The SEBI (Securities and Exchange Board of India) has notified a Circular (CIR/CDMRD/DEICE/CIR/P/2017/77) on 11th July amending the Investor Grievance Redressal System and Arbitration Mechanism.
The SEBI has issued the circular under Section 11(1) of the SEBI 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 it shall come into effect immediately.
The Stock Exchanges across the country on the directions of SEBI have established grievances redressal mechanism for the speedy and orderly redressal of the grievances and the new amendments are meant to enhance the transparency and and provide autonomy to parties which are cardinal principles of arbitration.
The new amendments provide that;
i. National Commodity Derivatives Exchanges (Hereinafter referred as NCDE) are required to provide following information on their website;
a. A brief profile of arbitrators.
c. areas of experience/expertise
d. number of arbitration matters handled etc.
Availability of this information will bring transparency and build trust in the whole process of dispute resolution. It will help the parties to take a more informed decision while selecting their arbitrator.
ii. Now NCDEs are mandated to make necessary arrangements (hardware and software) so that submission of documents could be made in electronic form.
This is a very welcome move by SEBI! Considering the fact that arbitration is facing a lot of criticism, domestically and internationally, due to its slowing pace in concluding arbitration proceeding this amendment will rectify the delay issues. Mandating the submission of documents in electronic form will make it easy for arbitrators and parties to review those documents, save time and will also help in keeping a proper record.
iii. The circular also provides for the annual review of the performance of the arbitrators which shall be done by Investor Service Committee of the NCDE. It has also recognized the necessity of proper training of the arbitrators and states that cost of such training my be incurred by ISF of the NCDE.
This is again a significant more in improving the quality of arbitration in commodity derivative market. For justice there is a need of quality award , and for a quality there is need to quality arbitrators. A well reasoned arbitration award can only be rendered by trained and experienced arbitrators and such awards are less likely to be challenged at Appellate Arbitration stage or under Section 34 of Arbitration and Conciliation Act. This ultimately brings the required speed and quality, which the arbitration is famous for.
iv. The Circular also mandates NCDEs to create a common database of defaulting clients accessible to members across the Exchanges.
v. In order to maintain impartiality at appellant arbitration level, the Circular provides that there should be separate panels for arbitration and appellate arbitration. It further requires that NCDEs are required to obtain a prior approval of SEBI before empanelment of arbitrators and at least one member of the appellate arbitration panel should be a Retired Judge.
vi. The Circular provides for a separate list for Investor Grievance Resolution Panel (IGRP). It states no arbitrator/ appellate arbitrator shall be empaneled as IGRP member.
vii. Fees of Arbitrators: The arbitrators fee has been upwardly revised to Rs.18,000/- (Rs. Eighteen thousand) per case.
viii. Venue of Arbitration: In case award amount is more than Rs. 50 lakh (Rs. Fifty lakh), the next level of proceedings (arbitration or appellate arbitration) may take place at the nearest metro city, if desired by any of the party involved.
ix. Rate of Interest on the Award: In order to safeguard the interest of the parties involved in arbitration and to ensure speedy implementation of the arbitration award, the rate of interest on the award passed by arbitrators shall be in compliance with Arbitration and Conciliation (Amendment) Act, 2015.
The Section 31 of the Arbitration Act which deals with the form and contents of arbitral award provides that, unless otherwise provided the interest of the arbitration award shall carry interest at the rate of two percent higher than the current rate of interest (which is defined under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978)) prevalent on the date of award, from the date of award to the date of payment.
x. Speeding up grievance redressal mechanism to confront delays and misuse of the arbitration process.
The Circular also provides a table for charging fees after considering amount in dispute and time taken to file the claim. The more the Amount of Claim / Counter Claim and time taken to file such Claim / Counter Claim the higher will be the fee charged. It is expected that this will ensure faster implementation of award and to discourage delayed filling of arbitrations by members.
xi. Amendments have also been made with respect to the threshold limit for interim relief paid out of IPF in Exchanges.
The Circular directs NCDEs to make necessary amendments to relevant bye-laws, rules and regulations for the implementation of the amendments provided under the Circular, bring the provisions of the Circular to the notice of the members of the Commodity Derivatives Exchanges and also to disseminate the same through their website and communicate SEBI about the status of implementation of the provisions of this circular.