9911796707
TMI Blog2015 (12) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... (NSE). All the seven partners moved a conjoint application for registration of a company under the Companies Act, 1956, during the pendency of which one of the partners exited from the Firm. The company was incorporated on 22.5.1995 consisting of the remaining six partners, in the name and style of Magnum Equity Services Limited (hereinafter referred to as Magnum). There has not even been a semblance of a debate that the six partners had less than 40 per cent shareholding in the firm and/or that they do not hold forty per cent of the equity of Magnum. All the remaining erstwhile partners became the Whole-time Directors of Magnum. In pursuance to an application filed by the Firm, NSE transferred the membership card of the Firm to Magnum on 25.4.1996. Thus Magnum became a member of NSE with effect from 25.4.1996. Subsequently, the Company applied to the Securities and Exchange Board of India (SEBI) for registration as a stock broker, which request was granted on 29.5.1997. After being registered as a stock broker, Magnum commenced its broking business. In December 1997, three Directors resigned from Magnum and transferred their shares to the remaining Directors and their family memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by those stock brokers who corporatized themselves prior to 21.1.1998, SEBI issued the Circular dated 28.3.2002 which extended the benefit to stock brokers who converted themselves into corporate entities between 1.4.1997 and 21.1.1998. The stock brokers who had corporatized prior to 1.4.1997 and who had been denied the fee continuity benefit challenged the said Circular in Alliance Finstock Ltd. v. Securities and Exchange Board of India in Appeal No. 123 of 2004 decided on 9.5.2006, wherein the Tribunal had held that the benefit of fee continuity be given even to those entities which corporatized themselves prior to 1.4.1997. It transpires that this view has attained finality, in terms of the decision of this Court in C.A. No.4493 of 2006, SEBI v. Alliance Finstock Ltd. (2015) 12 SCALE 271 4. The other issue which was a ground for refusal of the fee continuity benefit was that at the time of incorporation of Magnum, viz. 22.5.1995, it consisted of six members all of whom were erstwhile partners of the Firm and were also the Whole-time Directors of Magnum. However in December 1997, three out of the six erstwhile partners left. According to SEBI, the exit of these three partners di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002. Aggrieved by the said Order, Sodhani Securities Ltd. filed an Appeal before the Tribunal which, on 29.1.2008, held in favour of Sodhani Securities Ltd. stating that a plain reading of the Regulation indicates that "the erstwhile partner" had to become "the Whole-time Director" and that the reference was to any one of the partners. The Tribunal also referred to and applied Punit Capital and Debt Market Pvt. Ltd.; it reiterated that the Circular dated 12.9.2002 was not retrospective. Thus, as Sodhani Securities Ltd. got itself registered with SEBI as a corporate entity on 31.3.1998, which was well before the date of the Circular, viz. 12.9.2002, it had no applicability or relevance to Sodhani Securities Ltd. Further, the Tribunal observed that a similar view had been taken by the Tribunal in the case of Magnum Equity Services Ltd. 6. Learned Senior Counsel for the Appellant has relied on Section 13 of the General Clauses Act, 1897, sub-section (2) of which provides that singular includes plural and vice versa. In light of this provision, Counsel has submitted that the term "partner" as used in Paragraph I(4) of Schedule III implies 'partners', and that all the partners who com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral Clauses Act itself is applicable to the SEBI (Stock Brokers and Sub- Brokers) Regulations 1992. Section 3 of The General Clauses Act, 1897 states that the said Act is applicable to all Central Acts and Regulations made after the commencement of this Act. Further, the term Central Act has been defined under sub-section (7) as an Act of Parliament, which includes (a) an Act of the Dominion Legislature or of the Indian Legislature passed before the commencement of the Constitution, and (b) an Act made before such commencement by the Governor-General in Council or the Governor-General, acting in a legislative capacity. The SEBI (Stock Brokers and Sub-Brokers) Regulations 1992 are issued by SEBI in exercise of the powers conferred on it under Section 30 of the SEBI Act, 1992. Section 31 of the SEBI Act, reproduced below for the facility of reference, provides that Rules and Regulations are 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 ses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said corporate entity will still be eligible for the benefit of fee continuity under Paragraph I(4) of Schedule III of the Regulations. 12. In order to qualify for the benefit of the said provision, there is a two-fold requirement. First, the corporate entity must earlier have been either a sole proprietorship or a partnership. Second, an erstwhile partner should own at least 40 per cent of the paid-up equity share capital and should also be the Whole-time Director of the company, for a minimum period of three years. Alternatively, erstwhile partners who together hold at least 40 per cent equity must remain Whole-time Directors for a minimum of three years. Thus the subsequent entry or exit of partners to and from the original partnership firm would have no relevance on the entitlement of the newly formed corporate entity to take advantage of the benefit not only of fee continuity under the said provision but also fillip to the growth of the corporate sector and the national economy. 13. The same benefit would also be extended to erstwhile partners who after corporatization jointly retain at least 40 per cent of the paid-up equity capital of the corporate entity and were its W ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
