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Supreme Court of India’s interpretation for registration and transfer of membership of stock brokers

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The Supreme Court of India on March 20, 2023 in the matter of  GPSK CAPITAL PRIVATE LIMITED (Formerly known as Mantri Finance Limited) v. Securities And Exchange Board Of India decided on the issue of whether a single registration with SEBI is sufficient for a stockbroker to operate on multiple stock exchanges, and secondly whether a stock broker is entitled to fee continuity benefits provided under SEBI (Stock Brokers and Subยญ-Brokers) Regulations, 1992 (โ€œStock Broker Regulationsโ€) in case of transfer of membership benefit from one trading member to another trading member.

With respect to the first issue, SEBI itself had filed a separate appeal in the Supreme Court of India where the Court held that the issue was not res integra in view of the judgement in SEBI v. National Stock Exchange Members Association. In the matter, the Supreme Court of India had held that a stock broker should obtain a certificate of registration from SEBI for each of the stock exchange where it operates. Therefore, the Supreme Court of India reaffirmed its earlier order and disposed off the Appeal.

Further, the Appellant, Mantri Finance Ltd., was registered with SEBI as a stock broker and also held membership as a stock broker with National Stock Exchange of India Limited. Thereafter, the Appellant on obtaining a stock broker membership card of Calcutta Stock Exchange from an individual, Srikant Mantri, claimed exemption from payment of fees for the period for which its erstwhile individual member had already paid fees. However, the claim was rejected by both, SEBI and SAT, and was eventually upheld by the Supreme Court of India in the present order. It was held that the Appellant did not satisfy the conditions of clause (4) of Schedule III of the Stock Broker Regulations which provide for exemptions from payment of membership fee for a stock broker. The Supreme Court of India observed that Srikant Mantri, the person whose membership card was transferred to the Appellant, was not a whole-time director but only a director at the time of the transfer. Additionally, the Supreme Court of India observed that there was no clarity as to the date on which Srikant Mantri had acquired 40% shareholding in the Appellant company. Thus, the exemptions provided under Stock Broker Regulations are not applicable.

The order of the Supreme Court of India is important to understand registration and transfer of membership of stock brokers.

The order in enclosed for the reference of the Readers.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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