Stock exchange membership not inheritable: SC

The Supreme Court on Thursday held that the membership of a stock
exchange can not be inheritable as it is a privilege and not a matter
of right.


A bench comprising Justices Tarun Chatterjee and Dalveer Bhandari
while disposing of a batch of appeals said, "It is abundantly clear
that no provision of succession to registration is permissible...
Membership of a stock exchange is a privilege and not a matter of
right and thus this cannot be claimed as inheritable."

The court accepted the market regulator's contentions that there was
no provision in the SEBI Act and its rules and regulations which
recognised the registration of stock-brokers by inheritance and
transmission for the purpose of granting fee continuity benefit.

While upholding a Securities Appellate Tribunal order dated 12th May
2006, the court said in a batch of petitions filed against SEBI that
appellants including Nikhil K Vakharia, son of Late Shri Kanchanlal K
Vakharia, in order to operate in the stock exchange had to obtain a
fresh registration from SEBI.

For the first five years, the appellant would be required to pay the
quantum of fee linked to the turnover and thereafter at the flat rate
of Rs 5,000 in order to keep the registration in force, the bench
said.



According to SEBI, the appellant who is son of Late Kanchanlal K
Vakharia on transmission can be registered only as a new stock broker
with SEBI in accordance with the Act, Regulations and the SEBI (Stock-
Brokers and Sub-Brokers) Rules, 1992 and subject to payment of
registration fee for a new stock-broker as per the schedule fixed in
the Regulations.



It may be noted that under the SEBI (Stock Brokers and Sub-Brokers)
Regulations, 1992, a fee is required to be paid by the stock brokers.



Broadly, the fee was structured in two distinct phases: In the first 5
years of operation of a broker, the quantum of the fee is linked to
the turnover of the stock broker. Greater the turnover, higher the
fee.



The second phase comprises blocks of 5 years from the sixth financial
year after initial registration. During each block period of 5 years,
the stock broker is required to pay a flat rate of Rs 5,000 in order
to keep the registration in force. The flat fee had no link to the
turnover.



In the batch of these appeals, the appellants had claimed that on
account of transmission, since the business and trade continues in the
same name or entity and the stock exchange permitted continuation of
the same membership under the same number and clearing code, they
should also be given the fee continuity benefit under the same
registration of the earlier stockbroker and and should not be made to
pay the turnover basis fee for the remainder of initial period of five
years.



The present case involved a situation where the stock broking firm was
a partnership firm carrying on business in the name Kanchanlal & Sons.
However, due to ill health, Late Kanchanlal K Vakharia had decided to
nominate Nikhil in his place as a member of Bombay Stock Exchange.



Nikhil in his appeal had claimed that he was a partner of Kanchanlal &
Sons and, therefore, SEBI should give the benefit of fee continuity as
for the first 5 years they have already been charged from the
partnership on a turnover basis, therefore, they must now charge on a
flat rate of Rs 5000 per annum for the registration.



SEBI had contended that in order to become a member of the stock
exchange, the person was required to be qualified as per rule 8 of the
Securities Contracts (Regulations) Rules, 1957.



"This right is also not inheritable, since every person on
transmission may not even be qualified to become a member of a
particular stock exchange," the market regulator stated, adding BSE
does not enroll partnership firm as members.



As such, Late Kanchanlal K Vakharia alone was the member of the stock
exchange and he alone was thus entitled to deal in securities in the
Bombay Stock Exchange.