- (1.) These Appeals assail the decisions of the Securities Appellate Tribunal (for brevity 'Tribunal') dated 23.1.2008 and 29.1.2008, both of which reversed the Order dated 12.6.2007 of Securities Exchange Board of India (SEBI) declining to grant fee continuity to the Respondents before us. In these Appeals SEBI seeks to reaffirm its stance that the Respondents lost all entitlement to the advantage of fee continuity, no sooner any of the erstwhile partners ceased to be Whole-time Directors of the corporate entity which was the metamorphosed partnership firm. C.A. No. 4719 of 2008.
(2.) Magnum Capital Services (hereinafter referred to as the Firm) was a registered partnership firm, comprising of seven partners, carrying on business as a stock broker; and was a member of the National Stock Exchange (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 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 and as a result there was continuity of that business. SEBI rejected this claim vide Order dated 12.6.2007 on the predication that only three out of the seven partners of the firm continued as its Whole-time Directors for the mandatory period of three years, which was in contravention of the conditions laid down in Paragraph I(4) of Schedule III of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (Regulations for brevity). For the facility of reference, Paragraph I(4) is reproduced below: "4. Where a corporate entity has been formed by converting the individual or partnership membership card of the exchange, such corporate entity shall be exempted from payment of fee for the period for which the erstwhile individual or partnership member, as the case may be, has already paid the fees subject to the condition that the erstwhile individual or partner shall be the whole time director of the corporate member so converted and such director will continue to hold a minimum of 40 per cent shares of the paid-up equity capital of the corporate entity for a period of at least three years from the date of such conversion. Explanation It is clarified that the conversion of individual or partnership membership card of the exchange into corporate entity shall be deemed to be in continuation of the old entity and no fee shall be collected again from the converted corporate entity for the period for which the erstwhile entity has paid the fee as per the regulations."
(3.) Aggrieved by the said Order, Magnum appealed before the Tribunal. The Tribunal observed that Paragraph I(4) in Schedule III of the Regulations was introduced on 21.1.1998. It provided for exemption from payment of fee where a corporate entity was formed by conversion of the individual or partnership card of the exchange. The Tribunal noted that the benefit of this provision was initially only given to those who corporatized on or after 21.1.1998. However, on representations made 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;