24^th August 2010  

NOTICE

 

 

Re:  Arbitration Mechanism in Stock Exchanges

 

Members are hereby informed that the SEBI vide its circular no. CIR/MRD/DSA/24/2010  dated August 11, 2010 has advised the Exchange to incorporate the contents of the aforesaid circular in its relevant bye-laws, rules & regulations and also bring the contents of this circular to the notice of the members of the Exchange.  Accordingly, the contents of the said circular are appended below for information & compliance :-

 

 

CIRCULAR

 

 

CIR/MRD/DSA/24/2010                                                               

 

August 11, 2010

 

 

 

To

 

The Managing Director/Executive Director of all Stock Exchanges.

 

 

 

Dear Sir / Madam,

 

Subject: Arbitration Mechanism in Stock Exchanges

 

 

1. In consultation with the stock exchanges, it has been decided to streamline the  arbitration  mechanism  available  at  stock  exchanges  for  arbitration  of disputes (claims, complaints, differences, etc.) arising between a client and a member (Stock Broker, Trading Member and Clearing Member) across various market segments.

 

2. A stock exchange shall provide an arbitration mechanism for settlement of disputes  between a client and a member through arbitration proceedings in accordance with  the provisions of this Circular read with Section 2(4) of the Arbitration and Conciliation, Act, 1996.

 

3. Maintenance of a Panel of Arbitrators

 

3.1 A stock exchange shall maintain a panel of arbitrators. The number of arbitrators in the panel shall be commensurate to the number of disputes so that an  arbitrator handles a reasonable number of references simultaneously and all arbitration references are disposed of within the prescribed time.

3.2 The stock exchange shall have a set of fair and transparent criteria for inclusion of names in the panel of arbitrators.

3.3 While deciding to include a particular person in the panel of arbitrators, the stock exchange shall take into account the following factors:

i.  age,

 

ii.     qualification      in     the     area     of    law,    finance,    accounts,    economics, management, or administration, and

iii.  experience in financial services, including securities market.

 

3.4 The name of a person shall be included in the panel after obtaining:

 

i.  a declaration that he has not been involved in any act of fraud, dishonesty or moral turpitude, or found guilty of any economic offence,

ii.  disclosure of the nature of his association with securities market,

 

iii.  disclosure of the names of his dependents associated with the securities market as member, sub-broker or authorized person, and

iv.  an undertaking that he shall abide by the code of conduct prescribed in this circular.

3.5  The  stock  exchange  shall  provide  at  least  seven  days  of  continuing education to every arbitrator each year.

3.6 The stock exchange shall have a mechanism to appraise the performance of arbitrators and reconstitute the panel based on such appraisal atleast once a year.

 

4. Code of Conduct for Arbitrators

 

An arbitrator shall –

 

i.  act in a fair, unbiased, independent and objective manner;

 

ii.  maintain the highest standards of personal integrity, truthfulness, honesty and fortitude in discharge of his duties;

iii.  disclose his interest or conflict in a particular case, i.e., whether any party to the proceeding had any dealings with or is related to the arbitrator;

iv.  not engage in acts discreditable to his responsibilities;

 

v.  avoid any interest or activity which is in conflict with the conduct of his duties as an arbitrator;

vi.  avoid  any  activity   that  may  impair,  or  may  appear  to  impair,  his independence or objectivity;

vii.  conduct  arbitration  proceedings  in  compliance  with  the  principles  of natural   justice   and   the   relevant   provisions   of   the   Arbitration   and Conciliation  Act,  1996,  the  SEBI  Act,  1992,  the  Securities  Contracts (Regulation) Act, 1956 and the Rules, Regulations and Bye-laws framed thereunder and the circulars, directions issued by the Government / SEBI;

viii.  endeavour to pass arbitral award expeditiously and in any case not later than the time prescribed in this circular; and

ix.  pass reasoned and speaking arbitral awards.

 

 

5. Arbitration

 

5.1 The limitation period for filing an arbitration reference shall be governed by the law of limitation, i.e., The Limitation Act, 1963.

5.2 An arbitration reference for a claim / counter claim up to Rs.25 lakh shall be dealt with by a sole arbitrator while that above Rs.25 lakh shall be dealt with by a panel of three arbitrators.

5.3  The  stock  exchange  shall  ensure  that  the  process  of  appointment  of arbitrator(s) is completed within 30 days from the date of receipt of application from the applicant.

5.4 The arbitration reference shall be concluded by way of issue of an arbitral award within four months from the date of appointment of arbitrator(s).

 

5.5 The Managing Director/ Executive Director of the stock exchange may for sufficient cause extend the time for issue of arbitral award by not more than two months on a case to case basis after recording the reasons for the same.

 

6. Appellate Arbitration

 

6.1 A party aggrieved by an arbitral award may appeal to the appellate panel of arbitrators of the stock exchange against such award.

6.2 An appeal before the appellate panel of arbitrators may be filed within one month from the date of receipt of arbitral award.

6.3 The appellate panel shall consist of three arbitrators who shall be different from the ones who passed the arbitral award appealed against.

6.4  The  stock  exchange  shall  ensure  that  the  process  of  appointment  of appellate  panel of arbitrators is completed  within 30 days  from the date of receipt of application for appellate arbitration.

6.5 The appeal shall be  disposed of within  three months  from the  date  of appointment of appellate panel of such appeal by way of issue of an appellate arbitral award.

6.6 The Managing Director/ Executive Director of the stock exchange may for sufficient  cause extend the time for issue of appellate arbitral award by not more than two months on a case to case basis after recording the reasons for the same.

6.7 A party aggrieved by the appellate arbitral award may file an application to the  Court  of  competent  jurisdiction  in  accordance  with  Section  34  of  the Arbitration and Conciliation Act, 1996.

 

7.         Arbitration Fees

 

7.1 Each of the parties to arbitration [as mentioned under item (5) above], shall deposit an amount, as may be prescribed by the stock exchange, at the time of making arbitration reference. The deposits (exclusive of statutory dues - stamp

_{duty, service tax, etc.) shall not exceed the amount as indicated under:}

 

Note: six months shall be computed from the end of the quarter during which

the disputed transaction(s) were executed/ settled, whichever is relevant for the dispute.

 

7.2 A client, who is a party to the arbitration for a claim/counter claim upto Rs.

 

10 lakh, shall be exempt from the deposit provided the arbitration reference for the same is filed within six months from the end of the quarter during which the disputed transaction(s) were executed/ settled.

 

7.3 On issue of the arbitral award, the stock exchange shall refund the deposit, if any, to the party in whose favor the award has been passed and appropriate the deposit, if  any,  made by the party, against whom  the award has been passed, towards arbitration fees.

 

 

 

7.4 A party filing an appeal before the appellate panel [as mentioned under item 6 above] shall pay a fee not exceeding Rs. 30,000,as may be prescribed by the stock exchange, in addition to statutory dues (stamp duty, service tax, etc) along with the appeal.

 

8. Place of Arbitration

 

8.1 The Stock Exchanges having nationwide terminals, such as National Stock Exchange of India Ltd., Bombay Stock Exchange Ltd., MCX Stock Exchange Ltd., and United Stock Exchange of India Ltd., shall provide arbitration facility (arbitration as well as appellate arbitration) at all four regional centres (Delhi, Mumbai, Kolkata and  Chennai). The arbitration and appellate arbitration shall be conducted at the regional centre nearest to the client. The application under Section 34 of the Arbitration and  Conciliation Act, 1996, if any, against the decision of the appellate panel shall be filed in the competent Court nearest to such regional centre.

8.2  Other  stock  exchanges  shall  provide  the  arbitration  facility,  including appellate arbitration, at the place where it is located.

 

9. Implementation of Arbitral Award in favour of Clients

 

9.1 In case the arbitral / appellate arbitral award is in favour of the client, the stock  exchange shall, on receipt of the same, debit the amount of the award from the security deposit or any other monies of the member (against whom an award has been passed) and keep it in a separate escrow account.

9.2 The stock exchange shall implement the arbitral award, by making payment to the client, along with interest earned on the amount that has been set aside, as soon as  the  time for preferring an appeal before the appellate panel of arbitrators has expired and no appeal has been preferred.

9.3     The  stock  exchange  shall  implement  the  appellate  arbitral  award,  by making  payment to the client, along with interest earned on the amount that has been set aside, as soon as

a.  the time for making an application to a Court to set aside such appellate arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 has expired, and no application has been made, or