N.K Sodhi, Presiding Officer:— Whether stockbrokers who have converted their individual/partnership membership into a corporate entity prior to April 1, 1997 are entitled to the fee continuity benefit in terms of paragraph 4 of Schedule III to the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter called “the Regulations”) is the short question that arises for consideration in this bunch of 67 appeals filed by the stock brokers under Section 15-T of the Securities and Exchange Board of India Act, 1992 (for short “the Act”) challenging the action of the Securities and Exchange Board of India (for short “the Board”) denying them the said benefits. Since the answer to the question involved depends upon to the interpretation of the Regulations, the facts in so far as they are necessary are being noticed. The arguments were addressed in appeal no. 123 of 2004 and therefore the facts are being taken from this case.

2. Appellant no. 1 is a company incorporated under the provisions of Companies Act, 1956 and a registered member broker of the Bombay Stock Exchange (for short “the BSE”) and the second appellant is its wholetime director and shareholder. Appellant no. 2 was previously member of BSE in his individual capacity and was registered as a broker on 26/11/1992. He then formed a company and carried on the broker's business under the name and style of Alliance Finstock Limited (appellant no. 1) which was registered in the year 1996 under the Companies Act, 1956. BSE approved the conversion of membership of the second appellant to corporate membership on 09/07/1996 and the Board registered the first appellant as a corporate member of the BSE on 10/10/1996. The certificate of registration issued by the Board is on the record.

3. The Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Rules, 1992 provide that no stockbroker or sub-broker shall buy, sell, deal in securities unless he holds a certificate granted by the Board under the Regulations. These rules further provide the conditions for grant of certificate of registration to a stockbroker and one of them is that he shall pay the amount of fees for registration in the manner provided in the Regulations.

4. Regulation 10 provides that every applicant eligible for the grant of a certificate shall pay such fees and in such manner as is specified in schedule III to the Regulations. Since the answer to the question posed in the earlier part of the order depends upon the interpretation of paragraph 4 in schedule III the same is reproduced hereunder along with some other relevant paragraphs:

“I. Fees to be paid by the Stock Broker.

1. Every stock broker shall subject to paragraphs 2 and 3 of this Schedule pay registration fees in the manner set out below:

(a) where the annual turnover does not exceed rupees one crore during any financial year, a sum of rupees five thousand for each financial year;

(b) where the annual turnover of the stock-broker exceeds rupees one crore during any financial year, a sum of rupees five thousand plus one hundredth of one per cent of the turnover in excess of rupees one crore for each financial year;

(bb) ………………….

(c) after the expiry of five financial years from the date of initial registration as a stock-broker, he shall pay a sum of rupees five thousand for every block of five financial years commencing from the sixth financial year after the date of grant of initial registration to keep his registration in force.

2. Fees referred to in clauses (a) and (b) of paragraph 1 above shall be paid—

(a) in respect of the financial year 1992–1993 within one month of the commencement of these regulations;

(b) in respect of the financial year beginning on the 1 day of April, 1993 and the following financial years, on or before the first day of October of the financial year to which such payment relates, and such fees shall be computed with reference to the annual turnover relating to the preceding financial year.

3. ………….

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.

4A. …………….

5. If a stock broker fails to remit fees in accordance with Paragraphs 1 and 2, he shall be liable to pay interest at 15% per annum for each month of delay or part thereof:

Provided that the liability to pay interest as aforesaid may be in addition to any other action which the Board may take as deemed fit against the stock broker under the Act, or the Regulations:

Provided further …………..

II. ………………

III. Manner of Fees to be paid.

The fees specified above shall be paid on or before the 1 day of October each year payable by draft in favour of “The Securities and Exchange Board of India” at Bombay, or at the respective regional office”.

5. A reading of the aforesaid provisions would make it clear that where an individual or partnership member of an exchange has been converted into a corporate entity and there is continuity in its business activities the registration fee paid by the individual or partnership prior to corporatisation shall be exempted in the hands of the corporate entity for the period for which it has already paid subject to the fulfillment of other conditions referred to in paragraph 4 of schedule III to the Regulations. The explanation to paragraph 4 clarifies that the conversion of individual or partnership membership into corporate entity shall be deemed to be in continuation of the old entity and no fee shall be collected again from the corporate entity for the period for which the erstwhile entity had paid the fee. This paragraph does not prescribe any date with effect from which the benefit is to be given. The policy of the government and that of the Board has been to encourage the individuals and other members of the exchanges to corporatise themselves with a view to bring about more transparency in their functioning. It is in this background that paragraph 4 in schedule III was inserted with effect from 21.1.1998 to exempt the corporate entity from paying fee to the Board for the period for which it had already been paid by the individual or partnership prior to its conversion. It provides that when an individual or a partnership converts itself into a corporate entity, it shall be exempted from payment of registration fee for the period for which the erstwhile individual or partnership has already paid that fee. The words “where a corporate entity has been formed ……..” as used in paragraph 4 leave no room for doubt that every individual or partnership member of the exchange which stood corporatised on the date of coming into force of paragraph 4 and thereafter would be entitled to claim the benefits thereof. It is relevant to mention that paragraph 4 was inserted by the Board with effect from 21/01/1998. It is thus clear that all such individuals and partnerships which had been converted as on 21/01/1998 would be entitled to claim the benefits provided, of course, they satisfy the other conditions. It is not in dispute that those who get corporatised after this date would, in any case, get the benefit. The Board, however, denied this benefit to all such corporate entities which were formed prior to 01/04/1997. It is not understandable as to how the benefit of paragraph 4 could be restricted to entities which were corporatised on or after 01/04/1997 as there is no such restriction in the paragraph. It may be mentioned that the Board itself understood paragraph 4 of schedule III to mean that the benefit of exemption as contained therein was available even to those entities which had been corporatised prior to 01/04/1997 as is clear from the press release issued by the Board after it held a meeting and discussed the subject at length on 28/12/2001. In this meeting one of the issues which came up for discussion before the Board was the broker fee payable in terms of paragraph 4 of schedule III to the Regulations and it extended the benefit of fee continuity to all brokers who had corporatised themselves prior to April 1, 1997. This, in our view, was the correct interpretation of paragraph 4 and the explanation thereto makes it all the more clear. However, by a circular dated March 28, 2002, the Board restricted the benefit of exemption contained in paragraph 4 and restricted the same to the corporate members who were converted on or after April 1, 1997. As already observed above, the plain language of the paragraph does not restrict such benefits to the brokers who were corporatised after April 1, 1997. By restricting the benefit to such class of brokers, the Board in our opinion is adding words in the paragraph which do not exist. This is clearly impermissible. The Board wants to restrict the benefits of paragraph 4 to only those brokers who were corporatised on or after 01/04/1997 when there are no such words in the paragraph restricting the benefit to that class of brokers. The Regulations have assumed a statutory status because we presume that they had been placed before the Parliament in terms of Section 31 of the Act as it was not the case of anyone before us that they had not been so placed. In this view of the matter, the Board need not have issued the circular dated March 28, 2002 which is clearly contrary to the plain language of paragraph 4 of schedule III to the Regulations. We were wondering why the Board fixed 1.4.1997 as the date for restricting the benefit of paragraph 4. The learned counsel appearing on its behalf informed us that paragraph 4 had been introduced on 21.1.1998 during the financial year 1997–1998 and, therefore, the Board gave the benefit from the beginning of that financial year. We see no logic in this. It is by now a well settled rule of interpretation that when the language of the provision is plain and unambiguous and admits only of one meaning, then no question of construction thereof arises because the language speaks for itself. In the result, it has to be held that the Board was in error in restricting the benefits of paragraph 4 to brokers who became corporate entities on or after 01/04/1997. The answer to the question posed in the earlier part of the order has to be in the affirmative.

6. In this view of the matter, the impugned demand notices denying the benefit of exemption and requiring the brokers to deposit the fee even for the period for which the erstwhile individual/partnership member had paid cannot be sustained.

7. The appellant in appeal No. 310 of 2004 pointed out during the course of the hearing that there was a partnership firm which was carrying on the broking business since the year 1991 with two partners and that it got corporatised in the year 1996 and that both the erstwhile partners became the directors in the company but did not have the requisite percentage of shares in the equity capital of the corporate entity as on 21/01/1998 when paragraph 4 was inserted in schedule III to the Regulations. We have reproduced paragraph 4 in the earlier part of the order and it not only requires that the erstwhile individual or partnership has to convert itself into a corporate entity but further requires that the erstwhile individual or the partners should be wholetime directors in the company and should continue to hold a minimum of 40% shares of the paid up equity capital of the corporate entity for at least 3 years from the date of conversion. On the appellant's own showing the conditions enumerated in paragraph 4 are not satisfied and, therefore, the appellants in Appeal no. 310 of 2004 are not entitled to the benefit of exemption under paragraph 4.

8. The learned counsel appearing for the Board pointed out that in some of the appeals there is dispute as to whether the appellants therein satisfy the other requirements of paragraph 4 or not. We cannot deal with those issues in the first instance in appeal. The Board shall consider the claim of each broker in this regard and pass appropriate orders in accordance with law after affording it an opportunity of hearing.

9. In the result, the impugned demand notices and the circular dated March 28, 2002 issued by the Board in so far as it restricts the fee continuity benefit to only such brokers who were corporatised on and after 1/04/1997 are set aside and the appeals except appeal no. 310 of 2004 are disposed of as above. Appeal no. 310 of 2004 stands dismissed. Parties to bear their own costs in all the appeals.