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Attorney(S)
  • Mr. Shachindra Dube, Authorized Representative with Mr. Sageer Khan, No. 1
  • Mr. Kumar Desai, Advocate with Mr. Pratham V. Masurekar, Advocate No. 2
  • Mr. Rashid Boatwalla, Advocate with Ms. Shaznin Unwala, Advocate No. 3
  • Mrs. Dina Parikh, Appellant in person.
Judges
  • J.P Devadhar, Presiding Officer
  • Jog Singh, Member
  • A.S Lamba, Member
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Cites
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. Shachindra Dube, Authorized Representative with Mr. Sageer Khan, No. 1
  • Mr. Kumar Desai, Advocate with Mr. Pratham V. Masurekar, Advocate No. 2
  • Mr. Rashid Boatwalla, Advocate with Ms. Shaznin Unwala, Advocate No. 3
  • Mrs. Dina Parikh, Appellant in person.
Judges
  • J.P Devadhar, Presiding Officer
  • Jog Singh, Member
  • A.S Lamba, Member
See more information ...
Smart Summary

Structured Summary of Opinion — Securities Appellate Tribunal (25 July 2014)

Case identifiers: Misc. Application No. 63 of 2014; Appeal No. 122 of 2014.

Parties: Appellant: Mrs. Dina Parikh. Respondent No.1: Inter Connected Stock Exchange of India Ltd. (ISE) and its wholly owned subsidiary ISE Securities and Services Limited (ISS). Respondent No.2: SEBI. Respondent No.3: National Stock Exchange of India Limited.

Coram: Justice J.P. Devadhar (Presiding Officer), Jog Singh (Member), A.S. Lamba (Member).

Date(s): Main reasons dated 18.07.2014; corrected/amended order dated 25.07.2014.

Factual and Procedural Background

The appellant, Mrs. Dina Parikh, was registered as a trading member on January 18, 1999 after depositing a Base Minimum Capital and related charges; she was also a sub-broker with ISE Securities and Services Limited (ISS). On April 4, 2005 the appellant's trading terminal was deactivated because she failed to maintain the minimum level of net worth. The appellant sought refund of the Base Minimum Capital and fixed deposits by letters dated April 5 and April 7, 2005.

Despite deactivation of the trading terminal, the appellant's trading membership continued and she paid yearly membership subscriptions from 2005 to 2009. On February 9, 2009 the appellant applied for transfer/sale of membership; SEBI granted conditional approval on June 4, 2009, including a condition that the security deposit of the transferor would not be released until the transferee's registration was granted. During processing of the transfer application the appellant refused to pay the enhanced annual subscription (contending zero trading).

When the transfer did not complete, the appellant sought cancellation of membership. Cancellation required withdrawal of the appellant's sub-broker registration with ISS; approval for cancellation of that registration was recorded on September 20, 2010. ISS wrote on October 11, 2010 stating that cancellation would be subject to clearing outstanding annual fees of Rs. 30,826. The appellant submitted documents for cancellation on October 29, 2010 and December 2, 2010 but did not pay the arrears.

SEBI approved cancellation of trading membership effective June 29, 2011 (communicated by letter dated July 20, 2011). By letter dated August 2, 2011 the respondent forwarded a cheque for Rs. 66,924 after deducting Rs. 33,076 from the Base Minimum Capital deposit of Rs. 100,000. The deduction of Rs. 33,076 represented two years' enhanced yearly subscription charges (Rs. 13,788 each for FY 2009-10 and FY 2010-11) plus interest on delayed payment of Rs. 5,500 (13,788 + 13,788 + 5,500 = 33,076).

The appellant received the cheque under protest and pursued various remedies, ultimately filing Appeal No. 122 of 2014 before the Tribunal challenging the deduction of Rs. 33,076 and seeking interest on refunded amounts. Separately, Miscellaneous Application No. 63 of 2014 sought condonation of approximately 1,000 days' delay in filing the appeal.

Legal Issues Presented

  1. Whether the delay of approximately 1,000 days in filing the appeal should be condoned.
  2. Whether the appellant is entitled to interest at 12% per annum on Rs. 66,924 from March 1, 2005 until final disposal of the appeal.
  3. Whether the respondent ought to be directed to pay the balance amount of Rs. 33,076 along with interest at 12% per annum from April 1, 2005 until final payment.
  4. Whether the deduction of Rs. 33,076 by the respondent from the Base Minimum Capital deposit (comprising enhanced annual membership fees for FY 2009-10 and FY 2010-11 and delayed payment interest) was justified.

Arguments of the Parties

Appellant's Arguments

  • After deactivation of her trading terminal in April 2005, the appellant's business ceased and she immediately sought refund of the Base Minimum Capital (April 7, 2005); inordinate delay by the respondent in refunding this amount warrants interest on the refunded sum.
  • Since there were no transactions after April 2005, the respondent was not justified in demanding annual subscription fees.
  • Officers of the respondent misled or did not properly guide the appellant, causing delay in refund and inaction.
  • In relation to a fixed deposit of Rs. 50,000, the appellant succeeded in arbitration against ISS; she relied on that success to contend she should not have been charged or had deductions for the membership-related amounts and that she should receive interest on withheld/refunded sums.

The opinion does not set out detailed responsive arguments from the respondents in the sense of an adversarial factual or legal narration; the Tribunal's reasoning records the factual stance and obligations imposed on members by the exchange and SEBI's conditional approval.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal's analysis proceeds in a sequence tied to the admitted facts and the legal consequences of continued membership status:

  1. Condonation of Delay (Misc. Application No. 63 of 2014): For the reasons set out in the Miscellaneous Application the Tribunal condoned the delay of approximately 1,000 days and allowed the Miscellaneous Application with no order as to costs. (The order does not reproduce those reasons in full within the excerpt but records the allowance.)
  2. Membership Status and Obligation to Pay Fees: The Tribunal held that deactivation of the trading terminal on April 4, 2005 did not equate to cancellation of the appellant's trading membership. So long as the membership subsisted, the appellant remained obliged to pay yearly membership subscription fees. The appellant had in fact paid yearly membership subscription fees from 2005 until 2009, which undercuts the contention that she was relieved from the obligation to pay due to lack of trading.
  3. Refund Claim Without Cancellation: The demand for refund of Base Minimum Capital immediately after deactivation, without seeking cancellation of membership, was not tenable. A refund of deposit tied to membership requires compliance with the membership-cancellation process.
  4. Attempted Transfer and SEBI Condition: The appellant applied for transfer on February 9, 2009, seeking to avoid enhanced subscription effective April 1, 2009. SEBI granted approval on June 4, 2009 but conditioned release of the security deposit on completion of transferee registration. Because the transfer did not complete, the appellant's liability for enhanced fees remained.
  5. Cancellation Application and Outstanding Fees: The appellant submitted cancellation documents on October 29, 2010 (and again on December 2, 2010) but did not pay required arrears. ISS had communicated that cancellation would be subject to clearing the outstanding annual fees (Rs. 30,826). SEBI ultimately approved cancellation with effect from June 29, 2011 and the respondent refunded Rs. 66,924 on August 2, 2011 after deducting Rs. 33,076 representing the enhanced subscription for FY 2009-10 and FY 2010-11 plus delayed-payment interest.
  6. Interest on Refunded Sum of Rs. 66,924: The Tribunal concluded that interest on the refunded amount of Rs. 66,924 was not justified because that amount was paid promptly on August 2, 2011 after SEBI's approval effective June 29, 2011; there was no undue delay from the date of receiving SEBI's approval to justify interest.
  7. Justification for Deducting Rs. 33,076: The Tribunal found the deduction of Rs. 33,076 to be sustainable. It represented annual membership subscription payable up to the date of the appellant's cancellation application (October 29, 2010), calculated at the enhanced rate effective April 1, 2009. The Tribunal emphasized that the question whether the respondent was justified in enhancing the membership fees from April 1, 2009 was not before it and could not be decided in these proceedings; absent any stay, the appellant remained liable to pay the enhanced rate while membership subsisted.
  8. Arbitration Proceedings and Their Relevance: The Tribunal rejected reliance on arbitration orders. It observed that (a) the arbitration award expressly excluded the claim relating to Rs. 33,076 (referenced as para 1 of the Award at page 65 of the appeal memorandum), so those orders bear no relevance to the present claim, and (b) annual membership fees payable to the exchange are distinct from annual charges payable to a broker and remain payable irrespective of trading activity.
  9. Consequence on Appellant's Conduct: The Tribunal noted that the appellant, having continued membership and having attempted a transfer that failed, cannot blame the respondent for charging the enhanced fees between April 1, 2009 and the cancellation application date of October 29, 2010.

Holding and Implications

Holding:

  • Miscellaneous Application No. 63 of 2014 — ALLOWED. The delay in filing the appeal (approximately 1,000 days) was condoned; the Miscellaneous Application was allowed with no order as to costs.
  • Appeal No. 122 of 2014 — DISMISSED. The appeal challenging the deduction of Rs. 33,076 and seeking interest on refunded amounts was dismissed with no order as to costs.
  • Praecipe filed by Respondent No. 3 — DISPOSED OF. The Tribunal authorized substitution of paragraph 2(a) of the earlier order to correct a factual error (stating that Respondent No.1 is the holding company of ISS and that ISS is a wholly owned subsidiary); the praecipe was disposed with no order as to costs and the Registry was directed to make the substitution.

Implications:

  • The direct effect on the parties is that the appellant will not receive the additional interest claimed on the refunded sum of Rs. 66,924, and the respondent's deduction of Rs. 33,076 from the Base Minimum Capital deposit stands as justified in the Tribunal's view.
  • The Tribunal did not pronounce on the substantive legality of the membership-fee enhancement effective April 1, 2009; it treated that subject as outside the scope of the present appeal, noting that absent any stay the enhanced fees were payable while membership continued.
  • No new legal precedent or novel legal principle was established in this opinion; the decision rests on application of membership obligations, procedural history, and admitted facts to the reliefs claimed.

Disposition: Appeal dismissed; miscellaneous application for condonation allowed; praecipe for factual correction granted. No order as to costs in all dispositions recorded.

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    Dina Parikh v. Inter Connected Stock Exchange Of India Ltd.

    Misc. Application No. 63 of 2014

    1. By this Miscellaneous Application applicant/appellant seeks condonation of approximately1000 days delay in filing the appeal.

    2. For the reasons set out in the Miscellaneous Application, delay is condoned. Accordingly, Miscellaneous Application is allowed with no order as to costs. Appeal No. 122 of 2014

    1. Appellant herein basically seeks following two reliefs:

    i) Direction to the respondent to pay interest at the rate of 12% on ` 66,924/- from March 1, 2005 till final disposal of appeal. ii) Direct the respondent to pay balance amount of ` 33,076/- alongwith interest at the rate of 12% per annum from April 1, 2005 till final payment.

    2. Facts relevant for the purpose of the present appeal are as follows: (a) Respondent No. 1 is a holding company of ISE Securities and Services Limited. ISE Securities and Services Limited (ISS for short) is wholly owned subsidiary of the Respondent No. 1.

    b) On January 18, 1999 appellant was registered as a trading member of respondent subject to depositing Base Minimum Capital amount and other charges. Appellant was also registered as a sub-broker with ISS which enabled the appellant to execute trades on NSE & BSE through the trading terminal provided by ISS.

    c) On April 4, 2005 terminal of appellant who was carrying on business as a sub-broker from year 1999 was deactivated as the appellant failed to maintain minimum level of net worth inspite of several reminders.

    d) By letters dated April 5, 2005 and April 7, 2005 appellant requested respondent to release the amounts that were deposited as Base Minimum Capital and also by way of fixed deposits.

    e) It is not in dispute that though the trading terminal was deactivated on April 4, 2005, trading membership of the appellant continued and in fact during the period from 2005 to 2009, appellant has paid annual fees payable to the respondent in relation to the trading membership of the appellant. With a view to transfer the above said trading membership appellant on February 9, 2009 sought prior approval from Securities and Exchange Board of India (SEBI for short) and on June 4, 2009 SEBI granted its approval for sale/transfer of membership of the appellant subject to conditions set out therein.

    f) During the period when transfer of membership application dated February 9, 2009 was being processed, appellant declined to pay annual subscription fees towards membership inter alia on ground that since transfer of trading membership is under consideration there is no question of paying annual subscription fee and further there is zero trading due to deactivation of the trading terminal.

    g) SEBI in its approval letter dated June 4, 2009, had specifically stated that security deposit of the appellant-transferor shall not be released by the respondent until the registration was granted to the transferee-broker. It appears that appellant could not complete sale/ transfer of membership and accordingly appellant sought refund of the amount deposited as Base Minimum Capital and as fixed deposit by cancelling the membership of appellant with the respondent. However, membership of appellant could be cancelled by respondent, only after registration of appellant as sub broker of ISS was cancelled. Admittedly on receiving approval for cancellation of registration of appellant as sub broker by competent authority on September 20, 2010, ISS addressed a letter to the appellant on October 11, 2010 specifically stating therein that the cancellation process would be subject to clearing annual fees of respondent amounting to ` 30,826/-.

    h) Thereupon, appellant on October 29, 2010 and on December 2, 2010 submitted various documents for cancellation of membership registration with the respondent, but failed to make payment towards arrears of annual subscription fees.

    i) Notwithstanding, non-payment of dues for the Financial Year 2009-2010 and 2010-2011, respondent forwarded cancellation application of the appellant to SEBI seeking their approval. By a letter dated July 20, 2011, SEBI approved cancellation of trading membership of the appellant with effect from June 29, 2011.

    j) Accordingly, the respondent by its letter dated August 2, 2011 intimated appellant about the cancellation of the membership of the appellant and forwarded a cheque for ` 66,924/- after deducting ` 33,076/- from the Base Minimum Capital deposit amount of ` 1 lac. Amount of ` 33,076/- deducted by respondent represented ` 13,788/- (inclusive of service tax) for each Financial Year 2009-2010 and Financial Year 2010-2011 plus interest on delayed payment of ` 5,500/- (`13,788 + `13788+ ` 5500 = ` 33,076)

    k) After receiving cheque for `66,924/- under protest, appellant have moved various authorities from time to time and ultimately has filed present appeal before this Tribunal seeking to challenge the amount of `33,076/- deducted by the respondent.

    3. Mrs. Dina Parikh, appellant appearing in person submitted that on deactivating the terminal of the appellant in April 2005, business of the appellant came to stand still. Immediately thereafter on April 7, 2005 had sought refund of the amount deposited as Base Minimum Capital with the respondent. Since the said amount was not refunded, appellant met officers of respondent from time to time, however, officers of respondent instead of guiding the appellant properly went on wasting time on some pretext or the other. Since there was no transaction since April 2005, respondent is not justified in demanding annual subscription fees. It is further contended that even in the matter of refunding fixed deposit amount of `50,000/-, ISS had declined to refund entire amount and therefore appellant had to initiate arbitration proceedings, wherein appellant has succeeded. Therefore, in respect of refund of Base Minimum Capital amount, since the respondent has unduly delayed in making refund, it is just and proper to direct the respondent to refund the amount with interest as claimed in the memorandum of appeal.

    4. We see no merit in the above contentions.

    5. Appellants terminal was deactivated in April 2005 on account of failure on part of appellant to maintain minimum level of net worth. Deactivating the terminal does not ipso facto amount to cancellation of the membership of the appellant as registered trading member of the respondent. Consequently, so long as the membership subsists, appellant was obliged to pay yearly membership subscription.

    6. Although, immediately after deactivation of the terminal, appellant had sought refund of amount deposited as Base Minimum Capital, the said demand was without seeking cancellation of membership and therefore, appellant was not entitled to receive the amounts deposited at the time of obtaining trading membership of the respondent and was liable to continue to pay annual membership fee payable thereon. Admittedly, appellant has paid yearly membership subscription fees from 2005 till 2009.

    7. It is only when the yearly membership subscription fee was enhanced by respondent with effect from April 1, 2009, appellant applied for transfer of membership on February 9, 2009 so that liability to pay enhanced yearly membership subscription fees with effect from April 1, 2009 is that of the transferee-broker. SEBI by its communication dated June 4, 2009 granted approval for sale/transfer of membership of appellant subject to the condition, inter alia, that the security deposit of the transferor-broker (appellant) shall not be released until the registration is granted to the transferee-broker.

    8. Admittedly, appellant could not effect transfer of membership and consequently sought cancellation of membership by submitting requisite documents on October 29, 2010 and December 2, 2010. It is relevant to note that appellant was repeatedly informed prior to and subsequent to making application for cancellation of membership, that payment of annual subscription fees for membership was mandatory. However, appellant failed and neglected to pay the same. In these circumstances, decision of the respondent in refunding the Base Minimum Capital amount on receiving approval of SEBI for cancellation of membership, after deducting the annual subscription amount payable upto the date of making application on October 29, 2010 (i.e., Financial Year 2009-2010 & 2010-2011) cannot be faulted.

    9. First contention of appellant in seeking interest on the amount of ` 66,924/- already paid to the appellant is unjustified, because, the said amount has been paid on August 2, 2011 immediately after receiving approval from SEBI for cancellation of the registration of the appellant with effect from June 29, 2011. Since there is no undue delay in refunding that amount from the date of receiving approval of SEBI for cancellation of membership, appellant is not justified in demanding interest on the refunded amount of `66,924/-

    10. Second contention of appellant in relation to demand of ` 33,076/- with interest is equally unsustainable, because, the said amount has been deducted towards yearly subscription payable towards membership fees till the date of making cancellation application on October 29, 2010, as enhanced with effect from April 1, 2009.

    11. Whether the respondent is justified in enhancing the membership fees with effect from April 1, 2009 is neither the question raised in this appeal nor can be gone into in these proceedings. Although appellant had protested against enhancement of membership fees since inception, in the absence of any stay granted by any competent authority appellant cannot escape liability from paying membership fees at the enhanced rate so long as the membership subsists.

    12. No doubt that in view of transfer application made on February 9, 2009, appellant would not have been required to pay enhanced annual membership fees for Financial Year 2009-2010 commencing from April 1, 2009 if transfer of the said membership had taken place, because, in such a case liability to pay membership fees at enhanced rate with effect from April 1, 2009 would have been that of the transferee-broker and not the transferor-appellant.

    13. Admittedly, inspite of approval granted by SEBI, appellant could not complete sale/transfer of membership and hence sought cancellation of membership by making an application on October 29, 2010. Having failed in her venture to transfer the membership, appellant cannot blame the respondent for charging enhanced membership fees from April 1, 2009 till the date of making application for cancellation of membership on October 29, 2010.

    14. Argument of appellant that officers of respondent have not guided her properly is unacceptable, because, a member trading on the exchange cannot feign ignorance in complying with the obligation to pay annual membership fees so long as the membership exists and also obligation to make requisite application for cancellation of membership as and when deemed fit. Therefore, in the facts of present case, where appellant even after deactivation of her trading terminal in April 2005 chose to continue her membership from 2005 till 2009 by paying yearly membership fees from time to time and chose to seek transfer the membership prior to enhancement of membership fees effective from April 1, 2009, is not justified in blaming the respondent in charging annual membership fees for the period from April 1, 2009 because, admittedly transfer deal did not go through and application of cancellation of membership was made on October 29, 2010. Instead of seeking approval for transfer of membership on February 9, 2009 if appellant had sought cancellation of membership by submitting requisite documents, then appellant would not have been required to pay membership fees for the period commencing from April 1, 2009, because, if transfer had taken place, appellant would not have been required to pay annual membership fees from April 1, 2009. Unfortunately, transfer of membership did not go trough and hence appellant chose to make application for cancellation of membership belatedly on October 29, 2010. In these circumstances, no fault can be found with the decision of respondent in demanding annual membership fees till the date of appellant making application for cancellation of membership on October 29, 2010.

    15. Reliance placed by appellant on orders passed in arbitration proceedings is wholly misplaced, because, firstly, in the arbitration proceedings claim of appellant in relation to refund of ` 33,076/- has been expressly excluded (see para 1 of the Award at page 65 of appeal memorandum) and therefore orders passed in arbitration proceedings have no bearing in the present case. Secondly, liability to pay annual membership fees to the respondent cannot be compared with the annual charges payable to the broker, because, liability to pay annual membership fees continues so long as the membership continues, irrespective of any trade is carried or not. Therefore, fact that the appellant has succeeded in the arbitration proceedings or that the annual charges payable to the broker have been waived cannot be a ground to hold that the appellant is not liable to pay annual membership fees at least till the date applied for cancellation of membership, because liability to pay annual membership fees is irrespective of whether trade is actually carried on or not.

    16. For all aforesaid reasons, we see no merit in the appeal and same is hereby dismissed with no order as to costs. Sd/- Justice J.P. Devadhar Presiding Officer Sd/- Jog Singh Member Sd/- A S Lamba Member 18.07.2014 Prepared & Compared By: PK As amended pursuant to order dated 25.07.2014. Sd/- Justice J.P. Devadhar Presiding Officer Sd/- Jog Singh Member Sd/- A S Lamba Member 25.07.2014 Prepared & Compared By: Pk BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision: 25.07.2014 Misc. Application No. 63 of 2014 Appeal No. 122 of 2014 Mrs. Dina Parikh 43, Shreeji Shopping Arcade, M.G. Road, Borivali (E), Mumbai- 400 066 Appellant Versus

    1. Inter Connected Stock Exchange of India Ltd. (ISE) International Infotech Park, Tower-7, 5 Floor, Above Vashi Station, Sector 30A, Vashi, Navi Mumbai- 400 703

    2. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051

    3. National Stock Exchange of India Limited Exchange Plaza, Plot No. C/1, G Block, Bandra Kurla Complex, Bandra (East), Mumbai- 400 051 Respondents None for Appellant. None for Respondent No. 1 Mr. Mihir Mody, Advocate with Mr. Pratham V. Masurekar, Advocate for Respondent No. 2 Mr. Rashid Boatwalla, Advocate for Respondent No. 3 CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member A.S. Lamba, Member Per: Justice J.P. Devadhar (Oral)

    1. By a praecipe it is brought to our notice by counsel for Respondent No. 3 that paragraph 2(a) of our order dated July 18, 2014 contains certain factual errors and therefore it would be just and proper to substitute paragraph 2(a) in the order as follows:- 2(a) Respondent No. 1 is a holding company of ISE Securities and Services Limited. ISE Securities and Services Limited (ISS for short) is wholly owned subsidiary of the Respondent No. 1.

    2. Although the matter is placed on board for speaking to the minutes, none have appeared on behalf of appellant and Respondent No. 1. Since the error pointed out is only a factual error which does not affect the merits of the decision, we deem it proper to direct the Registry to substitute paragraph 2(a) of our order as stated above with immediate effect.

    3. Accordingly, the praecipe filed by Respondent No. 3 is disposed off with no order as to costs. Sd/- Justice J.P. Devadhar Presiding Officer Sd/- Jog Singh Member Sd/- A S Lamba Member 25.07.2014 Prepared & Compared By: PK

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    Dina Parikh v. Inter Connected Stock Exchange Of India Ltd.
    (Jul 18, 2014)