Fee continuity on corporatisation upheld where qualifying partners became directors, and stricter conditions were rejected.

Paragraph 4 of Schedule III to the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 was construed to allow fee continuity on corporatisation where the prescribed post-conversion director condition was met by qualifying partners of the erstwhile firm. Because two of the four partners became directors in the corporate entity, the regulatory condition was satisfied. A stricter requirement that all partners become whole-time directors was not found in the regulation and could not be imposed. The communication refusing fee continuity was therefore unsustainable, and the appellant was entitled to the benefit sought.

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Issues: Whether the appellant was entitled to fee continuity under paragraph 4 of Schedule III to the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 on corporatisation of the erstwhile partnership firm.

Analysis: Paragraph 4 of Schedule III was construed to require satisfaction of the prescribed conditions where any one of the partners of the erstwhile partnership firm becomes a director in the corporate entity after conversion. On the facts, two of the four partners of the partnership firm were made directors after incorporation of the company. The condition was therefore fulfilled and the refusal of fee continuity on the ground that all the partners did not become whole-time directors was unsustainable.

Conclusion: The appellant was entitled to fee continuity and the refusal was ?

Final Conclusion: The impugned communication declining the benefit could not be sustained and the appellant was entitled to the relief sought.

Ratio Decidendi: Where the governing regulation requires that a partner of the erstwhile partnership become a director after conversion, the condition is satisfied if the stipulated participation is met by any one qualifying partner, and the benefit cannot be denied on a stricter requirement not found in the regulation.

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