TMI Blog2015 (12) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... ing behind only the Whole-time Director who was also an erstwhile partner. In our opinion the said corporate entity will still be eligible for the benefit of fee continuity under Paragraph I(4) of Schedule III of the Regulations. 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. The same benefit would also be extended to erstwhile partners who after corporatization jointly retain at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 members. We must again hasten to clarify, that it is not the Appellant s case that the equity holding of the three continuing Whole-time Directors had fallen below the 40 per cent criterion. Magnum also claimed the benefit of the fee which the Firm had paid earlier to SEBI. This claim was made on the ground that the earlier business carried on by the Firm had been transferred to Magnum a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lliance 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 disqualified Magnum from the benefit of fee continuity. The Tribunal referred to Punit Capital Debt Market Pvt. Ltd. Vs. Securities and Exchange Board of India in Appeal No. 169 of 2004 decided on 4.5.2006, where the Tribunal had interpreted Paragraph I(4) and had held that the conditions enumerated in the said Paragraph would stand satisfied if one of the partners of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 comprised the partnership firm at the time of corporatization would have to remain part of the corporate entity for at least three years post conversion. Further, the exit of any partner other than due to death shall amount to altering the nature of the entity which is not in keeping with the spirit of continuity as envisaged by the provision. Counsel further contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes (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 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 or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Whole-time Directors. In other words, if there are five partners, of which three partners subsequent to corporatization jointly hold 40 per cent of the shares of the paid-up equity capital and are also the Whole-time Directors of the company, then the departure of the other two erstwhile partners will not deny the corporate entity the benefits of fee c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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