"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Friday, August 13, 2010

SEBI Circular on Arbitration Mechanism in Stock Exchanges

Business Standard reports that the Securities and Exchange Board of India (SEBI) has come up with new norms on arbitration conducted under the aegis of stock exchanges. The relevant circular of SEBI titled "Arbitration Mechanism in Stock Exchanges" can be obtained from here. This post provides the salient features of the Circular.
  1. This Circular has been issued by the SEBI under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and shall come into effect from September 1, 2010.
  2. The purpose of the Circular is to streamline the arbitral procedures in arbitrations between a client and members of the stock exchanges- stock brokers, trading members and clearing members
  3. Broadly, the Arbitration and Conciliation Act, 1996 will be applicable for such arbitration, but without prejudice to the Circular.
  4. Stock Exchanges (SEs) shall maintain a panel of arbitrators. SEs shall ensure arbitrators have adequate qualifications and are included in the panel in accordance with fair and transparent criteria.
  5. The Circular provides for a short code of conduct for the arbitrators. Specifically the arbitrators are to act in a fair, impartial and independent manner, and shall disclose circumstances where there is conflict of interest.
  6. Claims up to Rs 25 lakhs will be dealt with by a sole arbitrator and claims beyond the said amount, by three arbitrators
  7. Arbitral award shall be given by the arbitrators within four months from the date of appointment, unless the Managing Director/ Executive Director of the Stock Exchange allows extension. This is really interesting. It would be interesting to conduct an empirical survey on how far the arbitrators have been successful in complying with this requirement.
  8. Appeal from the arbitral award shall be to the Appellate Tribunal, which shall decide the appeal within three months from appointment of the appellate tribunal.
  9. Fixed fee for the arbitrators
  10. Stock Exchanges having nationwide terminals shall provide arbitration facilities in all their regional centres.
  11. Once arbitral award is passed, the money under the award shall be kept in an escrow account. 
  12. The SE 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.
  13. The The SE 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 an application to a Court to set aside such appellate arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, having been made, but where no stay has been granted by such Court within a period of three months from the date on which the party making that application had received the appellate arbitral award.This rule is what was proposed in the recent consultation paper proposing amendments to the Arbitration and Conciliation Act, 1996. Under the Act, an award could not be implemented unless the proceedings for setting aside arbitral awards are over. Here, even when the setting aside proceedings are pending, an award could be implemented unless the court specifically stays the implementation of the award. 
  14. Stock exchanges shall preserve the records pertaining to arbitration. The details of arbitrations and arbitrator-wise disposal of arbitrations should be maintained as per Form A and B of the Circular and published in their websites. The stock exchanges shall also publish arbitral awards in their websites, as per the April 2010 SEBI Circular.
  15. The stock exchanges ought to make necessary amendments to their bye-laws as a follow up to this Circular and keep SEBI updated about this.

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