Sebi issues SOP for dispute resolution under stock exchange arbitration mechanism

Capital markets regulator Sebi has come out with a new Standard Operating Procedures (SOP) for dispute resolution under the stock exchange arbitration mechanism for disputes between a listed firm or Registrars to an Issue and Share Transfer Agents (RTAs) and its shareholders.The arbitration mechanism will be initiated post exhausting all actions for resolution of complaints including those received through the SCORES portal.

The arbitration reference will be filed with the stock exchange where the initial complaint has been addressed.The new framework will come into force with effect from June 1, the Securities and Exchange Board of India (Sebi) said in a circular on Monday.The new SOP will be applicable to listed companies or RTAs offering services on behalf of listed companies. In case of claims or disputes arising between the shareholder or investor of listed firms and the RTAs, the RTAs will be subjected to the stock exchange arbitration mechanism.

In all such instances, the listed company will necessarily be added as a party.In case of arbitration matters involving a claim of up to Rs 25 lakh, a sole arbitrator will be appointed and, if the value of the claim is more than Rs 25 lakh, a panel of three arbitrators will be appointed.The process of appointment of arbitrator is required to be completed by the stock exchange within 30 days from the date of receipt of complete application from the applicant.

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Disputes pertaining to or emanating from investor service requests including transfer/transmission of shares, demat, transposition of holders, investor entitlements like corporate benefits, dividend, bonus shares, rights entitlements, credit of securities in public issue and delay in processing or wrongful rejection of such investor service requests may be considered for arbitration.

With regard to arbitration fees, Sebi said the fees per arbitrator will be Rs 18,000 plus stamp duty and service charge and this amount will be collected from RTAs or listed companies and shareholders or investors separately by the exchange, for defraying the cost of arbitration. If the value of claim is less than or equal to Rs 10 lakh, then the cost of arbitration with respect to the shareholders or investors will be borne by the exchange.

Further on passing of the arbitral award, the fees and stamp charges paid by the party in whose favor the award has been passed would be refunded and the fees and stamp charges of the party against whom the award has been passed would be utilized towards payment of the arbitrator fees.For appellate arbitration, fees of Rs 54,000 plus stamp duty and service charge will be paid by the appellant only, which will be non-refundable.

In case, an appellant filing an appeal is a shareholder/an investor having a claim of more than Rs 10 lakh, the appellant will pay a fee not exceeding Rs 30,000 along with stamp duty and service charge and in case of a claim up to Rs 10 lakh, the appellant needs to remit a fee not exceeding Rs 10,000 along with stamp duty and service charge.

Further expenses thus arising will be borne by the stock exchanges and the Investor Protection Fund of Stock exchanges equally. In respect of place of arbitration, Sebi said the arbitration and appellate arbitration will be conducted at the regional centre of the stock exchange nearest to the shareholders or investors. The application against the decision of the appellate panel of arbitrators needs to be filed in the competent court nearest to such a regional centre.

Sebi said that arbitration proceedings will be concluded by way of issue of an arbitral award within four months from the date of appointment of arbitrator. However, the exchanges may 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.The appeal against an arbitral award will be disposed of by way of issue of an appellate arbitral award within three months from the date of appointment of appellate panel. Further, the exchanges may 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.

A party aggrieved by the appellate arbitral award may file an application to the court of competent jurisdiction under the Arbitration and Conciliation Act. In case the parties wish to settle or withdraw the dispute, the arbitrators appellate panel may pass an award on consent terms. Where the award is against the listed company or RTA, such entities need to update the status of compliance with the arbitration award promptly to the exchange.

“The stock exchanges shall put in place a framework for imposition of penalty on listed companies in cases where listed companies/RTAs do not honor the arbitral award,” Sebi said. The stock exchanges need to preserve the documents related to arbitration for five years from the date of arbitral award, appellate arbitral award or order of the court, as the case may be; and register of destruction of records relating to these, permanently. Further, they are required to disclose on its website, details of disposal of arbitration proceedings and details of arbitrator-wise disposal of arbitration proceedings.