Topic: Securities and Exchange Board of India vs Bombay Stock Exchange Brokers Forum
Securities and Exchange Board of India vs Bombay Stock Exchange Brokers Forum
Bench: B.N.Kirpal, N.S.Hegde - CASE NO.: Transfer Case (civil) 20 of 2000, Writ Petition (civil) 502 of 2000 - DATE OF JUDGMENT: 01/02/2001
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 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 Fees Fees (Rs.) (Rs.)
Category A 5 Lakhs 10.000
Category B 3 Lakhs 5.000
Category C 1 Lakh 4.000
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/-
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 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 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 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 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.
(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 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 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 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 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 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 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 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.