BSE arbitration

In this blog post, Arya Nisal, from ICFAI University, Dehradun discusses the concept of arbitration and analyses the BSE Arbitration. 

Introduction to BSE (Bombay Stock Exchange)

The BSE (Bombay Stock Exchange) is Asia’s first stock exchange established in 1875 in Maharashtra. It was founded by Premchand Roychand and was the first stock exchange to be recognised by the government of India, under the Security Contract (Regulation) Act, 1956. The main objectives of BSE are to help in the growth of Indian capital market, to maintain market integrity and safeguard the interest of the investors. The shareholders of BSE are not only from India but also from other countries. It deals with a kind of business transaction in which two parties agree to perform a contract. If any of the parties breached the contract, then there is a chance of dispute between them. Therefore, to resolve the disputes, claims and difference between the trading member and non-trading member and between trading members inter-se, BSE has established an Arbitration Mechanism embodied in the Rules, Bye-laws and Regulations of BSE. All disputes arising out of the transaction between the parties can be resolved by the Arbitration Mechanism provided by the Exchange.

 

Arbitration Mechanism 

Arbitration is a quasi-judicial process in which disputes between trading members, shareholders, sub-brokers shall be settled by the sole arbitrator or a panel of arbitrators.

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Investors who have disputes with trading members can apply for arbitration.

Trading members, who have disputes with non-trading members or investors or with other trading members can apply for arbitration.

 

Jurisdiction of Courts

In respect of any proceeding in which the BSE is a party then the court of Bombay will have the exclusive jurisdiction and in respect of any other proceeding, courts having jurisdiction over the area in which the respective Regional Investor Service Centre is situated shall have the jurisdiction.

The disputing parties are required to send all relevant documentary proof as contract notes, statement of accounts, bills, etc. along with the prescribed arbitration form duly filled into the Regional Arbitration Centre of that area.

 

Arbitral Tribunal

To resolve the disputes between trading members and non-trading members, the Arbitral Tribunal is appointed by the Arbitration Committee. The Arbitration Committee appointed for this purpose, consists of retired Judges of the High Court, Advocates, Chartered Accountants and other eminent persons with specialised knowledge or skills in this field. Arbitral Tribunal may consist of a sole arbitrator or a panel of arbitration.

Arbitration Committee: The provisions relating to the arbitration committee dealing with arbitration between trading members inter-se and between trading members and non-trading members are laid down in the Rules, Bye-laws and Regulations of the BSE.

 

Arbitration between trading members inter-se

The provisions relating to the Arbitration Committee dealing with arbitration between trading member inter-se are given in Bye-Laws Nos.282-315 of the Rules, Bye-Laws and Regulations of the BSE.

The number of arbitrators depends upon the pecuniary value of the claim such that if the value of the claim exceeds 25,000, then the bench of three arbitrators is appointed by the Arbitration Committee to decide on such disputes. And if the value of the claim is up to 25,000 then only one arbitrator from the Arbitration Committee is to be appointed to look into such matters.

The trading member filing an arbitration reference is required to attach a coupon of Rs 100 along with the application form. Both the parties, i.e., applicant and respondent or their accredited representatives are required to present in the arbitration proceeding. On hearing both the parties, the award will be given by the arbitrators.

 

Provisions of Appeal in the Lower Bench of Arbitration and Full Bench of Arbitration: The aggrieved party, who is not satisfied with the award given by the Lower Bench Arbitration Committee, may file an appeal before the Full Bench of Arbitration Committee within seven days from the date of receipt of the award by him if the principal amount of claim disallowed by the Lower Bench to the appellant exceeds Rs 1, 00,000 or the principal amount awarded by the Lower Bench against the appellant exceeds Rs 1, 00,000. The party who desire to file an appeal before the Full Bench of Arbitration is required to deposit the amount award/shares as stated in the lower Bench with the Exchange along with a fee of Rs 500. The amount of award or shares is retained in the BSE until the Full Bench of Arbitration Committee decides the case. All the members of the Full Bench of Arbitration Committee decide the case against the award given by the Lower Bench of Arbitration Committee.

 

Appeal before the Board of Directors: The aggrieved party who is not satisfied with the award of Full Bench of Arbitration may file an appeal before the Board of Directors within seven days from the receipt of the award from the Full Bench by him if the principal amount of claim disallowed by the Full Bench to the appellant exceeds Rs 5, 00,000 or the principal amount awarded by the Full Bench against the appellant exceeds Rs 5, 00,000. The Party is required to deposit the amount of award or shares as stated in the Full Bench of Arbitration with the Exchange along with the fee of Rs 750. The Board of Directors is the final Appellate authority, and generally, no further appeal is possible against the decision given by them. But in some special circumstances, the Board of Directors may permit the aggrieved party to file a further appeal to Court of Law.

 

Arbitration between non-trading members and trading members

The provisions related to arbitration between non-trading members and trading members are laid down in Bye-Laws Nos. 248-281 of the Rules, Bye-Laws and Regulations of the BSE.

An Arbitral Tribunal of three arbitrators is appointed in case the value of the claim exceeds Rs 25, 00, 000 whereas an Arbitral Tribunal of only one arbitrator is appointed in case the value of the claim is up to Rs 25, 00, 000.

IN CASE OF a CLAIM UPTO Rs 25, 00, 000: In this case, the respondent gives consent to any one of the three arbitrators proposed by the applicant, and that consented person acts as an arbitrator in such a matter. If the respondent refuses to choose any of the proposed arbitrators, then the Managing Director or CEO of the Exchange appoints the arbitrator for that matter. Both the parties are required to deposit the prescribed fees, and the deposited fees will be refunded after deducting the statutory charge to the award holder.

IN CASE OF CLAIM EXCEEDING Rs 25, 00, 000: In this case, an Arbitral Tribunal of three arbitrators is appointed, one each by the applicant and the respondent and one by the Managing Director or the CEO of the Exchange as per the Rules, Bye-Laws and Regulations of BSE. If any of the parties fail to appoint the arbitrator then the Managing Director or the CEO of the Exchange, appoints the arbitrator on their behalf. Both the parties are required to deposit the prescribed fees, and the deposited fees will be refunded to the award holder after deducting the statutory charge.

Application Form: A copy of documents filed by the applicant along with the applicable forms are sent to the respondent who then has to submit the counterclaim if any, consent to the arbitrators or appointment of arbitrator along with the arbitration fees. The forms are available the website of BSE i.e. http://www.bseindia.com .

After that notice of hearing sent to the parties as arranged by the arbitrator. An advocate may appear on behalf of each party if the Arbitral Tribunal has granted the permission.

Time Limit: The Arbitral Tribunal shall make the award within four months of the appointment of an Arbitrator. The time limit can be extended due to some reasonable cause if the same is approved by the Managing Director or The CEO of the Exchange, but it shall not be extended for more than two months (Bye-Laws No.254 of the Rules, Bye-Laws and Regulations of the BSE).

 

Appeal: An aggrieved party can file an appeal against the award of the arbitrators within 30 days from the receipt of the award. The party filed for appeal is required to pay the applicable fees as decided from time to time. The party who is not satisfied with the award given by the lower Bench can file an appeal with the Appellate Bench. If the appeal is preferred in, the same is decided by the Appellate Bench of three arbitrators and the award given by that Bench will be final and binding on both the parties subject to challenge under Section 34 of The Arbitration and Conciliation Act, 1996. The Appellate Bench decide the award within three months from the date of appointment of an arbitrator or within an extended time which shall not be more than two months in case of any reasonable cause as approved by the Managing Director or the CEO of the Exchange.

 

Settlement of Award

 If the award is made against the trading member, then the trading member is required to make the payment award either directly to the award holder or deposit the award amount into the Exchange. If the member fails to do so, then the awarded amount will be deducted from his deposit into the Exchange. If no fund is available as a deposit into the Exchange, then BSE will send a so cause notice to the member. If the member still does not make the payment, then the matter is placed before the Disciplinary Action Committee for suitable action and which declares that member as Defaulter. If the award has not been challenged under Section 34 of The Arbitration and Conciliation Act within prescribed time limit then on the expiry of such period the award will be enforceable as if it is the decree of the court.

Settlement of award against the defaulter member: If the Disciplinary Action Committee declares any trading member as a defaulter then the award is placed before the Defaulters’ Committee. The Committee recommends payment of the award to the award holder from the Investors Protection Fund (IPF) of the Exchange to the extent of the amount awarded or the maximum permissible amount from the fund, whichever is lower. The maximum amount payable from the fund at present is Rs 15, 00, 000 per client per defaulter and shall apply to the clients of the trading member of the Exchange, who will be declared a defaulter. SEBI vide its circular dated 26th September 2013 empowered the Investors’ Grievances Redressal Committee (IGRC) to decide the value of the claim to the investors against the trading members which defers from case to case.

 

Publication of the award

After the award is made by the arbitrators, a duly signed copy of the award shall be delivered to each party, i.e., the award holder and the member against whom the award is made.

 

Correction of the Award

If there is any clerical error, mathematical error, computational error or any other similar error then within 15 days of the receipt of the award, any party with the notice to the other may request the arbitrator or arbitrators to correct the error. If the application is considered as justified by the arbitrator(s), then it shall make the correction. The arbitrator may suo moto correct the error if any, within 10 days of making the award and correct copies of the award shall be given to the parties.

 

Award binding on parties and their representatives

An award made by the arbitrator will be final and enforceable on the parties as well as their legal representatives subject to section 34 of the Arbitration and Conciliation Act, 1996. So if any legal disability or death of any party before or after the award is made, shall not operate as the revocation of the award.

 

Kassa Case

In this case, it was alleged that Kassa Finvest Private Limited had misused the funds of investors. In May 2015, BSE expelled Kassa when SEBI had found that the broker was illegally selling the securities of investors and raised funds.

The BSE on July 2016 said that the investors could file an arbitration against the broker within 90 days from the date of issue of notice dated July 5, 2016, by the Exchange. The client who filed complaints within 90 days and if the award is in favour of the client against the trading member, would only be eligible for receiving compensation from the Investors Protection Fund (IPF).

 

Notes

  • ARBITRATOR: – An arbitrator is an independent person chosen to decide the disputes or settle differences between the parties and helping them to agree to an acceptable solution.
  • AWARD: – Award means a decision made by arbitrator or Arbitrator Tribunal after hearing the disputes between the parties and that award shall be binding on both the parties.
  • COUNTER CLAIM: – Counterclaim is an amount claimed by the respondent in the arbitration proceeding.
  • JURISDICTION OF COURT: – The power of the court to try all cases and rule on legal matters within a specific geographical area.

 

 

 

References: 

 

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