Arbitration

With a view to ensuring speedy and effective resolution of claims, differences and disputes between non-Trading Members and Trading Members and Trading Members inter-se, BSE has laid down an arbitration procedure. This procedure is duly embodied in the Rules, Bye-laws and Regulations of BSE, and duly approved by the Government of India/SEBI, under the Securities Contracts (Regulation) Act, 1956.

An in-house arbitration machinery has been provided to decide on :

• Arbitration between Trading Members inter-se; and
• Arbitration between non-Trading Members and Trading Members

All contracts of sale and purchase of securities entered into on the trading platform of BSE are subject to Mumbai jurisdiction and any dispute arising in respect of such contracts shall be referred to and decided by arbitration as provided in the Rules, Byelaws and Regulations of BSE.

The disputing parties, namely the Trading Member and Non-Trading Member are expected to send documentary proof like contract notes, bills, statement of accounts and relevant documentary proof along with the Complaint Form , duly filled in. BSE provides conciliation mechanism by placing the grievances before Investors Grievances Redressal Committee (IGRC), for conciliation and amicable solution by requesting the disputing parties to remain present before the said IGRC.

The two Members' IGRC is presently constituted by a retired Justice of High Court and a Trading Member. Where the matter cannot be resolved through conciliation, the parties may file an arbitration reference which is decided by one member or three members' Arbitral Tribunal depending upon the claim amount.

The Arbitral Tribunal is appointed from the Arbitration Committee appointed for the purpose. The Committee consists of retired Judges of High Court, experienced Solicitors, Advocates, Chartered Accountants, Company Secretaries, and Trading Members. Arbitral Tribunals, consisting of arbitrator/s other than non-trading members are appointed to decide the disputes between the Trading Members and Non-Trading Members.

1. Arbitration between Trading Members inter-se


Arbitration Committee

The provisions relating to Arbitration Committee which deals with arbitration between Trading Members inter-se are laid down in the Bye-laws Nos.282 to 315 of the Rules, Bye-laws and Regulations of BSE.

A three-tier arbitration machinery has been provided at BSE to decide on disputes between the Trading Members. All claims, complaints, differences and disputes between Trading Members arising out of or in relation to any bargains, dealings, transactions or contracts are subject to arbitration and are referred to the Arbitration Committee. The Arbitration Committee is appointed by the BSE's Board of Directors, every year.

Lower Bench Arbitration

A Committee of three Arbitrators from the Arbitration Committee is constituted to look into such disputes if the value of the claim exceeds Rs. 25,000, while only one arbitrator hears the dispute if value is less than Rs. 25,000. A Trading Member filing an arbitration reference is required to attach a coupon of Rs.100.00 along with his arbitration application. Both, the applicant and the respondent or their authorised representatives are required to be present in the arbitration meetings. After hearing the parties, the arbitrators give the Award.

An aggrieved Trading Member, who is not satisfied with the award of the Lower Bench Arbitration Committee, may file an appeal before the Full Bench of the Arbitration Committee within seven days from the date of receipt of the award by him if the principal amount of the claim disallowed by the lower bench to the Appellant exceeds Rs 1,00,000 or if the amount awarded against the Appellant by the lower bench (without taking into account interest from the date of Award) exceeds Rs.1,00,000. The Trading Member who desires to file an appeal before the Full Bench of the Arbitration Committee is also required to deposit the amount of the Award or shares as stated in the Lower Bench Award with BSE along with a fee of Rs.500.00. The deposit amount/shares are retained with BSE until the case is decided by the Full Bench. In the Full Bench Arbitration meetings, all the members of the Arbitration Committee decide the case of Appeal against the Award of the Lower Bench.

Appeal before the Board of Directors

A Trading Member who is not satisfied with the award of the Full Bench Arbitration Committee may prefer an appeal before the Board of Directors if the principal Amount of claim disallowed by the full bench of the Arbitration Committee to the party dissatisfied with the Award exceed Rs.5,00,000/- or if the amount awarded by the full bench against a party dissatisfied with the Award (without taking into consideration interest from the date of Award ) exceeds Rs. 5,00,000/- An Appeal should be filed within seven days from the date of the Award of the Full Bench Arbitration Committee by paying a fee of Rs.750/- and also by depositing the Award amount/shares as stated in the Award with the Stock Exchange. The Board of Directors is the final Appellate Authority in the case of arbitration between Trading Members. Beyond this level, there is normally no Appeal provision but in exceptional situations, the Board of Directors may permit a Trading Member to make a further appeal to a Court of Law.

Patawat Arbitration

In addition to the three-tier Arbitration machinery as stated above, "Patawat Arbitration", i.e., disputes arising out of physical delivery of securities, is held after every settlement (Patawat). In this arbitration, all members of the Arbitration Committee participate and "Chukadas" (Awards) are given on the objection memos indicating whether documents delivered are "in order" or "not in order". The Trading Members/their representatives obtain the "Chukadas" in the Patawat Arbitration sessions. The Trading Members are required to affix a coupon of Rs.50.00 on the objection memo, stating the nature of the objection as per the "Uniform norms for Good/Bad delivery" guidelines standardized by SEBI while obtaining the award.


2. Arbitration between Non-Trading Members and Trading Members


Bye-laws Nos. 248 to 281 of the Rules, Bye-laws and Regulations of BSE deal with the procedure regarding arbitration between non-Trading Members and Trading Members of BSE.

An Arbitral Tribunal of one arbitrator is appointed, in case the value of the disputed claim is upto Rs. 10 lakhs, If the value is greater than Rs. 10 lakhs, an Arbitral Tribunal of three arbitrators is appointed. Arbitraal Tribunals constituted by only non-trading Member/s are appointed to decide such arbitration references. A party dissatisfied with the Award can file an Appeal with BSE as per Rules, Bye-Laws and Regulations of BSE or it can file petition u/s 34 of the Arbitration and Conciliation Act (TACA) 1996 in the Court of Law. In case if appeal is preferred in BSE, the same is decided by the Appellate bench of five Arbitrators and the Award passed by the Appellate Bench is final and binding on the parties subject to challenge u/s 34 of TACA. The award is enforceable as if it were the decree of the Court on an expiry of a period, provided under section 34(i) of The Arbitration and Conciliation Act. Bye-laws of BSE provide that an arbitration reference be decided normally within a period of 3 months, from the date on which the Arbitral Tribunal held first hearing on it. However, an extension for a maximum period of 3 months may be considered by, the Exchange.

Process of Arbitration

Applications may be filed by non - Trading Members against Trading Members and vice-versa. The disputing parties are advised to refer to ByeLaw 252 of BSE, relating to 'Limitation', while filing an Arbitration application with BSE.

Arbitration application forms (Form 1, 2, 1A, 2A; as applicable) along with Form 20, Claim Sheet, Check List, Instructions and list of Arbitrators could be downloaded from the BSE's website and is also available free of cost at Department of Investor Services of BSE.

Documents to be submitted

Following are the documents to be submitted for filing an application for arbitration:

1. Statement of the case explaining brief history of the relationship of applicant with the respondent, details about the dispute and the nature of transaction/s and bifurcation of the claim amount into claim on account of genuine delivery based transaction and square off transactions.
   
   
2. Contract Notes pertaining to the transaction in dispute
   
   
3. Bills issued/ received by the applicant
   
   
4. Copy of the accounts statement given by broker
   
   
5. Documents pertaining to receipt/ delivery of shares
   
   
6. Any other documents in support of the claim
   
   
7. An accurate list of the documents produced
   
   
8. PAN/ GIR No. of the applicant
   
   
9. Certified copy of the Balance Sheet of the applicant showing the dues
   
   
10. Copy of acknowledgement of the latest Income Tax Return
    

There are various forms for Arbitration proceedings depending upon whether the claim amount is up-to Rs. 10 lakhs or is above Rs.10 lakhs.

In case of claims up to Rs. 10 lacs, the applicant proposes the names of three Arbitrators and respondent gives consent to any one of them and such consented person by the respondent acts as an Arbitrator in the matter. In case the respondent fails to consent or refuses to consent to any of the proposed Arbitrators, the Managing Director, and Chief Executive Officer of BSE as per Rules, Bye-laws and Regulations of BSE, appoints the Arbitrator in the matter. In such cases, a sum of Rs. 3,970.80 (being the institution fee of Rs. 1,000.00, arbitration fees of Rs. 2,250.00, clerkage of Rs. 250.00, cost of stamp paper of Rs. 100.00 and Service Tax @ 10.30%) is charged to the applicant and arbitration fee of Rs. 2,757.50 (being arbitration fee of Rs. 2,250.00, clerkage of Rs. 250.00 and Service Tax @ 10.30%) is charged to the respondent.

In case of claims above Rs. 10 lacs, one Arbitrator each is appointed by the applicant and the respondent and the third Arbitrator is appointed by the Managing Director and Chief Executive Officer of BSE as per Rules, Bye-Laws and Regulations of BSE. If parties or any of the parties authorize/s BSE to appoint an Arbitrator on his/ her/ their behalf or if the parties or any of the parties fail/s to appoint the Arbitrator/s, the Managing Director and Chief Executive Officer of BSE, as per Rules, Bye-Laws and Regulations of BSE appoints the Arbitrator/s. In such cases, a sum of Rs. 8,934.30 (being the institution fee of Rs. 1,000.00, arbitration fees of Rs. 6,750.00, clerkage of Rs. 250.00, cost of stamp paper of Rs.100.00 and Service Tax @ 10.30%) is charged to the applicant and arbitration fee of Rs. 7,721.00 (being arbitration fee of Rs. 6,750.00, clerkage of Rs. 250.00 and Service Tax @ 10.30%) is charged to the respondent.

A copy of the documents filed by the applicant along with form 3, 4 and 5 / 3A, 4A and 5A (as applicable) are sent by BSE to the respondent advising him / her / them to submit the details of counter claim, if any: consent to the proposed arbitrator / appointment of arbitrator (as applicable), payment of arbitration fees (as applicable). Both parties are intimated by BSE regarding the appointment of arbitrators.

Subsequently, the Notice of Hearing is sent to the parties. The meetings are then arranged as decided by the Arbitrators. Minutes of every hearing is prepared and taken on record. Advocates may appear on behalf of each party after taking permission from the Arbitrator.

As per the provisions of Bye-laws 254 of the Rules, Bye-laws and Regulations of BSE, " the Arbitral Tribunal shall make the award within three months from the date of entering upon the reference or within an extended time, which if approved by the Managing Director and Chief Executive Officer of BSE, shall not be more than three months. . The award has to be a speaking award. Ex-parte awards are also given. The final award is taken on stamp paper of Rs. 100 and Arbitrator's signatures are obtained on the final award. The award is forwarded to the applicant as well as to the respondent.

Any party to the arbitration, within 15 days from the date of receipt of Award, may request the Arbitral Tribunal to correct any computational / arithmetical / clerical / typographical / any error or to give an interpretation of a specific point or part of the Award or to make an additional Award as to claims presented in the Arbitral proceedings, but omitted from the Award.

Appeal provision in the Bye-laws pertaining to Non-Trading Member V/s Trading Member Arbitration

Time Limit : Appeal against the Award of the arbitrators is to be filed within 15 days from the date of receipt of the award. However if a party is unable to file an appeal within the specified period the appeal should be accompanied by an application supported by affidavit setting forth the facts on which the appellant relies to satisfy the Appeal Bench in respect of causes for the delay. The Appeal Bench may, on sufficient cause being shown for the delay, condone the delay.

Deposit : A party appealing against an award is required to deposit with the Exchange the amount or securities (or value thereof) due under the Award, if the award has been passed against him. This amount is deposited with an understanding that the said amount shall be released to the party in whose favor the Appeal is decided, if the same is not challenged in the Court under the provisions of The Arbitration and Conciliation Act, 1996.

Fees for Appeal : A party appealing against an award is required to pay the necessary appeal fees, presently being, Rs. 18,309.80 which includes arbitration fees of Rs. 15,000.00, institution fee of Rs. 1,000.00, Clerkage of Rs. 500.00, cost of stamp paper of Rs. 100.00 and Service Tax @ 10.30%).

Appeal Memo : A party desiring to prefer an appeal against an award of the Arbitrator(s) is required to submit seven sets of Memorandum of Appeal (Form 12) mentioning clearly therein the grounds of objections to the Award appealed from along with copies of relevant documents.

Appeal Bench : The Appeal filed by a party against an award will be heard and decided by an Appeal Bench of five Arbitrators, appointed by the Managing Director and Chief Executive Officer of BSE. The Appeal Bench decides the appeal expeditiously as far as possible within one month of the filing of the Appeal.



SETTLEMENT OF AWARDS

If an Award is given against a Trading Member of BSE and the Trading Member fails to implement the Award, a show cause notice is issued by BSE to the Trading Member. If the matter is still not resolved, it is placed before the Defaulter & Disciplinary Action Committee (DDAC) Board of Directors of BSE for suitable directions in the matter.

Unless challenged by either of the parties, an arbitration award becomes a decree on an expiry of three months from the date on which it is received by the party and a decree can be executed through a competent court of law.

DEFAULTER RELATED MATTERS

An Award against a defaulter Trading Member, is placed before the Defaulter & Disciplinary Action Committee (DDAC). The awarded amount or the amount fixed by the DDAC or Rs. 10,00,000 whichever is lower, is given from the BSE's Investor Protection Fund.

Assets of a Trading Member comprises of the following :

1. Securities to be received by the Trading Member for the settlement
   
   
2. Membership security deposit (in terms of cash, FDs, securities lying with Bank of India)
   
   
3. Fixed Deposit collected from a Trading Member for the construction of the BSE's buildings
   
   
4. Car parking deposit.
   
   
5. Bad Deliveries claimed by the Trading Member (who is subsequently declared defaulter), when rectified by the respective Trading Member. When a Trading Member is declared a defaulter, the DDAC clubs all these assets and disburses the same priority wise. Liabilities of a defaulter arise only out of those transactions which are carried out at BSE.
   
   

Priority of Disbursement

Once a Trading Member has been declared a defaulter, his liabilities are settled in the following order of priority :

1. Dues of the Trade Guarantee Fund.
   
   
2. Dues to SEBI, BSE, and Clearing House, as decided by DDAC.
   
   
3. Trading Members who have obtained arbitration awards against the defaulter in respect of Bad Delivery claims.
   
   
4. Non-Trading Members who have obtained arbitration awards against the defaulter.
   
   
5. Dues to the Investor Protection Fund (IPF).
   
   

Only in case the 1st preference in the above mentioned list is satisfied fully, the Committee proceeds towards the 2nd preference in the list, and so on. In case the 1st preference has been fully satisfied and the remaining assets are not sufficient to satisfy the 2nd preference fully, the 2nd preference is satisfied on a pro-rata basis, and so on . In case a Court of Law declares the defaulter as adjudicated insolvent, all the above claims stand at par.


VARIOUS FORMS FOR ARBITRATION PROCEEDINGS:

Forms 1and 2 are meant for the usage of the applicant for cases where the claim is up to Rs. 10,00,000/-.

Forms 1Aand 2A are meant for the usage of applicant for cases where the claim is above Rs. 10,00,000/-

Form 20 may be used by either parties if intends to appoint advocate to appear in the arbitration proceedings.

Form 1	-	Application form for filing an arbitration reference
Form 2	-	For proposal of three arbitrators by the applicant
Form 1A	-	Application form for filing an arbitration reference.
Form 2A	-	For appointment of an arbitrator by applicant.
Form 12	-	Memorandum of appeal
Form 20	-	Form of Request to the Arbitrator for allowing Advocates to appear in arbitration
Form 21	-	Undertaking to be given by the Advocates.

SEBI Circular dated 3rd June 2003 regarding Constitution of Arbitration Committees and Arbitration Panels


General Manager
Secondary Market Department
e-mail : pkb@sebi.gov.in

The Managing Directors and Executive Directors
Of all the Stock Exchanges

Dear Sir,

Sub: Constitution of Arbitration Committees and Arbitration Panels.

Please refer to SEBI order dated April 20, 1993 passed under section 8 of the Securities Contract (Regulation) Act, 1956 directing the stock exchanges to amend their Rules or Articles of Association inter alia to provide for the constitution of Arbitration Committee. As per para 7 of the said order, it is provided that the Rules or Articles of Association shall provide for nomination of not more than 40% of the members of the exchange on the Arbitration Committee and the balance 60% shall be nominated from the persons other than members of the stock exchanges with the prior approval of the Board. Pursuant to the said order, the rules / bye-laws of the stock exchanges provide for the constitution of the Arbitration Committee / Arbitration Panels as per para 7 of the said order.

The Joint Parliamentary Committee (JPC) in relation to Securities Market Scam has recommended in its Report, vide recommendation no.14.60, that arbitration councils for resolution of disputes between the investors and the market intermediaries should be independent of market intermediaries, particularly the brokers.

Pursuant to this recommendation it has been decided that the provision of the Rules or Articles of Association, as the case may be, and bye-laws of the stock exchanges shall provide that in respect of dispute between members and non members the arbitration committees /arbitration councils / arbitration panels shall consist of persons other than members of the stock exchange who shall be nominated with prior approval of the Board.

Accordingly, the Exchanges are directed to make necessary amendments to the rules or Articles of Association / Bye-laws for the implementation of the above decision within two months from the date of this circular.

The Exchanges are directed to reconstitute the arbitration committees /arbitration councils/ arbitration panels/ for resolution of disputes between members and non-members, in the manner specified above, within a period of three months from the date of this circular with the approval of SEBI.

This circular is being issued in exercise of powers conferred by section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

In order to ensure that there is no delay in the disposal of arbitration proceedings which have already commenced, the member arbitrators shall continue till the disposal of such proceedings. The award in such cases shall be given within a period of three months from the date of this circular.

The Exchanges are directed to bring the provisions of this circular to the notice of the member brokers/clearing members of the Exchange and also to disseminate the same on the website for easy access to the investors.

The Exchanges are also directed to communicate to SEBI, the status of the implementation of the provisions of this circular in Section II, item no. 13 of the Monthly Development Report for the month of June 2003.



Yours faithfully,

P K Bindlish

Source : www.sebi.gov.in