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CASE NO.: Appeal (civil)  2565 of 2005

PETITIONER: Veneet Agrawal

RESPONDENT: Union of India & Others

DATE OF JUDGMENT: 31/10/2007

BENCH: ASHOK BHAN & V.S. SIRPURKAR

JUDGMENT: J U D G M E N T WITH

CIVIL APPEAL NO(S).7574 OF 2005

BHAN, J.        1.      This judgment shall dispose off Civil Appeal No. 2565 of  2005 directed against the judgment of the High Court of Bombay  in Writ Petition No. 1414 of 2004 dated 29.06.2006 and Civil  Appeal No. 7574 of 2005 directed against the judgment of the  High Court of Uttaranchal at Nainital in Civil Misc. Writ  Petition No. 606(M/B) of 2002 dated 17.10.2003.  The point  involved being the same, the appeals are disposed off by a  common order.          2.      By the impugned judgments, the High Court of Bombay and  Uttaranchal have upheld the vires and constitutionality of  SEBI (Stock Brokers and Sub Brokers) Rules and Regulations,  1992 (for short \023the Rules & Regulations of 1992). The facts  are taken from Civil Appeal No. 2565 of 2005.  Although in the  writ petition several other points were also taken but at the  time of argument before the High Court, the learned counsel  appearing for the writ petitioners confined his submissions to  the question of vires of the rules and regulations only.          3.      Principal challenge to the Rules & Regulations of 1992 is  based on the contention that the Rules & Regulations were not  laid before each Houses of the Parliament as mandated by  Section 31 of the Securities and Exchange Board of India Act,  1992 (for short \023the Securities and Exchange Act).  It will  therefore be essential to reproduce Section 31 of the said Act  as the entire argument is placed on the requirement of the  said Section.  Section 31 reads as under:        "Rules and regulations to be laid before  Parliament.--Every rule and every regulation  made under this Act shall be laid, as soon  as may be after it is made, before each  House of Parliament, while it is in session,  for a total period of thirty days which may  be comprised in one session or in two or  more successive sessions, and if, before the  expiry of the session immediately following  the session or the successive sessions  aforesaid, both Houses agree in making any  modification in the rule of regulation or  both Houses agree that the rule or

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regulation should not be made, the rule or  regulation shall thereafter have effect only  in such modified form or be of no effect, as  the case may be; so, however, that any such  modification or annulment shall be without  prejudice to the validity of anything  previously done under that rule or  regulation."

      4.      SEBI is a regulatory body which has been established  under the SEBI Act with the objective of protecting the  interest of investors in the securities and of promoting the  development of and to regulate, the securities market and for  matters connected therewith or incidental thereto.  Under  Section 29 of the SEBI Act, the Central Government is  empowered to frame rules for carrying out the purposes of the  Act.  Under Section 30 of the SEBI Act, the SEBI is empowered  to frame regulations consistent with the SEBI Act and the  rules made thereunder to carry out the purposes of the Act.   Section 31 of the SEBI Act, however, provides that every rule  and regulation made under the Act would be required to be laid  before each House of the Parliament, while it is in session,  for a total period of 30 days which may comprise in one  session or two or more successive sessions.  It is further  provided therein that if after such laying, both the houses  agree that the rules/regulations should not be made then the  same would be of no effect. In case, if both the Houses agree  in making any modification in the said rules or regulations,  then the rules or regulations shall have effect only in such  modified form. However, any such modification or annulment  shall be without prejudice to the validity of any act  previously done under that rule or regulation.         5.      Before proceeding further, it may be mentioned that under  Regulation 10 of the SEBI Act, 1992, the Registration fee is  levied on the annual turnover of the stock brokers and sub  brokers.  Levy of turnover fee as well as the vires of  Regulation 10 was challenged in different high courts by  filing writ petitions soon after the said regulation came into  force.  In a transfer petition filed by the SEBI before this  Court for consolidating the said cases, this Court had  transferred one such petition from the Bombay High Court to  this Court while staying the other cases pending before the  various high courts. After hearing the said case, this Court  upheld the vires of Regulation 10 of SEBI Regulation as well  as the levy of turnover fee.  This Court while deciding the  said case, had also taken into consideration the \023Bhatt  Committee report\024 which had been submitted by an expert  committee constituted by SEBI to examine the issue of turnover  fee.  This is reported as 2001 (3) SCC 482, BSE Brokers Forum,  Bombay and others V. SEBI. On the basis of the judgment  rendered by this Court, all other similar writ petitions  pending in the various high courts were disposed off.  Having  failed in their challenge to the levy of turnover fee, the  brokers and sub brokers have been repeatedly filing petitions  on one or other grounds while their actual grievance is the  turnover fee imposed by the Regulation 10 which has been  upheld by this Court.  In the writ petition from which the  present appeal arises, similar attempt has been made.          6.      In the present case, rules and regulations in question  were laid on the table of the Lok Sabha on 27.11.1992 while on  the table of the Rajya Sabha on 16.12.1992.  The copies of the  proceedings in both the Houses showing the tabling of the said

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rules and regulations in both the Houses have been annexed.   Both the Houses were adjourned sine die on 23.12.1992 and  later on prolonged. New session of both the Houses of  Parliament started on 22.2.1993. It is submitted on behalf of  the appellant that the rules and regulations in question are  ultra vires on the ground that they were not laid before both  the Houses for a total period of 30 days, as required under  Section 31.          7.      It is submitted on behalf of the appellants that all the  proceedings pending in both the Houses lapsed after the  adjournment of the House sine die and since the rules and  regulations were not re-laid either in the Lok Sabha or in the  Rajya Sabha after the calling of the new session, the  procedure mandated under Section 31 of the SEBI Act was not  complied with.  It is also submitted that, for these reasons  the rules and regulations were illegal and ultra vires of the  SEBI Act as also the provision of the Constitution of India  and consequently all the actions, orders and directions issued  by the respondent against the petitioner under the said rules  and regulations were illegal and liable to be quashed.        8.      It is important to mention here that the laying of the  rules/regulations framed under a particular statute for a  specific period which that particular statute may warrant is  governed by the Rules of Procedure and Conduct of Business in  Lok Sabha given in Parliamentary Procedure Volume 2, page  1107.  The Rule 234 of the said Rules which is relevant in the  present case is reproduced hereunder:- \023Rule 234.  Laying of Regulations, Rule etc.  on table: (1)     Where a regulation, rule, sub rule,  bye laws etc. framed in pursuance  of the Constitution or of  Legislative functions delegated by  parliament to a subordinate  Authority is laid before the House,  the period specified in the  Constitution or the relevant Act  for which it is required to be laid  shall be completed before the House  is adjourned sine-die and later  prorogued unless otherwise provided  in the constitution or the relevant  Act (2)     Where the specified period is not  so completed, the regulation, rule,  sub rule, bye law etc. shall be re- laid in the succeeding session or  sessions until the said period is  completed in one session.\024

9.      From the perusal of the above mentioned rule, it is clear  that Rule 234 (1) is applicable in the facts and circumstances  of the present case.  Wherever the period required to be  completed under the statute under which a rule or regulation  may have been framed has to be completed in one session only,  sub clause 2 of Rule 234 would not apply.  In the present  case, the rules and regulations in question have been framed  under Section 31 of the SEBI Act.  The said Section of the  SEBI Act clearly provides that the requisite period of 30 days  for which a rule or regulation framed under the Act is  required to be laid before the Houses may be completed in one

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session or in two or more successive sessions.  It further  provides that if both the Houses agree to make any  modification or reject the said rule/regulation then the  rule/regulation would be enforced in the said modified form or  would be annulled in accordance with the decision of the  Houses.                       10.     In addition to the above, Rule 234 of Rules of Procedure  of Conduct of Business in Lok Sabha has been further clarified  in para 2.4 of the Book of Parliamentary Procedure Volume 2,  page 1701 where it has been clearly stated as under:-

\0232.4  Where a statue provides that the Rule  framed thereunder should be laid on the  table for a certain period which may be  comprised in one session or two or more  sessions, it is not necessary for the Rules  to be formally re-laid in the next session  in order to complete the prescribed period.\024                        11.     We do not find any substance in the submission made by  the Counsel for the appellant. Section 31 permits the  requisite period of 30 days to be completed in one or more  sessions.  As per Rule 234 of the Rules of Procedure and  Conduct of Business in Lok Sabha, the rules were required to  be placed before both the Houses of Parliament for a specified  period and if the House is  adjourned sine die and later  prorogued,  the procedure has to be completed in one or more  sessions, unless otherwise provided under the Constitution or  the relevant Act.  In the present case, Section 31  specifically provides that the Bill has to be placed before  both the Houses for a period of thirty days which may be  comprised in one session or in two or more successive  sessions.  The regulation, rule, sub-rule, bye law etc. have  to be re-laid in the succeeding session or sessions until the  said period is completed in one session.  Rule 234, as noted  above, has been clarified by para 2.4 of the Book of  Parliamentary Procedure.  Where the statute provides that the  rule framed thereunder should be laid on the table for a  certain period which may be comprised in one session or two or  more sessions, it is not necessary for the rules to be  formerly re-laid in the next session in order to complete the  prescribed period.  Section 31 permits the requisite period of  30 days in one or more sessions.  There was no necessity to  re-lay the rules before the Parliament in the next session as  per parliamentary procedure.          12.     This position has been further clarified by the Rajya  Sabha Secretariat in its letter dated 9.10.2002 wherein the  Secretariat has clarified that in the case of rules and  regulations in question under Section 31 of the SEBI Act, no  relaying was necessary as the statute permitted the requisite  period of 30 days to be completed in one or more sessions and  therefore, the rules/regulations in question after having been  initially laid are deemed to lie in the succeeding sessions  till the specified period is completed.  Besides this the  Ministry of parliamentary Affairs vide its letter dated  9.10.2002 further clarified that no modification/rejection of  the regulations and rules in question was done by either  House.  The requirement of Section 31 of the SEBI Act has been

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met with, the rules and regulations in question cannot be  declared ultra vires on this ground.           13.     This apart the issue relating to the laying down of  rules/regulations on the table of the Houses for the period  provided under the statute under which they are so framed has  been dealt with by this Court in various cases.  Some of these  cases are Jan Mohammad Noor Mohammad Bagban V. The State of  Gujarat & Another, 1966 (1) SCR 505, M/s. Atlas Cycle  Industries Limited & Others V. The State of Haryana, 1979 (2)  SCC 196, Hukum Chand V. Union of India, 1972 (2) SCC 601, and  Bank of India etc. etc. V. O.P. Swarnakar & Others etc. etc.,  2003 (2) SCC 721.  In a recent judgment, this Court followed  the view taken in M/s. Atlas Cycle Industries Limited\022s case  (supra) and Prohibition & Excise Suptd., A.P. & Ors. V. Toddy  Tappers Cooperative Society, Marredpally and Others, 2003 (12)  SCC 738.          14.     In all these cases, the issue relating to laying down and  interpretation of the said regulation was examined.  It has  been held in all these cases that the laying of the rule  before both the Houses of Parliament is merely a directory  rule and not mandatory.  In the Case of O.P. Swarnakar &  Others (Supra), the provision providing for laying the rules  before the Legislative was exactly similar to Section 31 of  the SEBI Act.  It was also held by this Court that the said  provision was directory and not mandatory.  The non-compliance  with the laying of the rule before the Parliament was not a  sufficient ground to declare the rules/regulations framed  under the statute as to be ultra vires.  In Toddy Tappers  Cooperative Society\022s case (supra) Hon\022ble Mr. Justice Sinha  in his concurring judgment following the decision in Atlas  Cycle Industries Limited\022s case (supra) and Quarry Owners\022  Association V. State of Bihar, 2000 (8) SCC 655 and various  other judgments, distinguishing the judgment in Union of India  V. National Hydroelectric Power Corporation Limited, 2001 (6)  SCC 307, (which has been relied upon by counsel for the  appellant before us as well) has held as under:- \023The said observations, thus, must be held to be  confined to the fact of the matter obtaining  therein. In that case it was found as of fact  that the rule had never been placed before the  Legislature and, thus, there was even no  substantial compliance with the law. The Bench,  however, did not consider the effect of the  directory nature of such a provision, in the  light of the decision of this Court in Atlas  Cycle Industries (supra) and Quarry Owners’  Association (supra). The Court further did not  notice the difference between the expressions  ’approval’ and ’permission’. Section 16 of the  Water Act, construction whereof was in question  did not use the expression ’prior approval’. The  word ’approval’ indicates an Act which has  already been made and is required to be approved  whereas in the case of ’permission’, the  situation would be different. This aspect of the  matter has been considered by this Court in High  Court of Judicature for Rajasthan v. P.P. Singh  and Anr, 2003 (4) SCC 239 stating : (SCC p. 255,  para 40) "40. When an approval is required, an  action holds good. Only if it is  disapproved it losses its force. Only  when a permission is required, the

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decision does not become effective till  permission is obtained. (See U.P. Avas  Evam Vikas Parishad and Anr. v. Friends  Coop. Housing Society Ltd and Anr.  [(1995) Supp (3) SCC 456], In the  instant case both the aforementioned  requirements have been fulfilled."                15.     It was observed that provision was merely directory and  not mandatory and even if the rules were not laid before the  House at all even then the non-compliance with the laying down  of the rules before the Parliament could not be a ground to  declare the rules/regulations framed under the statute as  ultra vires.         16.     Although in the present case the rules were laid before  both the Houses as required under Section 31, as discussed in  the earlier paragraph of the judgment but even if it is  assumed that the rules/regulations in question did not  complete the requisite period of 30 days, the provisions of  Section 31 of the SEBI Act not being mandatory and merely  directory, as has been held by this Court in the  aforementioned cases, the rules/regulations  cannot be held to  be ultra vires on the ground of non-completion of 30 days  period after laying of the rules before both the Houses of  Parliament.            17.     Respondents with their reply have placed on record the  three judgments of Delhi High Court in CWP No. 2942 of 2003  dated 18.9.2002, CWP No. 6920 of 2003 dated 3.11.2003 and CWP  No. 2876 of 2001 dated 22.2.2002, wherein a challenge was  raised to the rules and regulations under challenge was  rejected.    Counsel for the appellant appearing before us had  also appeared before the Delhi High Court in the said writ  petition.  In CWP No. 6920 of 2003, counsel who is appearing  for the appellant in the present case had appeared before the  High Court of Delhi as well.  This writ petition was dismissed  by the High Court by imposing cost of Rs.15,000/- by observing  thus:- \023Once the Regulations are declared to have  been validly made, then, it is not open to  argue that it was not examined from a  particular angle and, therefore, the Court  should examine it again.  It is not  appropriate to ask the Court to presume that  the Court while examining the matter was not  aware about the provisions contained in law  and, more particularly, when the Division  Bench of this Court had examined the matter  from the same angle.  It is in view of this,  we dismiss this petition with costs which we  quantify at Rs. 15,000/- which shall be  deposited with the Delhi Legal Aid Service  Authority within two weeks from today.\024                      18.     Although the writ petitioner in the present case is  different but the repeated attempts are being made to get the  rules/regulations invalidated.  This has been adversely  commented upon by the High Court of Delhi.  Once the  regulations are declared to have been validly made then it is  not open to the counsel for the appellant to argue that the  same was not examined from a particular angle and the court

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should re-examine it again.  It is especially so, when the  counsel who is appearing before us had appeared in the earlier  cases as well.         19.     For the reasons stated above, we do not find any merit in  these appeals and the same are dismissed with costs which are  assessed at Rs. 20,000/- in each of the appeals.