ARBITRATION MECHANISM IN NATIONAL STOCK EXCHANGE

[Mr. M. GOVINDARAJAN]

Arbitration

Arbitration, in National Stock Exchange (NSE),  is a quasi judicial process of settlement of disputes between trading members, investors, clearing members, sub brokers, authorized persons etc., to decide the dispute quickly.  The matter is referred to arbitration only the disposal of the complaint filed is not satisfied by the complainant. 

The Arbitration procedure is governed by the provisions of Arbitration and Conciliation Act, 1996 and in addition to this the same is governed by the Rules, Bye laws, regulations and circulars issued by NSE and SEBI from time to time.

Regional Arbitration Centers

NSE has established Regional Arbitration Centers at Delhi, Mumbai, Ahmadabad, Indore, Jaipur, Kanpur, Kolkata, Pune, Chennai, Hyderabad and Bangalore.

Arbitrator panel

The NSE maintains panel of arbitrators at each Regional Arbitration Center.  The Arbitrator panel consists of experts and eminent persons from the fields of judiciary, banking and financial services having required experience in that field. 

If the value of claim is above ₹ 25 lakhs a panel of three arbitrators will be constituted.  If the value of claim is less than ₹ 25 lakhs a sole arbitrator is appointed. 

The region wise arbitrator list is available in the NSE website.

Who can apply?

The following can apply for arbitration-

• Investors  who have disputes against the trading members, sub brokers, authorized persons with regard to trade and transactions done on the exchange or anything incidental thereto;
• Trading Members who have claim, dispute or difference against investors, sub brokers, authorized persons, clearing members and vice versa with regard to trades and transactions done on the exchange or anything incidental thereto.

The arbitration proceedings cannot be done concurrently with the Investors Grievance Cell.

Limitation

The parties required to approach NSE for arbitration within three years from the date of dispute.

Application to arbitration

Any person who wishes to approach arbitration may file application in Form No. I.  The application may be downloaded from the website of the NSE.  Otherwise a request may be made to NSE furnishing his postal address.  The same will be mailed to the applicant.  The application may also get from the Regional Arbitration Centers.  The application is to be duly filled in and filed the same along with the required fee nearby Regional Arbitration Center mentioned in KYC of the applicant.

In the application the applicant has to give preference of arbitrators.  On admission of the application the preference of arbitrators will be called from the respondent.  ON receipt of the list of arbitrators from the respondent the arbitrators will be appointed through a computer system in which neither the exchange officials nor the parties to the arbitration are directly involved.

Fee

If the value of the dispute is less than ₹ 10 lakhs then the investor is not required to pay the fee.  NSE itself will bear the cost of arbitration.

Different fees are prescribed for the period involved in the dispute.  Separate rates are prescribed for the disputes filed within six months and after six months.  The fee structure is as follows-

• If the claim is filed within six months-

• ₹ 10 lakhs to ₹ 25 lakhs – Fee will be ₹ 13,000/- + 0.3% over ₹ 10 lakhs;
• More than ₹ 25 lakhs – Fee will be ₹ 17,500/- + 0.2% above ₹ 25 lakhs but subject to maximum of ₹ 30,000/-

• If the claim is filed after six months-

• ₹ 10 lakhs to ₹ 25 lakhs – Fee will be ₹ 39,000/- + 0.9% above ₹ 10 lakhs;
• More than ₹ 25 lakhs – Fee will be ₹ 52,500/-+ 0.6% above ₹ 25 lakhs subject to a maximum of ₹ 90,000/-

The six month period as stated above will be computed from the end of the quarter during which the disputed transaction was executed.  The following are exempted while computed the six month period-

• The time taken by the trading member to resolve the dispute of the investor of one month from the date of receipt of dispute by the member, whichever is earlier, is exempted.
• The time taken by the Investor Service Cell of NSE to resolve the dispute will be exempted. 

Stamp duty

Stamp duty is applicable on the awards passed by arbitrators.  The stamp duty is payable along with the fee deposited for referring to arbitration.  The stamp duty deposited will be on the amount claimed by the applicant.  The stamp duty applicable to the concerned State is also applicable to arbitration award.

Statement of case

A Statement of case is a brief history of the dispute from the beginning to the end.  The entire date wise sequence of events which took place between the investor and the trading member needs to be described. 

Reply

The respondent has to file reply on the application by the applicant in Form II along with statement of defence and required deposit amount.

Counter claim

A counter claim can be claimed by the respondent which is arrived at on the basis of amount of shares/monies due to him from the applicant.

Time limit

The arbitration award is to be passed within four months from the date of appointment of arbitrator(s).  The said period can be extended two more months by the relevant authority based on the request of either party to arbitration.

Award

• If the value of the claim is less than ₹ 25,000/- the arbitrator panel may or may not give personal hearings and pass the award based on the documents submitted by both the parties.
• If the claim is more than ₹ 25,000/- the arbitrator panel may hold hearing unless specifically denied by both the parties in writing.
• The arbitrator panel will fix  a hearing date during which both the parties will present and submit their cases.
• If the parties to the arbitration are not able to attend the personal hearing, they may apply to the Arbitrator panel well in advance seeking an adjournment seeking the reasons for such adjournment.  The Arbitrator panel  may adjourn the case at his discretion.  The adjournment may be subject to such conditions as may be imposed by the Arbitrator.
• Investors may attend the hearing and conduct the case on their own or through authorized representative.  For this purpose the applicant has to execute notarized/registered power of attorney.
• In case the applicant defends the case through Advocate, then the respondent will be allowed to represent his case through an Advocate.
• The award is passed by the Arbitrator panel on considering the documents and submissions put forth by the parties to the arbitration. 
• In case the parties settle the case amicably the Arbitrator panel will record the settlement of dispute in the form of an arbitration award on agreed terms. 
• The cost of arbitration will fall on the party against whom the case is decided. 
• NSE will give a full refund of deposit made by the person in whose favor the award is passed.
• If the award is in favor of the investor, then NSE will set aside the award amount from the deposits of the trading member.  The said amount will be kept in an escrow account with the exchange.  If the trading does not file appeal the said amount will be released to the investor.
• The award of the arbitrator will be final unless appeal has been filed against it before Appellate Arbitrators or challenge the same in the Court.

Correction in award

In case of certain corrections or certain interpretations are required to be made in the award, any party to arbitration can file application with NSE under section 33 of the Arbitration and Conciliation Act, 1996 for correction or interpretation of the award, within one month from the date of receipt of award.  The NSE will forward the said application to the concerned Arbitrator panel.  If the Arbitrator panel feels the requirement of correction/interpretation in the award then they can pass a separate order.

Appeal

Any party aggrieved against the order of Arbitrator panel may file appeal within 30 days from the date of receipt of the award in the prescribed form before the Appellate Arbitrators along with the Deposit.  The aggrieved party may also challenge the award in the court nearby his address under section 34 of the Arbitration and Conciliation Act, 1996.         

Appeal procedure

• The appeal shall be filed in Form III.
• The Statement of appeal with brief description of the grounds which are to be placed in the appeal and relief sought through the appeal process.
• The appellant shall indicate the name of arbitrators in the appeal.
• The fee is ₹ 30,000/- along with stamp duty.  The fee is non refundable.
• If the value of the claim/counter claim is less than ₹ 10 lakhs then fees will be ₹ 10,000/-
• The respondent is to file reply in Form IV.  He also indicates the list of arbitrators.
• The Appellate Arbitrator shall consist of three arbitrators different from the ones who passed the original award.
• The Appellate Arbitrator panel will be appointed on a computer based system.
• The appellate arbitrator panel will hear both the parties and pass an award. 
• The Appellate Arbitrator panel may set aside the original award or upheld the award.
• If the appellate order is in favor of the investor, the trading member may settle the award and confirm the same with NSE or challenge the award under section 34 of the Arbitration and Conciliation Act, 1996.

Reference:

www.nseindia.com.