Sebi Issues SOP for Dispute Resolution Under Stock Exchange Arbitration Mechanism

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Capital markets regulator Sebi has issued new standard operating procedures (SOPs) for resolving disputes under the stock market arbitration mechanism for disputes between a listed company or an issue’s registrars and agents stock transfer company (RTA) and its shareholders. The arbitration mechanism will be initiated after all claims resolution actions have been exhausted, including those received through the SCORES portal.

The arbitration reference will be filed with the exchange where the original complaint was handled. The new framework will come into effect from June 1, the Securities and Exchange Board of India (Sebi) said in a circular on Monday. The SOP will apply to listed companies or RTAs offering services on behalf of listed companies. In the event of claims or disputes arising between the shareholder or investor of listed companies and the RTAs, the RTAs will be subject to the arbitration mechanism of the stock exchange.

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

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Disputes relating to or arising from investor service requests, including transfer/transmission of shares, demat, transposition of holders, investor rights such as employee benefits, dividends, bonus shares, rights , the credit of publicly issued securities and the unwarranted delay or rejection of such investor service requests may be considered for arbitration.

Regarding the arbitration fee, Sebi said that the fee 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, to cover arbitration costs. If the value of the claim is less than or equal to Rs 10 lakh, the arbitration costs regarding shareholders or investors will be borne by the exchange.

Following the adoption of the arbitral award, the fees and stamp costs paid by the party in whose favor the award was made would be reimbursed and the fees and stamp costs of the party against whom the award was made would be used for payment of the arbitrator’s costs. For appellate arbitration, a fee of Rs 54,000 plus stamp duty and service charge will be paid by the appellant only, which will not be refundable.

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In case an appellant filing an appeal is a shareholder/investor with a claim of more than Rs 10 lakh, the appellant shall pay a fee not exceeding Rs 30,000 together with stamp duty and service charge and in In the event of a claim up to Rs 10 lakh, the appellant must pay a fee not exceeding Rs 10,000 plus stamp duty and service charge.

The additional expenses thus generated will be borne equally by the exchanges and the Investor Protection Fund of the exchanges. Regarding the venue of the arbitration, Sebi said that the arbitration and appellate arbitration will be conducted at the regional exchange center closest to the shareholders or investors. The petition against the decision of the panel of appeal arbitrators must be filed with the competent court nearest to such regional center.

Sebi said the arbitration proceedings will be concluded by the issuance of an arbitration award within four months from the date of the appointment of the arbitrator. However, exchanges may extend the time for issuing the arbitration award by up to two months on a case-by-case basis after registering the reasons for it. The appeal against an arbitral award shall be decided by the issuance of an appeal arbitral award within three months from the date of appointment of the appeal panel. In addition, exchanges may extend the time for issuing the appeal arbitration award by up to two months on a case-by-case basis after registering the reasons for it.

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A party aggrieved by the appeal arbitral award may file a petition with the competent court under the Arbitration and Conciliation Act. In the event that the parties wish to settle or withdraw the dispute, the Arbitrator Appeals Committee may issue a decision on consent terms. Where the award is against the listed company or the RTA, these entities should promptly update the status of compliance with the award to the exchange.

“The exchanges will put in place a framework for the imposition of sanctions on listed companies in cases where listed companies/RTAs do not honor the arbitration award,” Sebi said. Exchanges must retain records relating to the arbitration for five years from the date of the arbitration award, appeal arbitration award, or court order, as applicable; and records destruction register relating to them, on a permanent basis. In addition, they are required to disclose on its website the details of the elimination of arbitration proceedings and the details of the arbitrator’s elimination of arbitration proceedings.

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