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CASE NO.: Transfer Case (civil) 20  of  2000 Writ Petition (civil)   502      of  2000

PETITIONER: B.S.E.  BROKERS FORUM, BOMBAY & ORS.  .

       Vs.

RESPONDENT: SECURITIES & EXCHANGE BOARD OF INDIA & ORS.  .

DATE OF JUDGMENT:       01/02/2001

BENCH: B.N.Kirpal, N.S.Hegde

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     SANTOSH HEGDE, J.

     Writ  petitions questioning the validity of Regulation 10  of  the  Securities  & Exchange Board  of  India  (Stock Brokers  and  Sub-  brokers)  Regulations,  1992  read  with Schedule  III thereof as also letters dated 7th of November, 1992  and  7th of January, 1993 issued by the  Securities  & Exchange  Board  of India (SEBI) were filed in various  High Courts  in  the  country.   On   a  transfer  petition   for consolidating  these cases being filed before this Court  by respondent  No.1,  this  Court by its order  dated  10th  of December,  1999  directed  that  one such  Writ  Petition  Â© No.126/1993   pending  before  the   Bombay  High  Court  be transferred  to  this Court.  By the said order, this  Court also  stayed  other  proceedings pending in the  other  High Courts  but gave liberties to the concerned parties to  file intervention  application in the above transferred case.  On 31st of January, 1992, the President of India in exercise of the  powers  conferred  upon him by Article  123(1)  of  the Constitution   of  India  was   pleased  to  promulgate  the Securities  & Exchange Board of India Ordinance, 1992.  This Ordinance  was  subsequently  replaced by the  Securities  & Exchange  Board of India Act, 1992 (the Act).  The Act was given retrospective operation w.e.f.  30th of January, 1992. Section  3  of  the Act provided for  the  establishment  of Securities  & Exchange Board of India (SEBI) while Section 4 provided for SEBIs Management Board (the Board).

     On  10th  of  April, 1992 on behalf of  the  Board,  a letter  was  addressed  to   the  Presidents  and  Executive Directors  of all the recognised Stock Exchanges whereby the members, stock brokers of all the recognised Stock Exchanges in  India  were called upon to submit their applications  to the Board for the purpose of registration in accordance with Section  12(1) of the Act.  The said letter which enclosed a pro  forma  of  the application for  registration  of  stock brokers  required  fees  to  be   paid  by  applicants   for registration  on  the following basis:  Registration  Annual

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Fees Fees (Rs.) (Rs.)

     Category A 5 Lakhs 10.000

     Category B 3 Lakhs 5.000

     Category C 1 Lakh 4.000

     Category A:

     Stock  Brokers  who are or will be members of  Bombay, Delhi  and  Calcutta  Stock Exchanges.  Category  B:   Stock Brokers  who  are or will be members of  Bangalore,  Cochin, Madras  and  Ahmedabad Stock Exchanges.  Category C:   Stock Brokers who are or will be members of other stock Exchanges.

     This  demand  of  the  Board   led  to  a  nation-wide agitation  of  stock brokers which resulted in  the  closing down  of Stock Exchanges throughout India for several  days. The  issue  which gave rise to this agitation was  the  high registration  fee  sought to be levied by the Board for  the purpose of registration.  Succumbing to the pressure of this agitation  the Board on 19th of April, 1992 issued a revised fee structure for registration of brokers giving two options as  below  :  OPTION A:  One time registration fee  may  be payable  by  the members in 5 annual instalments under  this Option  as  follows:   For Group A exchanges  viz.   Bombay, Delhi  and  Calcutta  at  Rs.50,000 per year  for  5  years. Rs.2.5 lakhs

     For  Group  B  exchanges   viz.   Madras,   Ahmedabad, Bangalore  and  Cochin at Rs.30,000/- per year for 5  years. Rs.  1.5 lakhs

     For  other  exchanges  at Rs.10,000/- Per year  for  5 years.  Rs.  50,000/-

     OPTION B:

     One  time  registration  fee  may be  payable  by  the members under this Option as follows:

     Fee  @ of 1% of the annual turnover of each broker for 5  years  from  1990-91.  This fee will be uniform  for  all exchanges.

     The registration fee will include fee for registration as  underwriters also.  During the 5 years period there will be no annual fee.

     Each  exchange may choose either Option A or Option  B and  collect fees accordingly from all its members and  sent their  applications forms to SEBI within the date stipulated already.

     The  one time registration fee for sub-brokers will be uniform  at  Rs.5,000/-.  In addition, the sub-brokers  will require  to  pay an annual fee of Rs.1,000/- for renewal  of registration.

     As could be seen from the above, there was substantial change  in the new proposal made by the Board.  It  proposed to  reduce the initial fee for registration by 50% with more

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instalment  facility.   In  effect the  earlier  demands  of registration   fee  of  Rs.2.5   lakhs,  Rs.1.5  lakhs   and Rs.50,000/-  respectively on different categories of members were   brought  down  to   Rs.1.45  lakhs,  Rs.87,000/-  and Rs.29,000/- respectively.  Even to this reduced offer of the Board,  the  members  of the Stock Exchanges and  the  stock brokers  had  their  opposition which is  evident  from  the letter  dated  25th of April, 1992 addressed to the  Finance Minister  of  India  by the Presidents of all the  22  Stock Exchanges which are recognised and regulated by the Union of India  under the Securities Contracts (Regulation) Act, 1956 (the  SCR  Act).   By the said letter  the  Stock  Exchanges sought  exemption  from the requirement of  registration  by their  members.  Their further demand was that there  should be,  if at all necessary, a simplified form for registration and  only nominal fee for registration of Rs.1,000/- payable at  one  time  only should be collected from each  of  their members.  The Union of India by a notification dated 20th of August,  1992  issued  in exercise of  powers  conferred  by Section  29  of the Act notified the Securities  &  Exchange Board  of India (Stock brokers and Sub-brokers) Rules,  1992 (the  Rules).   Rule  3 of the said Rules provides  that  no stock broker shall buy sell and deal in securities unless he holds  a  certificate granted by the Board.  The  Rule  also provided  that  for  the  grant  of  such  certificate,  the applicant  concerned will have to pay an amount of fees  for registration  in the manner provided in the Regulation to be framed  by  the  Board.   By a notification  dated  23rd  of October,  1992  issued in exercise of the  powers  conferred under  Section  30  of  the Act,  the  Board  with  previous approval of the Central Government notified the Securities & Exchange  Board  of India (Stock brokers and  Sub-  brokers) Regulations,  1992 (the Regulations).  Regulation 3(1)  of the  same  provided that applications by stock  brokers  for grant  of  certificate shall be made in the prescribed  Form A  through the Stock Exchange of which the said broker  is admitted  as a member.  Regulation 6 provided that the Board on  being satisfied that the stock broker is eligible for  a certificate  of  registration shall grant a  certificate  in Form  D to the stock broker and send an intimation to that effect  to the Stock Exchange concerned.  The controversy in this  petition emerges from Regulation 10 read with Schedule III  of  the  said Regulations which reads thus:   10(1) Every  applicant  eligible for grant of a certificate  shall pay  such  fees and in such manner as specified in  Schedule III:

     Provided  that the Board may on sufficient cause being shown  permit the stock-broker 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 states as under:

     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

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thousand  for each financial year;  or (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;  (c) After the expiry  of  five  financial years from the date  of  initial registration  as a stock-broker, he shall pay sum of  rupees five thousand for a 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.

     2.   Fees  referred  to  in  clause  (a)  and  (b)  of paragraph 1 above shall be paid-

     (a) in respect of the financial year 1992- 1993 within one  month of the commencement of these regulations;  (b) in respect  of  the financial year beginning on the 1st day  of April,  1993 and the following financial years, on or before the first day of October of the financial year to which such payment  relates,  and  such  fees shall  be  computed  with reference  to the annual turnover relating to the  preceding financial year.

     3.   Every  remittance of fees referred to in  clauses (a)  and  (b)  of  paragraph 1, shall be  accompanied  by  a certificate  as to the authenticity of turnover on the basis of  which  fees have been computed duly signed by the  stock exchange  of  which  the stock-broker is a member  or  by  a qualified auditor as defined in Section 226 of the Companies Act, 1956.

     Explanation  - For the purposes of paragraphs 1, 2 and 3,  annual  turnover means the aggregate of the  sale  and purchase prices of securities received and receivable by the stock  -broker  on his own account as well as on account  of his  clients  in respect of sale and purchase or dealing  in securities during any financial year.

     II.  Fees to be paid by Sub-broker:

     (a)  A  Sub-broker  shall  pay a  fee  of  rupees  one thousand  for  each financial year for an initial period  of five  years.   (b)  After  the  expiry  of  the  five  years mentioned  above,  the sub-broker shall pay a fee of  rupees five  hundred  for  each  financial  year  as  long  as  the certificate remains in force.

     III.  Manner of fees to be paid:

     The  fees  indicated above shall be paid on or  before the  1st day of October each year payable by a cheque, draft or  other  instrument  in  favour  of  The  Securities  and Exchange Board of India at Bombay.

     It  seems  that  after coming into force of  the  said Regulation, the Board by its letter dated 7th November, 1992 called  upon  the  President/Executive Director of  all  the Stock  Exchanges in the country to collect registration fees from  each  of  the  member  broker for  the  year  1992  in accordance  with  the said Regulations.  The members of  the Stock Exchanges being agitated by this demand, through their Stock  Exchanges initiated correspondence with the Board  as to  the  justification of the levy as well as the method  of levy.   They contended that the demand was excessive and the

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collection  of  the same based on turnover of a  broker  was unreasonable  and  arbitrary.   On  such  complaint  of  the broker,  the  Board  on 18th of December 1992  appointed  an Expert  Committee  to look into their grievances.  The  said Committee  after considering the case of the parties came to the  conclusion  that  the  fees levied  by  the  Board  was reasonable.   Having  found no beneficial response to  their grievances  from  the  Government of India  and  the  Board, aggrieved  parties filed various writ petitions in different High  Courts,  as stated above.  One such writ petition  was Writ  Petition  No.126/93  filed by the BSE  Brokers  Forum, Bombay  before  the High Court of Bombay.  This petition  by the above said order of transfer of this Court is now before us  as Transferred Case © No.20/2000.  In this said petition the  petitioners contend that there are at present 491 stock brokers  operating from its exchange out of which more  than 460  stock  brokers  are  members of  the  first  petitioner Society.   They contend that the registration fee sought  to be  levied by the Board on stock brokers for the purpose  of registration  is  ex facie illegal and void ab initio  being ultra  vires  of  the Act and the Rules and  the  demand  is without  authority of law being a tax in the guise of a  fee which  is  ultra  vires Article 265 of the  Constitution  of India.    They   also  contend  that   the  said   levy   is discriminatory,   arbitrary,  excessive   and  ultra   vires Articles  14  and  19(1)(g) of the  Constitution  of  India. Their  further  contention  is that the said  fee  which  is levied  merely  for  the  purpose   of  registration  is  so excessive  that  the same is nothing short of  a  colourable attempt  on the part of the Board to tax the petitioners for carrying  on their professions/business.  It is also  stated that  both  the  Union  of  India and  the  Board  lack  the legislative  competence to levy a tax which is in the nature of a professional tax which power being exclusively with the States  under  Entry  60,  List  II,  Schedule  VII  of  the Constitution   of  India.   They   also  contend  that   the artificial  and  unreasonable  classification of  the  stock brokers  for the purpose of exacting the lions share of the levy  is arbitrary and violative of Article 14.  In view  of the  fact, the consequences of non-payment of such fee would entail   penal   consequences   affecting   materially   the business/profession  of such defaulters, the same would also be  violative of Article 19(1)(g) of the Constitution.   The levy  is  further  impugned on the ground that the  same  is based  on  vague  and imprecise concept of  annual  turnover which has no nexus whatsoever with the purpose for which the fee  is  sought to be collected and registration fee on  its very  nature  can only be one- time fee, hence,  demand  for collection  based on annual turnover extending over 5  years is  arbitrary and unreasonable.  On behalf of the members of the  National  Stock  Exchange (NSE) a further  argument  is addressed  contending that as per the provisions of the  Act the  stock  brokers and other intermediaries dealing in  its exchange  are  not  liable to be charged with  the  impugned registration  fees  since  these are not  members  of  their Exchange.

     In  reply  to the above contentions in  the  petition, first respondent-Board has filed its objections denying that there   was   lack  of   legislative  competence   to   levy registration  fee as contended in the petition.  It is  also denied that the levy in fact is a tax in the guise of a fee. On  the contrary, it is asserted that the said levy is a fee towards  the  service rendered by it to the petitioners  and others  involved in the business of stocks and shares and in

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furtherance  of  the object enumerated in Section 11 of  the Act.   It  also  denied  that the levy would  amount  to  an unreasonable  restriction on trade/business so as to attract Article  19(1)(g)  of the Constitution.  It denied that  any unreasonable  hardship  would  be caused to the  brokers  by virtue  of the levy being linked with the annual turnover of theirs    and   their     classification   vis-a-vis   other intermediaries   is  an   unreasonable  classification.   It contends  that it is a reasonable classification taking into account  the  object of the Act.  They,  further,  contended that when earlier a proposal was made to levy a flat fee the brokers  opposed the same strongly, hence, the said decision to  levy  flat  fee had to be withdrawn.  They  denied  that Regulation  10 of Schedule III to the Regulations is  either ultra  vires of the Act or unconstitutional.  Justifying the fee levied by them the Board contended that it had to render multifaceted  and  multitude of services contemplated  under Section  11(2)  of  the  Act which  included  the  following mandatory  duties  under  the   Act:-  (a)  regulating  the business  in  stock  exchanges   and  any  other  securities markets;   (b)  registering  and regulating the  working  of stock  brokers, sub-brokers, share transfer agents,  bankers to  an  issue,  trustees of trust deeds,  registrars  to  an issue,  merchant bankers, underwriters, portfolio  managers, investment advisers and such other intermediaries who may be associated  with  securities  markets in  any  manner;   (c) registering   an  regulating  the   working  of   collective investment  schemes, including mutual funds;  (d)  promoting and    regulating    self-regulatory    organisation;    (e) prohibiting  fraudulent and unfair trade practices  relating to  securities markets;  (f) promoting investors  education and  training  of intermediaries of securities markets  (g) prohibiting  insider trading in securities;  (h)  regulating substantial   acquisition  of  shares   and   take-over   of companies;    (i)  calling   for  information,   undertaking inspection,  conducting  inquiries and audits of  the  stock exchanges    and    intermediaries    and    self-regulatory organisations in the securities market;  (j) performing such functions  and  exercising such powers under the  Securities Contracts  (Regulation) Act, 1956 as may be delegated to  it by  the  Central  Government;   (k) levying  fees  or  other charges  for carrying out the purposes of this section;  (l) conducting  research for the above purposes;  (m) performing such other functions as may be prescribed.

     Taking  into  consideration   the  above  multifarious duties,  it  contended  that it required  the  finances  for fulfilling  the following statutory obligations.  These are: (a)  Establishment  of a computer network, i.e.  to  create environment  and facilities to enable dealers in  securities to  monitor  trade  at  various  places  with  interlinkages through  telecommunication and other facilities for on  line transmission of information.

     (b)Developing  self regulatory organisation, i.e.   to encourage  formation  and recognition of associations to  be formed  by respective intermediaries with the objectives  of evolving a code of self-regulation on matters concerned with trade  practices,  code  of business ethics,  prevention  of unhealthy  and  unfair  competition among the  members  with powers to discipline the erring members.

     (c)Providing    resources    support    to   investors associations.

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     (d)Undertaking  studies and preparing reports relating to,  interalia, the functioning of the stock brokers with  a view  to  finding  out ways and means of  strengthening  the basis of their operations.

     (e)Organising  investment education programs including bringing  out publications, books, magazines etc., including newspaper advertisements, relating to the capital market.

     (f)To   improve  the  procedure   and   practice   for transaction on stock exchange for the benefit of the brokers and  investors,  for  settlement  of  disputes  between  the investors and brokers as well as brokers inter se.

     (g)To  inspect  the records of the brokers  and  stock exchange from time to time to prevent malpractices.

     It  is  also contended that from the  facilities  that will  be  provided by the Board, the brokers would stand  to benefit  a great deal and that the Board intends to  provide improved  system  of  the trading which would  fetch  larger income  to  the brokers, by regulating the system the  Board contends  the  inflow of foreign investment in  the  country also  would increase substantially.  According to the Board, the  money  that  will  be received by  the  levy  would  be reasonably  sufficient  to meet its expenses arising out  of its  statutory obligations.  It specifically denied that the levy is a registration fee simpliciter but the same includes a fee required for establishing the necessary infrastructure for  fulfilling  and maintaining the objectives of the  Act. It  also disputed the figures relied upon by the petitioners to controvert the argument that the collection from the levy far exceeded the requirement of funds by the Board.  It also denied  that imposition of fee on the basis of turnover  was either vague, unreasonable, arbitrary or discriminatory.  It contends  that  a levy of .01% of the annual  turnover  when compared to the brokerage fee charged by a broker was hardly unreasonable.    It   further   contended    that   on   the representations  made by the petitioners it had appointed an Expert  Committee  and this Committee after hearing  various members  of  the Bombay stock Exchange by its  report  dated 18th  of December, 1992 in effect approved the levy.  On the above  basis, the Board prayed for the dismissal of the writ petition.   The  Union  of  India   has  adopted  the   said objections of the Board.

     We  have heard Shri P.Chidambaram, Shri Ashok H.Desai, Shri  S.K.Dholakia,  Shri  Mahendra Anand, and  Shri  Shanti Bhushan,   Senior  Advocates  and   Mr.Navroj  Seervai   and Mr.P.L.Narayanan,   Advocates   for   the  petitioners   and intervenors  and Shri Kirit N.Raval, A.S.G.  for  respondent No.1.

     From  the arguments addressed before us, we will  have to  first consider the question whether the respondents have the  necessary statutory authority for levying a fee of  the nature  which is impugned in this petition.  If so,  whether this  fee is, as a matter of fact, a tax in the guise of fee and  is  so excessive as to lose the character of a  fee  as contended by the petitioners.  The Act in question is an Act to  provide for the establishment of a Board to protect  the interests  of  investors  in securities and to  promote  the development  of, and to regulate, the securities market  and for  matters connected therewith or incidental thereto.  The

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Board is established under Section 3 of the Act.  Section 11 of  the  Act defines the powers and functions of  the  Board which  mandates  that it shall be the duty of the  Board  to protect  the  interests  of investors in securities  and  to promote  the development of, and to regulate the  securities market,  by such measures as it thinks fit.  Sub-section (2) of  the  said Section enumerates the various areas in  which the Board is mandated to take measures to fulfil the objects of  the  Act.  They include such measures as (i)  regulating the  business  in stock exchanges and any  other  securities markets;   (ii)  registering and regulating the  working  of stock  brokers and other intermediaries;  (iii)  registering and  regulating  the working of the depositories etc.   (iv) registering  and  regulating the working of venture  capital funds  and  collective investment schemes, including  mutual funds;    (v)  promoting   and  regulating   self-regulatory organisations;  (vi) prohibiting fraudulent and unfair trade practices  relating to securities markets;  (vii)  promoting investors’ education and training of intermediaries;  (viii) prohibiting  insider trading in securities;  (ix) regulating substantial   acquisition  of  shares   and   take-over   of companies;   (x)  collection  of  information,   inspection, conducting  inquiries  and  audits of the  stock  exchanges, mutual  funds, other persons associated with the  securities market   and   other   intermediaries  and   self-regulatory organisations  in  the securities market;   (xi)  performing such  other functions as are delegated to it by the  Central Government;   (xii)  conducting  research   for  the   above purposes;   (xiii)  providing necessary information for  the efficient  discharge  of the functions of the  organisations with  securities markets etc.  The said Board is also vested with  certain  powers of the civil courts under the Code  of Civil  Procedure,  1908 in regard to discovery,  production, summoning  and  enforcing  the  attendance  of  persons  and inspection of books, registers etc.  Section 11(2)(k) of the Act  empowers  the Board to levy fees or other  charges  for carrying  out  the purposes enumerated in Section 11 of  the Act.   Section  12 requires the stock brokers,  sub-brokers, share transfer agents, bankers to an issue, trustee of trust deed,  Registrar to an issue, merchant banker,  underwriter, portfolio  managers,  investment  advisors  and  such  other intermediaries  who may be associated with securities market to  get  themselves registered and obtain a  certificate  of registration   from  the  Board  in  accordance   with   the Regulations made under this Act.  Section 12(2) empowers the Board  to  collect  such fees as may be  determined  by  the Regulations from the applicants who seek registration.

     Section  29 of the Act empowers the Central Government to  make,  by  notification,  rules  for  carrying  out  the purposes  of  the Act.  It is an undisputed fact  that  such Rules  have been notified.  Pursuant to the power vested  in the  Board under Section 30 of the Act, the Board has framed the  Securities  and Exchange Board of India  (Stock-brokers and  Sub-brokers)  Regulations, 1992 (the Regulations)  with previous  approval of the Central Government which came into force  w.e.f.   23.10.1992.   Regulation  10  of  the   said Regulations  provides  for payment of fees as  specified  in Schedule  III of the said Regulations.  Schedule III of  the said  Regulations provides that every stock broker will have to pay a registration fee where his annual turnover does not exceed  Rs.1  crore a sum of Rs.5,000/- for  each  financial year.   In  case  of  stock brokers  whose  annual  turnover exceeds  Rs.1  crore  during  any financial  year,  the  fee payable is a sum of Rs.5,000 plus 100th of 1 per cent of the

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turnover  in  excess of Rs.1 crore for each financial  year. It  also provides that after the expiry of 5 financial years from  the date of initial registration as a stock broker, he will  have  to  pay  a sum of Rs.5,000/- for a  block  of  5 financial years commencing from the 6th financial year after the  date  of  grant  of initial registration  to  keep  his registration in force.  It also provides for instalments for payment  of the said fee from the stock brokers.  In  regard to  sub-brokers  and  other   intermediaries,  the  Schedule provides for a flat rate of fee.

     From  the  enumeration of the above provisions of  the Act,  Rules  and Regulations, it is clear that the Board  is empowered  to  collect  two types of fees, namely,  the  fee under  Section  11(2)(k)  for carrying out the  purposes  of Section  11  and  a fee for the purpose of  registering  the applicants  under Section 12(2) of the Act.  The quantum  of fee  to  be  paid  is  fixed   under  Schedule  III  of  the Regulations  as provided under the Act.  Therefore, there is no  room  to attack the levy on the ground that the same  is not authorised by law.

     The  petitioners  contend  that it is clear  from  the demand that what is demanded by the Board from them is a fee under  Section 12(2) of the Act which is a registration  fee simpliciter.   They support this contention by pointing  out that the application for registration has to be made in Form A  and the registration certificate is issued in Form D, which  are statutory forms and which shows that these  Forms are  issued  under Regulations 3 and 6 which  are  referable only to Section 12 of the Act.  Therefore, they contend that the  Board  cannot  now  contend that the  impugned  fee  is collected for any purpose other than for registration.

     In  reply on behalf of the Board, it is contended that though  the  demand  is termed as registration  fees,  as  a matter  of fact, the fee that is collected is a  combination of  a  regulatory  fee  as well as  a  registration  fee  as contemplated  under  Sections  11(2)(k) and 12  of  the  Act respectively.   They  also  point out that, as a  matter  of fact,  the  collection from this levy is credited to a  fund created  under Section 14 of the Act and the amount from the said  fund is utilised only towards the expenses incurred by the  Board in performing its duties mandated under the  Act. It  is  further contended that the mere fact that Forms  A and D are referable to Section 12(2) only, ipso facto does not make the demand a registration fee simpliciter.

     It  is  no doubt true that a perusal of Forms A  and D  shows  that  these  forms are issued  pursuant  to  the requirement  of Regulations 3 and 6 and Section 12(2) of the Act  which, however, does not by itself determine the nature of  the fee in question.  It is a well established principle in  law  that so long as the impugned power is traceable  to the  concerned  Statute, mere omission or error in  reciting the  correct  provision of law does not denude the power  of the  authority  of taking a statutory action so long as  its action  is  legitimately  traceable  to  a  statutory  power governing  such  action.   In such cases,  this  Court  will always  rely upon Section 114(e) of the Evidence Act to draw a statutory presumption that the official acts are regularly performed  and  if satisfied that the action in question  is traceable  to a statutory power, the courts will uphold such State  action.  See Peerless General Finance and  Investment Co.   Ltd.  & Anr.  v.  Reserve Bank of India (1992 (2)  SCC

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343) and Union of India & Anr.  v.  Tulsiram Patel (1985 (3) SCC 398).  Applying the said principles to the facts of this case,  we notice that the Board has the necessary competence to  collect  the  fees for the purpose of carrying  out  the mandates  under  Section  11(2)(k) of the Act and  also  the power to collect the registration fee under Section 12(2) of the  Act.   Therefore,  in our opinion, the  Board  has  the necessary authority to collect a cumulative fee both for the purpose  of  regulating  the activities  contemplated  under Section  11  of  the  Act  as   also  for  the  purpose   of registration  under  Section 12(2) of the Act, and  the  fee levied  is  both  regulatory and registration  fee  leviable under Sections 11(2)(k) and 12(2) of the Act.

     It is next contended on behalf of the petitioners that assuming  that the fee in question is a cumulative fee under Sections  11(2)(k) and 12(2) of the Act, even then such fee, as  demanded  by the respondents, cannot be levied  on  them because a fee can be levied only if the collector of the fee is  rendering any service to the contributories of the  fee. They  contend that no such service is being rendered by  the Board  to  them  which can even remotely be equated  to  the quantum  of  the  levy.  They also contend that  the  amount collected  as fee is used as a general fund by the Board for its  various activities which has no nexus with the services to  be rendered to the contributories.  Hence, the  impugned levy  cannot be treated even as a regulatory fee.  On behalf of  the  Board,  it  is  contended   that  a  levy  being  a regulatory-cum-registration  fee, the quid pro quo  required is  very minimal and that it is entitled to levy and collect the same for meeting out the various activities of the Board required to be performed under the Act and the fact that the benefit   from  such  acts  of   the  Board  also  goes   to non-contributories  of  the fee, would not deviate from  the fact  that the levy is a fee and not a tax.  The Board  also contends,  the fact that the amount so collected is credited to  a  general  fund  and is utilised for  the  capital  and revenue  expenditures of the Board also will not change  the nature  of the levy so long as such collection, as a  matter of  fact,  is  utilised  solely   for  the  purpose  of  the activities of the Board authorised under the Act.

     The  argument  of  the petitioners in  regard  to  the requirement  of equivalent service from the collector of the fees is based on the dictum of this Court in the case of The Commissioner,  Hindu  Religious Endowments, Madras vs.   Sri Lakshmindra  Thirtha  Swamiar of Sri Shirur Mutt  (1954  SCR 1005)  where while enumerating the different characteristics of tax and fee, this Court held that the distinction between a  tax  and a fee lies primarily in the fact that a  tax  is levied as a part of common burden while fee is a payment for a  special  benefit  or  privilege.  Bringing  out  a  clear distinction  between a tax and a fee, this Court held that a tax  is  a compulsory exaction of money by public  authority for  public purposes enforceable by law and is not a payment for services rendered.  The Court in the said case held that it  is  also not possible to formulate a definition  of  fee that  can  apply to all cases as there are various kinds  of fees.   But a fee may generally be defined as a charge for a special service rendered to individuals by some governmental agency.  The amount of fee levied is supposed to be based on the  expenditure incurred by the Government in rendering the services.

     The  petitioners  also relied on another  judgment  of

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this  Court in The Chief Commissioner, Delhi & Anr.  v.  The Delhi Cloth & General Mills Co.  Ltd.  & Ors.  (1978 (2) SCC 367)  wherein  this  Court  has  held  that  there  are  two essential elements required to be established for justifying a   levy   of  fee.   Firstly,   such  levy  should  be   in consideration  of  certain  services which  the  individuals accept  either  willingly  or unwillingly and  secondly  the collection  from such levy should not be set apart or merged in  the general revenue of the State to be spent for general public  purposes but should be appropriated for the specific purpose for which the levy is being made.

     The  petitioners further relied on another judgment of this  Court  in  Om  Parkash Agarwal & Ors.   v.   Giri  Raj Kishori  & Ors.  (1986 (1) SCC 722) wherein this Court  held that  when  the money collected by the levy of fee is to  be deposited  in  a  fund  which  was  to  vest  in  the  State Government  and  not  in  the Municipality  or  a  Marketing Committee  or  any  other  local  authority  having  limited functions  specified  in the enactment under which the  fund was  constituted  and  was empowered to be expended  by  the State  Government  virtually on any object which  the  State Government  considered to be the development of rural areas, that  levy could not be treated as a fee because it was more in  the  nature of a tax primarily in view of the fact  that the collection so made was being utilised not for fulfilling the  objects  of  the  Act under which  the  collection  was authorised  but  for the general requirement of the  States functions.

     Based on these judgments, the petitioners contend that the  Board  after  collecting huge sums of money by  way  of impugned  fee, was not rendering them services  co-relatable to  the  levy but was utilising the same for the benefit  of the  persons who were not contributories to the levy and the levy  in  question being a compulsory exaction having  penal consequences, the same is not a fee but a tax in the garb of fee.

     A  lot  of  ice  has melted  in  the  Himalayas  after rendering  the  judgments in the above-cited cases  so  also there  has  been see changes in the judicial thinking as  to the difference between a tax and a fee since then.

     This Court in the case of Sreenivasa General Traders & Ors.  v.  State of Andhra Pradesh & Ors.  (1983 (4) SCC 353) has  taken the view that the distinction between a tax and a fee  lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit  or  privilege  although the  special  advantage  is secondary  to  the  primary motive of regulation  in  public interest.   This  Court said that in determining  whether  a levy is a fee or not emphasis must be on whether its primary and  essential  purpose is to render specific services to  a specified  area  or class.  In that process if it  is  found that  the State ultimately stood to benefit indirectly  from such levy, the same is of no consequence.  It also held that there  is no generic difference between a tax and a fee  and both   are   compulsory  exactions  of   money   by   public authorities.   This  was on the basis of the fact  that  the compulsion  lies in the fact that the payment is enforceable by  law  against a person in spite of his  unwillingness  or want of consent.  It also held that a levy does not cease to be a fee merely because there is an element of compulsion or coerciveness  present  in it nor is it a postulate of a  fee

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that  it  must  have direct relation to the  actual  service rendered by the authority to each individual who obtains the benefit  of  the service.  It also held that the element  of quid  pro  quo in the strict sense is not always a sine  qua non  for  a  fee, and all that is necessary  is  that  there should  be a reasonable relationship between the levy of fee and the services rendered.  That judgment also held that the earlier  judgment of this Court in Kewal Krishan Puri & Anr. v.   State of Punjab & Ors.  (1979 (3) SCR 1217) is only  an obiter.

     In  the  case  of  City   Corporation  of  Calicut  v. Thachambalath  Sadasivan  & Ors.  (1985 (2) SCC  112),  this Court  reflected  the  change that is taking  place  in  the judicial  thinking as to the difference between a tax and  a fee.   It held that the traditional concept of quid pro  quo in  a fee is undergoing transformation, though the fee  must have  relation  to the services rendered, or the  advantages conferred,  it is not necessary to establish that those  who pay  the  fee  must  receive direct or  special  benefit  or advantage  of  the  services rendered for which the  fee  is being  paid.   It  held  that if one who is  liable  to  pay receives  general benefit from the authority levying the fee the  element  of  service  required for  collecting  fee  is satisfied.

     In  the  case  of The Sirsilk Ltd.  &  Ors.   v.   The Textiles  Committee  & Ors.  (AIR 1989 SC 317),  this  Court held  that when the entire proceeds of the fee are  utilised in financing the various projects undertaken by the Textiles Committee, it cannot be said that there is no reasonable and sufficient  correlation  between  the levy of  fee  and  the services  rendered  by the Textiles Committee.   It  further held that when the levy of the fee is for the benefit of the entire  textile  industry, there is sufficient quid pro  quo between  the levy recovered and the services rendered to the industry as a whole.

     In  a more recent case of Commissioner & Secretary  to Govt.,  Commercial Taxes & Religious Endowments Department & Ors.   v.   Sree Murugan Financing Corporation Coimbatore  & Ors.   (1992  (3)  SCC 488), this Court  after  taking  into consideration the financial involvement of general public in the  chit  funds,  observed  that  the  object  of  the  Act obviously was to protect the interest of the subscribers and more  the number of subscribers meant more the burden on the authorities  under the Act and as a consequence more fee  is required  to meet the expenditure.  Taking note of the human expectation  of  winning a draw or a bid at the auction  and becoming rich overnight mostly by the lower-middle class and the  poor  who invest their hard-earned money in  such  chit funds,  this Court held that a situation like that makes the levy a regulatory measure since the collection of such funds from  such  category  of people will have  to  be  monitored strictly,  and it also held that the Act and the Rules which operate  with such objectives, if charge enhanced fee,  such enhancement  is justified in law as amounting to  sufficient quid pro quo.

     In Krishi Upaj Mandi Samiti & Ors.  v.  Orient Paper & Industries   Ltd.   (1995  (1)   SCC  655),  rejecting   the contention  of the respondent therein, this Court held  that the  machinery  created  under  the said  Act  is  meant  to facilitate and benefit all the buyers and sellers of all the agricultural produce within the market area and it cannot be

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said  that  the  respondent-Mills is  neither  directly  nor indirectly a beneficiary of the said machinery.  In the case of  Secretary  to  Government  of Madras &  Anr.   v.   P.R. Sriramulu & Anr.  (1996 (1) SCC 345) testing the validity of the Court Fee Act involved therein, this Court negatived the contention  that the expenses incurred by the administration of  justice  in  criminal courts should not  be  treated  as sufficient  quid pro quo for the levy of court fee in  civil cases.   It  held that such levy should not be  examined  so minutely  or  be  weighed  in golden scale  to  discern  any difference  between the two.  It also held that there  could not  be  any scientific method by which levy of fee  may  be made   exactly  corresponding  to   the  expenditure  in   a particular  year  relating  to the administration  of  civil justice.  It held that it is not the requirement of law that the  collection  raised by the levy should exactly tally  or correspond to the expenditure in the administration of civil justice.   It  further held that the test of correlation  of the  collection with the services rendered is to be reckoned at the aggregate level and not at the individual level.

     In  Vam  Organic Chemicals Ltd.  & Anr.  v.  State  of U.P.  & Ors.  (1997 (2) SCC 715), this Court held that there is  a distinction between a fee charged for licence, that is regulatory   fees   and  fees   for  services  rendered   as compensatory  fees.   In  the case of regulatory  fees,  the Court held that like the licence fees, existence of quid pro quo  is not necessary although the fee imposed must not  be, in the circumstances of the case, excessive, keeping in view the  quantum and nature of the work involved in the required supervision.

     In  Secunderabad Hyderabad Hotel Owners Association & Ors.   v.  Hyderabad Municipal Corporation, Hyderabad & Anr. (1999 (2) SCC 274), this Court after considering the earlier judgments,  to some of which we have already made reference, held  that  a  licence  fee  may  be  either  regulatory  or compensatory.   When a fee is charged for rendering specific services,  a  certain element of quid pro quo must be  there between the service rendered and the fee charged so that the licence  fee is commensurate with the cost of rendering  the service  although the exact arithmetical equivalence is  not expected.   It  held, however, that is not the only kind  of fee  which  can  be  charged.   Licence  fees  can  also  be regulatory  when the activities for which a licence is given require  to  be regulated or controlled.  The fee  which  is charged  for  regulation of such activity would  be  validly classifiable  as a fee and not a tax although no service  is rendered.   An element of quid pro quo for levy of such  fee is not required although such fees cannot be excessive.

     As noticed in the City Corporation of Calicut (supra), the  traditional  concept  of  quid pro quo  in  a  fee  has undergone considerable transformation.  From a conspectus of the ratio of the above judgments, we find that so far as the regulatory  fee is concerned, the service to be rendered  is not  a  condition precedent and the same does not  lose  the character  of  fee  provided  the  fee  so  charged  is  not excessive.  It is also not necessary that the services to be rendered  by the collecting authority should be confined  to the contributories alone.  As held in Sirsilk Ltd.  (supra), if the levy is for the benefit of the entire industry, there

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is  sufficient  quid pro quo between the levy recovered  and services  rendered to the industry as a whole.  If we  apply the  test  as  laid  down by this  Court  in  the  abovesaid judgments  to the facts of the case in hand, it can be  seen that  the  Statute under Section 11 of the Act requires  the Board  to  undertake  various  activities  to  regulate  the business  of  the securities market which requires  constant and  continuing  supervision   including  investigation  and instituting legal proceedings against the offending traders, wherever  necessary.  Such activities are clearly regulatory activities and the Board is empowered under Section 11(2)(k) to charge the required fee for the said purpose, and once it is  held  that the fee levied is also regulatory  in  nature then  the  requirement  of  quid  pro  quo  recedes  to  the background  and  the  same  need  not  be  confined  to  the contributories alone.

     Alternatively,  the  petitioners have  contended  that assuming that the fee levied does not require the equivalent quid  pro quo even then the amount collected by way of  this levy  amounts  to hundreds of crores of rupees which is  not reasonably  required  by  the  Board   for  the  purpose  of implementing  the objectives of the Act.  They contend  that the  amount to be collected by the Board as per the  present levy  in the first five years will be in the region of  over 400 crores and by no stretch of imagination it could be said that such a large amount of levy is required for the purpose of  maintaining  the  regulatory  measures  under  the  Act. According  to  the petitioners, even as per the Boards  own assessment,  the requirement of the Board over a period of 5 years  since  its inception will not exceed more than  Rs.65 crores.   Therefore, the collection of Rs.400 crores by  way of  this  levy is unjustified and unreasonable.  The  Board, however,  contends  that even though at a point of time  the Board  had estimated its immediate requirement for the first year  of  the inception of the Board in the range  of  Rs.65 crores.   Subsequently, on an analysis of its expenditure it was  found  that its requirement was far more than what  was originally projected.  It further contends that, as a matter of  fact,  the  entire  amount collected  by  the  Board  is required  only  for the purpose of fulfilling its  statutory obligations.   According  to  the  Board, as  per  the  levy permissible under Schedule III of the Regulations, the Board is likely to collect from the brokers of all Stock Exchanges including  that  of National Stock Exchange for  the  period between 1992-93 to 1999-2000 a total sum of Rs.418.57 crores and  from  intermediaries  other than brokers for  the  said period a sum of Rs.126.96 crores;  and from 2001 onwards its income  by way of fee from approximately 9000 brokers  would be  of the order of approx.  Rs.90 lakhs per annum, and from the  intermediaries  it  would be to the  tune  of  Rs.25-30 crores  per  annum,  and in regard to its  expenditure,  the Board has given the following particulars :

     EXPENDITURE S.No.  Particulars Amount in crores

     1.   AMOUNT ALREADY SPENT DURING 1991-92 TO  1999-2000 (REVENUE & CAPITAL) 193.00

     3.  BUDGET ESTIMATES FOR 2000-2001

     (i)  Office Premises Rs.99.20 Crores (ii)  Residential Premises  Rs.90.00  Crores (iii) Office Equipments  Rs.20.00 Crores Rs.209.20 Crores 209.20

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     4.  FURTHER REQUIREMENT OF FUNDS

     (i)  Corpus  creation Rs.150.00 Crores (ii) Refund  of Govt.  Loans Rs.105.00 Crores Rs.255.00 Crores 255.00

     5.   FUTURE  PROJECTIONS  ON   REQUIREMENT  OF   FUNDS (Planned expenditure subject to availability of Funds)

     a.   Computerisation Rs.  60.00 Crores b.  Offices  in other  cities  Rs.120.00  Crores c.  Increase in  staff  Rs. 15.00  Crores  d.   EDGAR  Project * Rs.   75.00  Crores  e. Setting  up  Institute  for   Capital  market  and  Investor Education Campaign Rs.  50.00 Crores

     Rs.320.00                 Crores                320.00 ------------------------------------------------------------------------------------------ TOTAL 977.20

     *  EDGAR  =  Electronic Data gathering,  Analysis  and Retrieval   Systems.    The   project  envisages   automated collections,  validation of vital information by/from listed companies.

     Therefore,  it  contends that it will be erroneous  on the  part  of the petitioners to contend that the  Board  is levying  any  amount  in excess of its  requirement.   While examining  the  reasonableness of the quantum of  levy,  the same  will not be done with a view to find out whether there is  a  co-relatable  quid pro quo to the  quantum  of  levy, because  as  noticed hereinabove, the quid pro quo is not  a condition  precedent for the levy of a regulatory fee.  Such examination  will have to be made in the context of the levy being  either excessive or unreasonable for the  requirement of  the authority for fulfilling its statutory  obligations. With  this  principle in mind, we have noticed earlier  that apart  from  the requirement of registration of brokers  and other  intermediaries,  the Statute also mandates  that  the Board  should  regulate the business of stock exchanges  and other  securities  market.  It also mandates that the  Board shall  promote  and regulate  self-regulatory  organisations prohibiting  fraudulent trade practices and insider trading, promote investors education and training of intermediaries, regulate   the  acquisition  of   shares  and  take-over  of companies, undertake inspection, inquiries and audits of the stock  exchanges, mutual funds and other persons  associated with  the securities market, conduct research in furtherance of the obligations cast on the Board and over and above all, it  has  the  obligation to perform such  functions  as  are delegated to it by the Central Government under the SCR Act, 1956.   It is seen that in furtherance of these requirements of the Statute, the Board requires substantial sums of money towards  capital expenditure in the form of acquiring office premises,  residential  premises, office equipments  and  to provide   the  necessary  facilities   for   inducting   the information  technology in its day-to-day functions.  It  is to  be noticed that the Board has to control and regulate 23 stock  exchanges all over India which have more than  10,000 listed  companies,  9500  brokers,   5500  sub-brokers,  250 merchant  brokers  with similar number of Registrars to  the Issue,  share  transfer  agents, more  than  300  depository

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participants  and other categories of intermediaries.   From the material supplied by the Board, it is to be noticed that the  total  market  capitalisation is over  800,000  crores. Apart  from this, it is the case of the Board that it has to regulate  39  mutual funds involving 300 schemes with a  Net Asset  Value (NAV) of Rs.1 lakh crores.  The Board has  also to  deal  with  the  entities   which  raise  money  through collective  investment  schemes  at  present  involving  642 companies which have raised Rs.2,680 crores from the public. From  the  pleadings of the Board, it is to be seen  that  a large  number of cases to the tune of nearly 800 are pending in various courts in India which in due course are likely to increase,   thereby   burdening  the    Board   with   heavy expenditure.   That  apart,  it has  the  responsibility  of protecting  the interests of investors as well as  undertake investors education among other duties specified in Section 11  of the Act.  The Board has placed material before us  to show  that the Government of India has already delegated  to the  Board the functions under the SCR Act, the Depositories Act  as also some of the functions under the Companies  Act. To  discharge  all  these duties, the  Board  has  contended before  us,  which cannot be controverted, that it  requires substantial  staff members and it has to induct professional persons at various levels apart from modernising the working with  the induction of latest modern technology.  The  Board has  also contended that it has to invest huge sums of money in  providing  proper  and necessary office  space  as  also adequate  housing  facilities to the staff without which  it would  be  extremely difficult for the Board to  employ  and retain  its technically trained staff in its employment.  To meet  all these expenses, according to the Board, it has  no other  source  of  income apart from the  levy  contemplated under  Sections  11(2)(k) and 12 of the Act, except  certain sum  loaned  by the Government of India which is  repayable, hence,  the  Board  certainly requires substantial  sums  of money.   What the petitioners contend in this regard is that most  of  these  expenses  are  in  the  nature  of  capital expenditure  for  which provisions ought to be made  by  the Government  and  they cannot be saddled with the  burden  of providing these infrastructures of the Board.  This argument of   course  is  based  on   the  ground  that  the  capital expenditure  cannot  be met out of the fee to be  levied  on them  and  also on the ground that a substantial  amount  of levy  is  being utilised not for their benefit but  for  the benefit of other persons involved in the stock market.  Once we  come  to  the  conclusion that the fee  in  question  is primarily  a  regulatory  fee  then the  argument  that  the service  rendered  by  the Board should be confined  to  the contributories  alone,  cannot be accepted.  What the  Court has  to  investigate  while examining a  challenge  of  this nature  is  to  see  what  is  the  primary  object  of  the Regulations  for  which the fee is being collected and  find out whether the Regulation in question is in public interest or  not.  Once the levy is in public interest and  connected with  the  larger  trade  in which  the  contributories  are involved   then   confining  the   services  only   to   the contributories  does  not arise.  As has been held  by  this Court  in City Corporation of Calicut (supra).  Applying the said  principle, we are of the opinion that since the amount collected  under  the  impugned levy is being spent  by  the Board  on  various  activities of the stock  and  securities market  with  which the petitioners are directly  connected, the fact that the entire benefit of the levy does not accrue to  contributories i.e.  the petitioners would not make  the levy invalid.

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     The  next contention of the petitioners that the Board cannot  be  permitted  to  levy  the  fee  for  its  capital expenditure should also meet with the same fate.  This Court in  Salvation Armys case (supra) has specifically held The expenditure  in constructing buildings for locating the head office  and  regional  offices  and   the  increase  in  the allowances  or other amenities to the staff have also to  be included  in  the  costs of the services.  That  being  the position  in law, this argument should also fail.  Even  the argument   that   the  amount   required  for  the   capital expenditure  of the Board should be met by the Government of India  and  not  out of the regulatory fee  charged  by  the Board,  has  no  force.   The Board is  an  autonomous  body created by an Act of Parliament to control the activities of the  securities  market  in which thousands  of  members  of gullible  public  will  be  investing huge  sums  of  money. Therefore, there is every need for a vigilant supervision of the  activities  of the market and for that purpose  if  the Statute  intends  that the necessary funds should be met  by collection  of  fees from the securities market itself  then the  said  levy cannot be questioned on the ground that  the monies  required  for the capital expenditure of  the  Board should  be met by the Government of India.  That apart, this Court  in the case of Sreenivasa General Traders (supra) has rejected a similar contention.

     It  is contended on behalf of the petitioners that the brokers  have  been  subjected to a  hostile  discrimination vis-Ã -vis  other intermediaries in the stock market inasmuch as  they  as  a class alone are made to pay the fee  on  the basis  of the annual turnover while others have to pay  only on  a flat rate.  Thus, they have been compelled to bear the maximum  burden  of the levy while the other  intermediaries are  liable  to pay only a nominal part of the  levy.   This argument,  in our opinion, proceeds on the footing that  the law  requires  every  contributory to pay equally.   We  are unable  to  accept  this argument either.  It is  true  that every  classification must have a reasonable nexus with  the object  to  be achieved.  In the instant case  the  question that arises in answering this argument of the petitioners is whether  all  persons  involved  in the  business  of  stock exchange  should  be equally burdened or is it open  to  the Board   to   distribute   the   burden  based   on   certain classification.   At this stage, it should be borne in  mind that  the collection made from a class of persons even if it is   a   fee  can  also  enure   to  the  benefit   of   the non-contributories  so  long as they are within  the  object governing the levy.  From the material on record, it is seen that  approx.   50 per cent of the total expenditure  to  be incurred  by the Board would be on brokers related services and from amongst all the players in the share market brokers form  a  distinct and separate class as compared  to  others including  other intermediaries.  Therefore, in our opinion, there  is nothing wrong in either classifying the brokers as a  separate  class  for the subject of levy based  on  their annual  turnover  because the volume of transaction  of  the brokers  has a direct bearing on the regulatory expenses  of the  Board.   Hence, this classification has a direct  nexus with the object to be achieved.

     Another  major  issue  in  controversy  in  this  case pertains  to the imposition of impugned fee on the basis  of the annual turnover of the brokers.  The petitioners contend that  assuming that the respondents had the authority in law

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to  levy  the fee under challenge, the same could  not  have been  levied  on  the basis of the annual  turnover  of  the brokers because such levy would amount to a tax on turnover. They  also contend that the definition of annual  turnover found  in  Explanation  III  of the  Regulations  is  vague, imprecise,  irrelevant and is over- inclusive.  They contend that  by virtue of such definition, every transaction of the brokers;   be it a carry forward or a badla transaction will be  subjected  to  the levy of fee in question.   They  also contend  that  this  definition   could  multiply  a  single transaction  into multiple transactions, for example, in the case  of  squaring  up  of   transactions  during  the  same settlement  cycle,  the  turnover will get  multiplied  four times  as  per the said definition due to which there  is  a likelihood  of balooning of value of transaction  ultimately leading  to  confiscation of the gross income earned by  the broker  because  in reality, he earns only one brokerage  in all  the above transactions while for the purpose of payment of  registration  fee,  the turnover  would  get  multiplied anywhere  between 4 to 14 times in the annual turnover.   In support  of their contention, the petitioners have  strongly relied  upon  the  report submitted by the  Bhatt  Committee appointed  by the SEBI itself as also Justice Mody Committee appointed  by  the  High Court of Bombay.  In reply,  it  is contended on behalf of the Board that the annual turnover of a broker reflects the number of transactions entered into by the  broker which all form the subject-matter of scrutiny by the  Board.  However, when the Board received a letter  from the   petitioners  opposing  the   levy  based  on   annual turnover,  the  Board  constituted   an  Expert   Committee comprising  of  the  persons actively  associated  with  the functioning of the Stock Exchange and the Securities Market. It  also  included the Chairman of the Unit Trust  of  India (UTI),  Joint  Managing Director of the Industrial Credit  & Investment  Corporation  of India Ltd.  (ICICI)  a  leading merchant  banker in India so also the Executive Director and a member of the governing body of the Bombay Stock Exchange. This Committee, according to the respondents, had taken into consideration  the views expressed by various members of the Stock  Exchange  and thereafter it submitted a report  which was  made public through a Press Release by the SEBI.   This report, according to the respondents, upheld the decision of the  Board  to levy fee on the basis of the turnover of  the brokers and has also concluded that the levy in question was a  reasonable levy.  It was pointed out that the said Expert Committee  had made certain recommendations which have  been accepted  by the Government of India and the Board is in the process  of implementing those recommendations.  De hors the report,  the  Board contends that the levy of fee  based  on annual  turnover of a stock broker is not a new phenomenon and  the  same  is prevalent even in countries  like  United States  of  America,  Hong  Kong   etc.   They  refuted  the allegation that the definition of annual turnover as found in  Schedule  III  to the Regulations is  vague,  imprecise, irrelevant  or  over-inclusive.  It cannot be disputed  that the  annual turnover of a broker is not the subject matter of  the  levy but is only a measure of the levy.   In  other words,  the fee is not being levied on the turnover as  such but  the  fee  is being levied on the brokers  making  their annual  turnover as a measure of the levy which is a fee for regulating  the activities of the securities market and  for registration  of the brokers and other intermediaries in the said  market.  Therefore, it is futile to contend that  such levy  would  be either a tax or a fee on turnover.  It is  a settled principle in law that if the State has the authority

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to  impose a levy then it has a wide discretion in  choosing the  measure of levy provided, of course, it withstands  the test  of  reasonableness.   Many levies may have  a  similar measure but by such similarity in the measure, the levies do not become the same.  Therefore, if the impugned levy adopts a  measure which is either similar to the one adopted  while levying  turnover tax or income-tax, the impugned levy  ipso facto  by adoption of such measure, would not become  either an income-tax or a turnover tax or even a fee on income or a fee  on turnover.  This Court in the case of Goodricke Group Ltd.   &  Ors.  v.  State of West Bengal & Ors.  (1995  Supp (1) SCC 707) while upholding a cess on tea estate which is a tax on land by the measure of yield by quantum of tea leaves produced in the tea estate held :

     A  tax imposed on land measured with reference to  or on  the  basis of its yield, is certainly a tax directly  on the  land.   Apart from income, yield or produce, there  can perhaps  be  no  other basis for levy.  A tax  on  land  is assessed on the actual or potential productivity of the land sought  to  be  taxed.   Merely because a tax  on  land  or building  is imposed with reference to its income or  yield, it  does  not  cease to be a tax on land or  building.   The income  or  yield of the land/building is taken merely as  a measure  of  the  tax;   it does not  alter  the  nature  or character  of  the levy.  It still remains a tax on land  or building.   There is no set pattern of levy of tax on  lands and buildings  indeed there can be no such standardisation. There  cannot  be  uniform levy unrelated  to  the  quality, character  or  income/yield of the land.  Any such levy  has been  held  to be arbitrary and discriminatory.  No one  can say  that a tax under a particular entry must be levied only in  a  particular  manner,  which   may  have  been  adopted hitherto.   The legislature is free to adopt such method  of levy  as  it  chooses and so long as the character  of  levy remains  the  same,  i.e., within the four  corners  of  the particular  entry,  no objection can be taken to the  method adopted.

     Similar is the view taken by this Court in the case of The  Tyford Tea Co.  Ltd.  & Anr.  v.  The State of Kerala & Anr.  (1970 (1) SCC 189).

     Therefore,it  would  be  futile to  contend  that  the impugned fee merely because it is levied on the basis of the turnover  of  the brokers would either amount to a  turnover tax  or a tax on income.  While we accept the levy based  on annual  turnover of the brokers as valid, we have to  notice that  the Expert Committee appointed by the Board has in its report  held  that there should be certain  changes  brought about  in the definition of annual turnover as also in the quantum   of  the  levy   pertaining  to  certain   specific transactions  which are treated as part of the turnover.  It has recommended that for jobbing transactions the scale of fees  may be reduced to One Two hundredth of 1 per cent, and in  regard to carry forward, renewal or badla  transactions, the  off-setting  entries made by the Exchange, may  not  be counted  as part of the turnover, and further on  Government securities,  PSU Bonds and Units, the turnover will have  to be  calculated separately and a fee of one thousandth of one per  cent  may be charged on such turnover than the  present scale  of  one  hundredth  of one per  cent.   It  has  also recommended  that  the activities such as  underwriting  and collection  of deposits should not be taken into account for the  purpose  of  calculating the turnover of  the  brokers.

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These  recommendations of the Committee were, as a matter of fact,  accepted  by the Government of India also but  as  on date,  the necessary changes have not been brought about  by the  Board in its Regulations.  Consequently, to the  extent of  the recommendations made by the Expert Committee, we are of  the  opinion  that  the Board is bound  to  bring  about corresponding  changes so as to remove the anomalies pointed out  by  the  Committee.  This was pointed  out  to  learned counsel  for the respondents when it was submitted that  the Board  has  accepted these recommendations and the  proposed changes  were  not brought about because of the pendency  of this  petition and the necessary changes to incorporate  the recommendations  of the Bhatt Committee would be done  after disposal  of these petitions.  We record this submission  on behalf  of  the  Board  and direct  that  the  said  changes recommended  by the Bhatt Committee will be incorporated  in the  Regulations.  Subject to the above, we are of the  view that  the challenge made to the levy based on the measure of turnover has to be rejected.

     At this stage, in fairness to the petitioners, we must notice  the fact that the High Court at an interim stage had appointed a Committee headed by Justice A.N.  Mody to submit a  report  as  to  the  reasonableness  of  the  levy.   The petitioners rely heavily on the said report to support their case  while  they  have their reservations as to  the  Bhatt Committee  report.   We are aware that the  superior  courts have  often  appointed Committees and Commissions to  assist the  court  in technical matters with which the  courts  are generally  not  very familiar.  Though in the instant  case, the  facts involved are matters pertaining to the securities market  with its own intricacies, we find that the  question involved  mainly  pertains  to the  legislative  competence, nature  and  reasonableness of the levy.  We are not  called upon to decide or to recommend as to what is the best way to levy  the impugned fee.  So long as the Legislature has  the legislative  competence  to  levy  and  the  Board  has  not exceeded  its  statutory authority in imposing the levy,  we need not go into other niceties of the levy which are not in the  realm  of  our  jurisdiction.   We  have  examined  the reasonableness  of  the levy qua the statutory power of  the Board  and  its  quantum with reference to the need  of  the Board  and  not  with reference to whether it  is  the  best available  method of levy.  It is possible that Justice Mody Committees  recommendations  are  better  than  the  method adopted  by  the Board but then that is not what we have  to decide  in this case.  Hence, we have not made any  specific reference  to  that report.  Of course, we have referred  to some  of the recommendations of the Bhatt Committee  because that  part  of the report is favourable to the case  of  the petitioners  and  the Government of India has  accepted  the same  and  the Board has, in principle, agreed to  implement that  report and not because Bhatt Committee report is  more acceptable to us than Justice Mody Committee Report.

     Lastly,  on  behalf  of  the trading  members  of  the National  Stock  Exchange it is contended that they are  not the  members of the said Stock Exchange so as to bring  them within the ambit of the levy.  This argument is based on the premise  that  it is only a full-fledged member of  a  Stock Exchange  who  can  be called upon to  be  registered  under Section  12(2)  of the Act and not any other member  of  the Stock  Exchange.   They  contend  that  the  National  Stock Exchange  has only institutional members who are treated  as full-fledged members and all others are only trading members

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who  do  not  have any right and obligations expected  of  a member  of  the stock exchange.  It is also  contended  that under  the  Rules  and  Regulations, a stock  broker  to  be registered  as such under the Act has to be a regular member of  the  Stock  Exchange  and   since  the  said  Rules  and Regulations  of the Board do not recognise a trading  member as  a  member of the Stock Exchange, they cannot be  brought within  the net of the levy.  They rely on the definition of stock  exchange under Rule 2(d) of the Rules which  states that  stock  exchange means a stock exchange which is  for the  time  being recognised by the Central Government  under Section 4 of the Securities Contracts (Regulation) Act, 1956 (42  of 1956) and a stock broker is defined as a member of a stock  exchange.  Since the stock brokers of NSE are not the members as defined under Section 2(e) of the Act and the NSE being  a company of which shareholders are only institutions and trading members not being shareholders, they do not fall within  the definition of a member of a stock exchange.   It is  difficult  to accept this argument.  Section 3(2)(c)  of the  SCR  Act  requires a stock exchange which  applies  for recognition to specify various

     classes  of members who will be admitted as members of the  stock  exchange.   This does not make  any  distinction between  a  full-fledged member and a trading member of  the NSE.   Further, Clause 9 of Part II of Annexure to Form  A requires  a  stock  exchange,  inter   alia,  to  state  the different  classes  of members, if any, and such  number  of members  thereof, and the privileges enjoined by such  class of  persons.   Definition of a trading member under the  NSE bye-laws  itself  shows that a trading member to be a  stock broker and a member of the NSE registered in accordance with Chapter  V of its bye-laws.  Article 1(m) of the Articles of NSE defines a trading member to mean a member of the stock exchange.   Explanation  to it further clarifies that  there may  be  more  than  one class of  trading  members  of  the Exchange  as  may  be determined by its Board from  time  to time.  A trading member of the NSE need not necessarily be a member  of the company that is NSE.  Therefore, it is  clear from  the  Articles  of NSE that the  said  Exchange  itself recognises  a  trading  member to be a member of  the  Stock Exchange though with limited rights.  Therefore, it is clear that  there can be more than one class of members who can be admitted  as members of the stock exchange and any of  those members  belonging  to any of those classes so long as  they are registered as such by a stock exchange, will fall within the  definition of member as defined in Section 2© of  the SCR  Act  and  Rule  2(e) of the SEBI  Rules.   It  is  also undisputed  that the trading members of the NSE are carrying on  the business of stock brokering, hence, keeping in  mind the  objects of the Act, it would be futile to contend  that the  trading  members of the NSE cannot be considered to  be the  stock brokers for the limited purpose of the  liability to   pay  the  impugned  fee   under  the  Act,  Rules   and Regulations.  Therefore, this contention also should fail.

     For  the  reasons  stated  above and  subject  to  the directions  issued by us in regard to the implementation  of the Bhatt Committee Report, T.C.  Â© No.20/2000 fails and the same is hereby dismissed.

     WP © No.502/2000 :

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     In  view  of  the order passed in T.C.   Â©  No.20/2000 hereinabove, this petition is also dismissed.