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Under Clause 4 of Schedule III of the SEBI Stock Broker Regulations, fees paid by directors do not qualify for an exemption: Supreme Court

Issue – The Director, and not the Whole Time Director, transferred the corporate entity’s stock exchange registration and paid the registration fees, the Supreme Court upheld SEBI’s decision to deny a corporate entity an exemption from payment of fees under Clause 4 of Schedule III of the SEBI Regulations 1992. 

Facts of the case – The SEBI dismissed the allegation of the Appellant Company while maintaining that Mr. Mantri was merely a Director and not a full-time Director in the Company for the three years following the transfer of his membership. There could be no exception since the requirements outlined in Schedule III Clause 4 were not met. Against the Appellate Tribunal’s decision, the Appellant Company filed an appeal with the Supreme Court.

Arguments –  It has been emphasised that each stock market where the stock broker conducts business requires a separate Registration Certificate from SEBI.

When Mr. Mantri moved his CSE membership to the appellant company, it was noted that he was a Director and not a Whole-Time Director of the company.

Reasoning – The definition of “a certificate” in Section 12(1) of the Act, when combined with the scheme of Rules, 1992, and Regulations, 1992, inevitably leads to the requirement that the stock broker not only obtain a certificate of registration from SEBI for each stock exchange where he operates, but also pay an ad valorem fee in accordance with Part III of the Regulations, 1992, Regulation 10 of which is annexed, in reference to each certificate of registration from SEBI in each of the stock exchanges.

Judgement – The Bench was convinced that no exemption could be granted since the Appellant Company had not met the requirements outlined in Clause 4 of Schedule III of the Regulations, 1992. The appeal was turned down.

Provisions used in the case – National Stock Exchange, Clause 4 of Schedule III of the Regulations, 1992, Section 12(1) of the Act.

Case title – GPSK Capital Private Limited (Formerly Known as Mantri Finance Limited) v The Securities and Exchange Board Of India.

Written by – Nikita Shankar

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