The Supreme Court of India recently clarified that the term ‘annual turnover’ cannot be restricted only to the amount earned by the stock broker vide brokerage while computing the registration fee of stock brokers payable to Securities and Exchange Board of India.
The Court said that the annual turnover cannot be limited only to the amount of brokerage earned by a broker. “The earning by way of brokerage represents only the part of price of securities received by the stock broker on his own account. The other and more significant part of the ‘annual turnover’ is the aggregate of the sale and purchase prices of securities, received or receivable by the stock broker on account of his clients in respect of sale and purchase or dealing in securities during the financial year.”
“The error lies in not appreciating that the component of aggregate of sale and purchase prices which is receivable by the stock broker even on account of his clients is included in the annual turnover. Such sale and purchase price receivable by the stock broker on account of his clients, under the directions of the RBI through the circular dated June 20, 1992 presently goes directly to the seller but it is of no significance. Even if such sale and purchase price had actually been received by the stock broker not on his own account but on account of his clients, it could not belong to the broker and had to be passed on to the seller because such amount was receivable clearly on account of his clients in contradistinction to any part of sale and purchase price received or receivable by the stock broker on his own account. Thus viewed, the annual turnover of the stock broker as per the Explanation must include the value of entire transaction for the purpose of computing the registration fee as per Schedule III of the Regulations [Securities & Exchange Board of India (Stock Brokers & Subbrokers) Regulations, 1992]. In no case the term ‘annual turnover’ can be so interpreted as to mean only the amount earned by the stock broker by way of brokerage,” the Apex Court opined.