PROCESS OF ARBITRATION:

Applications are received directly from Members against Investors (who are their clients/ sub-brokers/ authorised clerk/ remisier or any other person with whom the member shares brokerage) and Non Members who are advised to file the arbitration by the Member Vs. Non Member complaint section i.e. IGRC (Investors Grievance Redressal Committee). Arbitration applications are directly filed by the clients of the defaulter members against a defaulter member which is to be filed within six months from the date, a member is declared a defaulter. As per the amended Bye-laws arbitration can also be filed against a SEBI registered sub-broker by his client and vice - versa.

Arbitration application forms are distributed (form 1,2/1A,2A) alongwith list of Arbitrators by the department and the information about documents to be submitted alongwith Arbitration Application. The panel of Arbitrators consists of member brokers of BSE and non-members in the ratio of 40:60. Non-members are retired judges from High-Courts, Chartered Accountants, Advocates and other Professional having knowledge related to Capital Market.

Following are the documents to be submitted for filing an Arbitration Application.

There are different set of forms for the claims Upto Rs. 10 Lacs and above Rs.10 lacs. The Arbitration claims below Rs.10 lacs is heard and decided by the sole Arbitrator whereas claims above Rs.10 lacs is heard by the set of three Arbitrators.

In case of claims upto Rs. 10 lacs, applicant proposes 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, respondent fails to consent or refuses to consent to any of the proposed Arbitrators then the Executive Director, as per Rules, Bye-laws and Regulations of the Stock Exchange, Mumbai appoints the Arbitrator in the matter. In such cases, a sum of Rs. 2600/- being the Institution fee of Rs. 1000/- and arbitration fee of Rs. 1500/- and Rs. 100 towards, the cost of stamp paper for the award is charged to the applicant and arbitration fee of Rs. 1500/- is charged to the respondent and if respondent fails to pay the amount then same has to be borne by the applicant.

In case of claims above Rs. 10 lacs, one Arbitrator each is appointed by the applicant and the respondent and third presiding Arbitrator is appointed by the Executive Director, as per Rules, Bye-Laws and Regulations of the Stock Exchange, Mumbai. If applicant/ respondent authorises Stock Exchange to appoint Arbitrator on his/ her/ their behalf or if respondent fails to appoint the Arbitrator then also the Executive Director, as per Rules, Bye-Laws and Regulations of the Stock Exchange, Mumbai appoints the Arbitrator in the matter. In such cases, a sum of Rs. 5600/- (being the Institution fee of Rs. 1000/- and arbitration fee of Rs. 4500/- and   Rs. 100 towards, the cost of stamp paper for the award) is charged from the applicant. A respondent is charged an arbitration fee of Rs. 4500/- and if respondent fails to pay the amount then same has to be borne by the applicant.

A copy of the documents filed by the applicant alongwith form 3, 4 and 5 / 3A, 4A and 5A (as applicable) are sent 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 the parties are intimated regarding the appointment of arbitrators by the Stock Exchange, Mumbai.

Then the notice of hearing vide form 9 is sent to the parties. The meetings are then arranged as decided by the arbitrators. Minutes of every hearing is prepared and taken on the 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 the Exchange, " the arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party or within such extended time as the arbitrator may fix with the consent of the parties to the reference or as the Governing Board or the President may allow." If the arbitrators fail to do so then the arbitrators may enlarge the time for making an Award by consent of the parties to the reference. If the parties do not consent to the Enlargement of Time then the Executive Director can extend the time for making an award as per Rules, Bye-laws and Regulations of the Stock Exchange, Mumbai.

After hearing both the parties and examining all the relevant documents and the submissions given by the parties and taking a totality of view the arbitrators close the arbitration reference. Then the arbitrators give award. 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 Final Award. The award is forwarded to the applicant as well as Respondent.

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

The Stock Exchange, Mumbai has amended its Bye-laws in order to streamline the Arbitration mechanism and also to bring it in consonance with the Arbitration Act. We have incorporated therein a provision which allows a party to go in for an appeal against the Award passed by the Arbitrator(s).

This appeal provision has been incorporated to provide an opportunity to a party, where the arbitrators have erred in appreciating an evidence on merits, as under the Arbitration and Conciliation Act, 1996, the errors committed by the arbitrators in appreciation of the evidence and on merits of the dispute cannot be corrected in the challenge, if any, to the award before the Court under Section 34 of the Arbitration and Conciliation Act, 1996 which leaves an unsuccessful party without any remedy.

Sailent features of the Appeal Provision provided in the Bye-laws are as under.

Time Limit : Appeal against the Award of the arbitrators is to be filed within 15 days from the date of the receipt of the award. However if a party is unable to file an appeal within the specified period, he may make an application to the Appeal bench to condone the delay. The Appeal Bench may on sufficient cause been shown for the delay may condone the delay.

Deposit : A party appealing against an award is required to deposit the awarded amount with the Exchange 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 Award has been passed, if the same is not challenged in the court under the provisions of Arbitration and conciliation Act, 1996.

Fees for Appeal : A party appealing against an award is required to deposit with the Exchange the necessary appeal fees as may be specified by the Governing Board from time to time. At present the Appeal fees is Rs. 16,100, which includes institutional fee of Rs. 1000, Rs. 100 towards the cost of stamp paper on which the award is given and the balance is towards Arbitrators fees.

Appeal Memo : A party wanting 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 Executive Director, out of the above five arbitrators three shall be non-members. The Appeal Bench decides the appeal expeditiously as far as possible within one month of the filing of the Appeal.

This Appeal Provision has been incorporated with necessary precautions so that no un-necessary time is wasted by the parties in Appeal. It is endeavored by the Appeal Bench that the Appeal is disposed off as early as possible.

SETTLEMENT OF AWARDS

If the Award is given against an active member of the Exchange and the member fails to implement the Award, then the investor can lodge the complaint against the member for `non implementation of the arbitration Award’. A show cause notice is issued to the member. If still the matter is not resolved then it is placed before the Disciplinary Action Committee (DAC)/Governing Board for suitable directions in the matter.

An arbitration award becomes decree, three months from the date on which it is given and a decree can be executed through a competent court of law.

DEFAULTER RELATED MATTERS :

If the Award pertains to a defaulter member, a copy of the award is forwarded to the Market Operations Department which is then forwarded to the defaulter’s committee. If the case has been filed within six months of the member being declared defaulter, then the awarded amount or the amount fixed by the defaulter’s committee to be given from the Customer’s Protection Fund (CPF), whichever is lower is recommended to the Governing Board for their approval. After the approval of the Governing Board, the amount is being distributed to the clients who have obtained the award against defaulter member.

1. Membership right

2. Securities to be received by the member for the settlement

3. Membership security deposit (in terms of cash, FDs, securities lying with Bank of India)

4. The members do not own any premises in the Exchange buildings (P.J. Towers, Rotunda & Cama). The offices have been occupied by the members on rental basis. So Fixed Deposit collected from a member for the construction of the buildings is also an asset.

5. Car parking Deposit.

6. Bad Deliveries claimed by the member (who is subsequently declared defaulter), when rectified by respective members, become the possession of the Stock Exchange.

When a member is declared defaulter, Defaulters committee of the Exchange clubs all these assets and disburses it priority wise. Liabilities of a defaulter arise only out of those transactions which are carried out on the floor of the Exchange.

Once a member has been declared a defaulter, his liabilities are settled in the following order of preference :

1. Dues of the Trade Guarantee Fund.

2. Dues to the SEBI, Stock Exchange i.e. General Charges Bill (rental charge, electricity expenses, water expenses, telephone expenses, VSAT expenses, etc.), Clearing House.

3. All the members who have obtained arbitration awards against defaulter in respect of Bad Delivery claims.

4. All the non-members who have obtained arbitration awards against defaulter.

5. Dues to the Customer Protection Fund.

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

WORKFLOW IN THE DEPARTMENT (TABULAR FORM)

Arbitration process between a member and non member is as follows :

Applications are received directly from members against investors and non members who are advised to file the arbitration by the member-nonmember complaint section. Defaulters related all the matters by the investors are also filed here. As per amended Bye-laws, investor can directly file an arbitration against a SEBI registered sub-broker and vice-versa.

As per the Rules, Bye-laws and Regulations of the Stock Exchange, the Award should be given within 4 months after arbitrtors enter into the reference.

The panel of the Arbitrators comprises of members and independent Arbitrators (40:60, Members : Non Members)

For the claims upto Rs. 10,00,000/- sole arbitrator hears the matter.

For the claims above Rs. 10,00,000/- a set of three Arbitrators hears the matter.

For the claims upto Rs. 10,00,000/- applicant proposes three Arbitrators, respondent has to give consent to any of them.

For the claim above Rs. 10,00,000/- both have to appoint one arbitrator and Executive Director of the Exchange appoints third Presiding Aritrator.

In case either of the party fails or authorise the Stock Exchange to appoint the Arbitrator, then Executive Director of the Stock Exchange appoints the Arbitrator.

Arbitration hearing starts.

Advocates may appear on behalf of each party after taking permission from the Arbitrators.

After hearing both the parties and examining all the relevant documents and the submissions given by the parties, the arbitrators close the arbitration reference.

Arbitrators give Award. Ex-parte Awards can also be given . Awards against defaulter members are sent to defaulter’s committee for payment from the Customer Protection Fund.

In case of non implementation of the award by the member, show cause notice is issued to the member.

Due to absence of an appellate mechanism, any further appeal can only be in Court of Competent Jurisdiction for the cases which are filed before 29th August, 1998. For the cases filed after 29th August, 1998 appellate mechanism in the Exchange.