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Securities & Exchange Board of India v. ICAP India Pvt. Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 5275 of 2006)Decided 24 Nov 2015
Civil Appeal No. 5275 of 2006
Justice Vikramajit Sen · Justice Shiva Kirti Singh

Background

ICAP India, a stock broker in the wholesale debt market, was asked by SEBI to pay a registration fee of about Rs. 33.5 crore plus interest, calculated on its "annual turnover". ICAP argued that its turnover was only the brokerage it earned, relying on an RBI circular that limited a broker's role in that market. The Securities Appellate Tribunal (SAT) accepted ICAP's argument, and SEBI appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the SAT had erred. The definition of "annual turnover" in the Explanation to paragraph 3 of Schedule III covers the aggregate sale and purchase prices of securities received or receivable by the broker, both on its own account and on its clients' account, not just the brokerage. The Court also held that the legislative history of the lower fee rate for government and similar securities supported this reading, and that the Schedule IV definition could not be used to override the Schedule III wording. The SAT's order was set aside and the case was sent back to the SAT to decide ICAP's other grounds within six months.

Lesson Learnt

Fee and penalty formulas set by a regulator are read according to their defined terms, not the commercial description of the business. A regulated firm cannot assume that a fee base is limited to its commission income without checking how the rules define it.

Official source (sci.gov.in)View Judgment (PDF)

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