Utpal Bhattacharya, Member

1. In this appeal, Sodhani Securities Ltd. (appellant) challenges the order passed by the Securities and Exchange Board of India (the Board, for short) on June 12, 2007 denying the appellant the benefit of fee continuity in terms of paragraph I(4) of Schedule III to the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (the regulations, for short). The facts of the case are simple and undisputed. M/s. Sodhani & Co, a registered partnership firm was a member of the National Stock Exchange (the exchange, for short) and had been in the business of stock broking since November 1994. Four members of the Sodhani family namely, Smt. Mohini Devi Sodhani, Shri Anil Sodhani, Shri Sunil Sodhani and Smt. Shobha Sunil Sodhani held 25% shares each in the partnership firm. In June 1997 the partnership firm corporatised itself as Sodhani Securities Ltd. The Board issued the certificate of registration as a broker in favour of Sodhani Securities Ltd. on 31 March, 1998 and it started its business as a stock broker in April 1998 as a corporate member of the exchange. Meanwhile, on January 21, 1998 the Board had issued the notification regarding exemption from payment of registration fees on corporatisation of individual/partnership membership of the exchange. Reproduced below is paragraph I (4) of schedule III to the regulations which was introduced vide notification dated January 21, 1998 :

Where a corporate entity has been formed by converting the individual or partnership membership card of the exchange, such corporatised entity shall be exempted from the 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 minimum 40% of the 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.

2. At the time of corporatisation of the erstwhile partnership firm, three of the four partners became whole time directors of the company and they continued to hold more than 40 per cent shares for three years since then. The fourth partner, Smt Shobha Sunil Sodhani, remained a shareholder but did not become a director.

3. When the appellant was not granted the fee continuity benefit in terms of paragraph I(4) of schedule III to the Regulations, it came up in appeal no 246 of 2004 before this Tribunal. This appeal was disposed of by the Tribunal alongwith other connected appeals on May 4, 2006 and the operative part of the order reads as under:

Admittedly, the appellants were not heard by the Board before the demand notices were issued claiming registration fee due from them including fee for the period for which exemption is being claimed.

Counsel for the parties are agreed that the demand notices be set aside on this ground and the cases be remitted to the Board for a fresh decision in accordance with law after affording the appellants an opportunity of hearing. We order accordingly.

4. The appellant was heard on January 25, 2007 by the Deputy General Manager of the Board who was appointed by the Chairman of the Board to dispose of the appellants claim. She noted in her order dated June 12, 2007 that the conditions required to be fulfilled by converted corporatised entities for grant of exemption from the payment of fees for the period for which the erstwhile entity had already made payment, were elaborated in the circular No. SMD/DBA-II/CIR-22/2002 dated September 12, 2002 issued by the Board. This circular stipulates that in order to get the benefit of Clause I (4) of schedule III to the regulations all erstwhile partner(s) should be whole time directors in the corporate entity so formed and the whole time director shall individually (in case there in one whole time director) or jointly (in case there are more than one whole time directors) have to hold at least 40% of the paid up equity capital of the corporate entity formed for a period of at least three years from the date of such conversion. The Deputy General Manager of the Board held that since the appellant did not satisfy this condition, the benefit of fee exemption could not be extended to it.

5. The learned counsel for the appellant argued before us that by the clarificatory circular of September12, 2002 the scope of the benefit conferred by the notification dated January 21, 1998 was changed so as to require directorship for all erstwhile partners. No such condition existed on 31 March, 1998 when the appellant got registered with the Board as a corporatised stock broker. The same argument had been advanced before the Board at the time of hearing and rejected by the latter in the impugned order in the following words:

Partnership is an association of two or more persons, to carry on as co-owners a business for profit. Thus, in a partnership there are two or more persons. The expression "erstwhile partner" in clause 4 of Schedule III could have been interpreted as claimed by SSL that the word partner need not mean all partners, if the expression would have read as follows: subject to the condition that the erstwhile individual/any one of the partner/majority of the partners of the erstwhile partnership firm, as applicable, shall be the whole time Director of the corporate member so converted... However, the expression does not read as so in the statute. Though ideally, (s) should have been added after the word partner in clause 1(4) of Schedule III, however, grammatical errors can not vitiate a statute. If the intent of the statute was to give exemption from payment of registration fees to the corporate entity, if any one of the erstwhile partners or majority of the erstwhile partners satisfy the whole time directorship clause, it would have been clearly stated as so in the statute. In absence thereof, erstwhile partner would refer to all partners in the erstwhile partnership firm in view of the aforesaid explanation.

6. We do not agree with the above reasoning. The expression the erstwhile individual or partner shall be the whole time Director of the corporate member so converted and such Director will continue to hold minimum 40% of the shares would, on a plain reading, indicate that the erstwhile partner had to become the whole time Director and that the reference was to any one of the partners. This was the view taken by this Tribunal in Punit Capital and Debt Market Pvt. Ltd and Ors. v. Securities and Exchange Board of India Appeal No.169 of 2004 decided on 4.5.2006 where it was held that ....A bare reading of paragraph 4 of Schedule III would make it clear that the conditions enumerated in this paragraph are satisfied if any one of the partners of the erstwhile partnership firm becomes a director in the corporate entity after its conversion. The argument based on the Boards notification dated September 12, 2002 in the present appeal which was not urged in appeal no 169 of 2004 does not result in any change in our view because the appellant had got incorporated in 1997 and even got registered with the Board as a corporate entity on March 31, 1998 much before the issue of the circular of September 12, 2002. This circular cannot have any retrospective operation. Even before the circular was issued, the appellant appointed three out of four erstwhile partners as whole time directors at the time of incorporation and their combined shareholding was more than 40% and remained so for more than three years after incorporation. In our view, the appellant satisfies the criteria for fee exemption contained in paragraph I(4) of schedule III to the regulations. The stricter criterion of every partner having to be a whole time director of the newly formed corporate entity can not, as we have held, be derived from paragraph I(4) of schedule III to the regulations and since introduction of such a criterion could not possibly be anticipated at the time of incorporation and registration of the appellant, there can not be any case for the Board to enforce it vis--vis the appellant. We have taken a similar view in Magnum Equity Services Ltd. and Anr. v. Securities and Exchange Board of India and Anr. Appeal No.146 of 2007 decided on 23.1.2008. We accordingly allow the appeal, set aside the impugned order and hold that the appellant is entitled to the benefit claimed. No order as to costs.