation.

Case Details:-

CIVIL APPEAL NO(s). 435 OF 2007
SECURITIES AND EXCHANGE BOARD OF INDIA ….APPELLANT(S)
VERSUS
NATIONAL STOCK EXCHANGE MEMBERS ASSOCIATION AND ANR. ….RESPONDENT(S)

Read the Complete judgment on the following link:-

https://main.sci.gov.in/supremecourt/2006/975/975_2006_8_1501_38881_Judgement_13-Oct-2022.pdf