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CASE NO.:

Appeal (civil) 2565 of 2005

PETITIONER:

Veneet Agrawal

RESPONDENT:

Union of India & Others

DATE OF JUDGMENT: 31/10/2007

BENCH:

ASHOK BHAN & V.S. SIRPURKAR

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NO(S).7574 OF 2005

BHAN, J.

1. This judgment shall dispose off Civil Appeal No. 2565 of

2005 directed against the judgment of the High Court of Bombay

in Writ Petition No. 1414 of 2004 dated 29.06.2006 and Civil

Appeal No. 7574 of 2005 directed against the judgment of the

High Court of Uttaranchal at Nainital in Civil Misc. Writ

Petition No. 606(M/B) of 2002 dated 17.10.2003. The point

involved being the same, the appeals are disposed off by a

common order.

2. By the impugned judgments, the High Court of Bombay and

Uttaranchal have upheld the vires and constitutionality of

SEBI (Stock Brokers and Sub Brokers) Rules and Regulations,

1992 (for short \023the Rules & Regulations of 1992). The facts

are taken from Civil Appeal No. 2565 of 2005. Although in the

writ petition several other points were also taken but at the

time of argument before the High Court, the learned counsel

appearing for the writ petitioners confined his submissions to

the question of vires of the rules and regulations only.

3. Principal challenge to the Rules & Regulations of 1992 is

based on the contention that the Rules & Regulations were not

laid before each Houses of the Parliament as mandated by

Section 31 of the Securities and Exchange Board of India Act,

1992 (for short \023the Securities and Exchange Act). It will

therefore be essential to reproduce Section 31 of the said Act

as the entire argument is placed on the requirement of the

said Section. Section 31 reads as under:

"Rules and regulations to be laid before

Parliament.--Every rule and every regulation

made under this Act shall be laid, as soon

as may be after it is made, before each

House of Parliament, while it is in session,

for a total period of thirty days which may

be comprised in one session or in two or

more successive sessions, and if, before the

expiry of the session immediately following

the session or the successive sessions

aforesaid, both Houses agree in making any

modification in the rule of regulation or

both Houses agree that the rule or

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regulation should not be made, the rule or

regulation shall thereafter have effect only

in such modified form or be of no effect, as

the case may be; so, however, that any such

modification or annulment shall be without

prejudice to the validity of anything

previously done under that rule or

regulation."

4. SEBI is a regulatory body which has been established

under the SEBI Act with the objective of protecting the

interest of investors in the securities and of promoting the

development of and to regulate, the securities market and for

matters connected therewith or incidental thereto. Under

Section 29 of the SEBI Act, the Central Government is

empowered to frame rules for carrying out the purposes of the

Act. Under Section 30 of the SEBI Act, the SEBI is empowered

to frame regulations consistent with the SEBI Act and the

rules made thereunder to carry out the purposes of the Act.

Section 31 of the SEBI Act, however, provides that every rule

and regulation made under the Act would be required to be laid

before each House of the Parliament, while it is in session,

for a total period of 30 days which may comprise in one

session or two or more successive sessions. It is further

provided therein that if after such laying, both the houses

agree that the rules/regulations should not be made then the

same would be of no effect. In case, if both the Houses agree

in making any modification in the said rules or regulations,

then the rules or regulations shall have effect only in such

modified form. However, any such modification or annulment

shall be without prejudice to the validity of any act

previously done under that rule or regulation.

5. Before proceeding further, it may be mentioned that under

Regulation 10 of the SEBI Act, 1992, the Registration fee is

levied on the annual turnover of the stock brokers and sub

brokers. Levy of turnover fee as well as the vires of

Regulation 10 was challenged in different high courts by

filing writ petitions soon after the said regulation came into

force. In a transfer petition filed by the SEBI before this

Court for consolidating the said cases, this Court had

transferred one such petition from the Bombay High Court to

this Court while staying the other cases pending before the

various high courts. After hearing the said case, this Court

upheld the vires of Regulation 10 of SEBI Regulation as well

as the levy of turnover fee. This Court while deciding the

said case, had also taken into consideration the \023Bhatt

Committee report\024 which had been submitted by an expert

committee constituted by SEBI to examine the issue of turnover

fee. This is reported as 2001 (3) SCC 482, BSE Brokers Forum,

Bombay and others V. SEBI. On the basis of the judgment

rendered by this Court, all other similar writ petitions

pending in the various high courts were disposed off. Having

failed in their challenge to the levy of turnover fee, the

brokers and sub brokers have been repeatedly filing petitions

on one or other grounds while their actual grievance is the

turnover fee imposed by the Regulation 10 which has been

upheld by this Court. In the writ petition from which the

present appeal arises, similar attempt has been made.

6. In the present case, rules and regulations in question

were laid on the table of the Lok Sabha on 27.11.1992 while on

the table of the Rajya Sabha on 16.12.1992. The copies of the

proceedings in both the Houses showing the tabling of the said

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rules and regulations in both the Houses have been annexed.

Both the Houses were adjourned sine die on 23.12.1992 and

later on prolonged. New session of both the Houses of

Parliament started on 22.2.1993. It is submitted on behalf of

the appellant that the rules and regulations in question are

ultra vires on the ground that they were not laid before both

the Houses for a total period of 30 days, as required under

Section 31.

7. It is submitted on behalf of the appellants that all the

proceedings pending in both the Houses lapsed after the

adjournment of the House sine die and since the rules and

regulations were not re-laid either in the Lok Sabha or in the

Rajya Sabha after the calling of the new session, the

procedure mandated under Section 31 of the SEBI Act was not

complied with. It is also submitted that, for these reasons

the rules and regulations were illegal and ultra vires of the

SEBI Act as also the provision of the Constitution of India

and consequently all the actions, orders and directions issued

by the respondent against the petitioner under the said rules

and regulations were illegal and liable to be quashed.

8. It is important to mention here that the laying of the

rules/regulations framed under a particular statute for a

specific period which that particular statute may warrant is

governed by the Rules of Procedure and Conduct of Business in

Lok Sabha given in Parliamentary Procedure Volume 2, page

1107. The Rule 234 of the said Rules which is relevant in the

present case is reproduced hereunder:-

\023Rule 234. Laying of Regulations, Rule etc.

on table:

(1) Where a regulation, rule, sub rule,

bye laws etc. framed in pursuance

of the Constitution or of

Legislative functions delegated by

parliament to a subordinate

Authority is laid before the House,

the period specified in the

Constitution or the relevant Act

for which it is required to be laid

shall be completed before the House

is adjourned sine-die and later

prorogued unless otherwise provided

in the constitution or the relevant

Act

(2) Where the specified period is not

so completed, the regulation, rule,

sub rule, bye law etc. shall be re-

laid in the succeeding session or

sessions until the said period is

completed in one session.\024

9. From the perusal of the above mentioned rule, it is clear

that Rule 234 (1) is applicable in the facts and circumstances

of the present case. Wherever the period required to be

completed under the statute under which a rule or regulation

may have been framed has to be completed in one session only,

sub clause 2 of Rule 234 would not apply. In the present

case, the rules and regulations in question have been framed

under Section 31 of the SEBI Act. The said Section of the

SEBI Act clearly provides that the requisite period of 30 days

for which a rule or regulation framed under the Act is

required to be laid before the Houses may be completed in one

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session or in two or more successive sessions. It further

provides that if both the Houses agree to make any

modification or reject the said rule/regulation then the

rule/regulation would be enforced in the said modified form or

would be annulled in accordance with the decision of the

Houses.

10. In addition to the above, Rule 234 of Rules of Procedure

of Conduct of Business in Lok Sabha has been further clarified

in para 2.4 of the Book of Parliamentary Procedure Volume 2,

page 1701 where it has been clearly stated as under:-

\0232.4 Where a statue provides that the Rule

framed thereunder should be laid on the

table for a certain period which may be

comprised in one session or two or more

sessions, it is not necessary for the Rules

to be formally re-laid in the next session

in order to complete the prescribed period.\024

11. We do not find any substance in the submission made by

the Counsel for the appellant. Section 31 permits the

requisite period of 30 days to be completed in one or more

sessions. As per Rule 234 of the Rules of Procedure and

Conduct of Business in Lok Sabha, the rules were required to

be placed before both the Houses of Parliament for a specified

period and if the House is adjourned sine die and later

prorogued, the procedure has to be completed in one or more

sessions, unless otherwise provided under the Constitution or

the relevant Act. In the present case, Section 31

specifically provides that the Bill has to be placed before

both the Houses for a period of thirty days which may be

comprised in one session or in two or more successive

sessions. The regulation, rule, sub-rule, bye law etc. have

to be re-laid in the succeeding session or sessions until the

said period is completed in one session. Rule 234, as noted

above, has been clarified by para 2.4 of the Book of

Parliamentary Procedure. Where the statute provides that the

rule framed thereunder should be laid on the table for a

certain period which may be comprised in one session or two or

more sessions, it is not necessary for the rules to be

formerly re-laid in the next session in order to complete the

prescribed period. Section 31 permits the requisite period of

30 days in one or more sessions. There was no necessity to

re-lay the rules before the Parliament in the next session as

per parliamentary procedure.

12. This position has been further clarified by the Rajya

Sabha Secretariat in its letter dated 9.10.2002 wherein the

Secretariat has clarified that in the case of rules and

regulations in question under Section 31 of the SEBI Act, no

relaying was necessary as the statute permitted the requisite

period of 30 days to be completed in one or more sessions and

therefore, the rules/regulations in question after having been

initially laid are deemed to lie in the succeeding sessions

till the specified period is completed. Besides this the

Ministry of parliamentary Affairs vide its letter dated

9.10.2002 further clarified that no modification/rejection of

the regulations and rules in question was done by either

House. The requirement of Section 31 of the SEBI Act has been

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met with, the rules and regulations in question cannot be

declared ultra vires on this ground.

13. This apart the issue relating to the laying down of

rules/regulations on the table of the Houses for the period

provided under the statute under which they are so framed has

been dealt with by this Court in various cases. Some of these

cases are Jan Mohammad Noor Mohammad Bagban V. The State of

Gujarat & Another, 1966 (1) SCR 505, M/s. Atlas Cycle

Industries Limited & Others V. The State of Haryana, 1979 (2)

SCC 196, Hukum Chand V. Union of India, 1972 (2) SCC 601, and

Bank of India etc. etc. V. O.P. Swarnakar & Others etc. etc.,

2003 (2) SCC 721. In a recent judgment, this Court followed

the view taken in M/s. Atlas Cycle Industries Limited\022s case

(supra) and Prohibition & Excise Suptd., A.P. & Ors. V. Toddy

Tappers Cooperative Society, Marredpally and Others, 2003 (12)

SCC 738.

14. In all these cases, the issue relating to laying down and

interpretation of the said regulation was examined. It has

been held in all these cases that the laying of the rule

before both the Houses of Parliament is merely a directory

rule and not mandatory. In the Case of O.P. Swarnakar &

Others (Supra), the provision providing for laying the rules

before the Legislative was exactly similar to Section 31 of

the SEBI Act. It was also held by this Court that the said

provision was directory and not mandatory. The non-compliance

with the laying of the rule before the Parliament was not a

sufficient ground to declare the rules/regulations framed

under the statute as to be ultra vires. In Toddy Tappers

Cooperative Society\022s case (supra) Hon\022ble Mr. Justice Sinha

in his concurring judgment following the decision in Atlas

Cycle Industries Limited\022s case (supra) and Quarry Owners\022

Association V. State of Bihar, 2000 (8) SCC 655 and various

other judgments, distinguishing the judgment in Union of India

V. National Hydroelectric Power Corporation Limited, 2001 (6)

SCC 307, (which has been relied upon by counsel for the

appellant before us as well) has held as under:-

\023The said observations, thus, must be held to be

confined to the fact of the matter obtaining

therein. In that case it was found as of fact

that the rule had never been placed before the

Legislature and, thus, there was even no

substantial compliance with the law. The Bench,

however, did not consider the effect of the

directory nature of such a provision, in the

light of the decision of this Court in Atlas

Cycle Industries (supra) and Quarry Owners'

Association (supra). The Court further did not

notice the difference between the expressions

'approval' and 'permission'. Section 16 of the

Water Act, construction whereof was in question

did not use the expression 'prior approval'. The

word 'approval' indicates an Act which has

already been made and is required to be approved

whereas in the case of 'permission', the

situation would be different. This aspect of the

matter has been considered by this Court in High

Court of Judicature for Rajasthan v. P.P. Singh

and Anr, 2003 (4) SCC 239 stating : (SCC p. 255,

para 40)

"40. When an approval is required, an

action holds good. Only if it is

disapproved it losses its force. Only

when a permission is required, the

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decision does not become effective till

permission is obtained. (See U.P. Avas

Evam Vikas Parishad and Anr. v. Friends

Coop. Housing Society Ltd and Anr.

[(1995) Supp (3) SCC 456], In the

instant case both the aforementioned

requirements have been fulfilled."

15. It was observed that provision was merely directory and

not mandatory and even if the rules were not laid before the

House at all even then the non-compliance with the laying down

of the rules before the Parliament could not be a ground to

declare the rules/regulations framed under the statute as

ultra vires.

16. Although in the present case the rules were laid before

both the Houses as required under Section 31, as discussed in

the earlier paragraph of the judgment but even if it is

assumed that the rules/regulations in question did not

complete the requisite period of 30 days, the provisions of

Section 31 of the SEBI Act not being mandatory and merely

directory, as has been held by this Court in the

aforementioned cases, the rules/regulations cannot be held to

be ultra vires on the ground of non-completion of 30 days

period after laying of the rules before both the Houses of

Parliament.

17. Respondents with their reply have placed on record the

three judgments of Delhi High Court in CWP No. 2942 of 2003

dated 18.9.2002, CWP No. 6920 of 2003 dated 3.11.2003 and CWP

No. 2876 of 2001 dated 22.2.2002, wherein a challenge was

raised to the rules and regulations under challenge was

rejected. Counsel for the appellant appearing before us had

also appeared before the Delhi High Court in the said writ

petition. In CWP No. 6920 of 2003, counsel who is appearing

for the appellant in the present case had appeared before the

High Court of Delhi as well. This writ petition was dismissed

by the High Court by imposing cost of Rs.15,000/- by observing

thus:-

\023Once the Regulations are declared to have

been validly made, then, it is not open to

argue that it was not examined from a

particular angle and, therefore, the Court

should examine it again. It is not

appropriate to ask the Court to presume that

the Court while examining the matter was not

aware about the provisions contained in law

and, more particularly, when the Division

Bench of this Court had examined the matter

from the same angle. It is in view of this,

we dismiss this petition with costs which we

quantify at Rs. 15,000/- which shall be

deposited with the Delhi Legal Aid Service

Authority within two weeks from today.\024

18. Although the writ petitioner in the present case is

different but the repeated attempts are being made to get the

rules/regulations invalidated. This has been adversely

commented upon by the High Court of Delhi. Once the

regulations are declared to have been validly made then it is

not open to the counsel for the appellant to argue that the

same was not examined from a particular angle and the court

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should re-examine it again. It is especially so, when the

counsel who is appearing before us had appeared in the earlier

cases as well.

19. For the reasons stated above, we do not find any merit in

these appeals and the same are dismissed with costs which are

assessed at Rs. 20,000/- in each of the appeals.