SEBI has moved the Supreme Court seeking adjudication on whether a certificate of registration as stock broker can be directed to be transferred without compliance with the statutory requirements.
"The AP high court has grossly erred in failing to appreciate that the certificate of registration as stock broker cannot be directed to be transferred without compliance with the statutory requirements prescribed under SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, being a special Act having superceding effect over general laws," SEBI said in its special leave petition.
It further said, "Whether SEBI, a statutory board established under the SEBI Act, 1992, could be directed to effect transfer of registration as a stock broker, when neither the Act nor the rules and regulations framed there under provide for such transfer".
One Subrahmanyeswara Rao, on October 30, 1996, had entered into an agreement with Sree Godavari Financial Services, a registered stock broker of Hyderabad Stock Exchange, for transfer of his membership to the stock exchange. On December 15, 1997, he filed a suit before the additional senior civil judge, Vijaywada, seeking specific performance of the agreement.
It was decreed. On July 16, 1998, he moved for the execution of the decree. On October 23, 1998, the court directed SEBI to effect the transfer of certificate of registration as stock broker in favour of the decree holder.
Appealing against it, SEBI approached the AP High Court saying no notice was issued to the market regulator before passing such an order. The high court referred the matter for fresh consideration to the lower court. In February 2003, the court directed SEBI to effect transfer of registration within 3 months.
SEBI then moved the high court saying the provisions of the memorandum and articles of association of Hyderabad Stock Exchange and provisions of the SEBI Act, 1992, do not permit such transfer of membership. The high court, however, dismissed the plea on July 3, 2009.