Sebi to tweak arbitration norms at exchanges

Market regulator Securities and Exchange Board of India (Sebi) plans to tweak norms related to arbitration process at exchanges, for better resolution of disputes.

The need has been prompted by an unusually high arbitration award passed last year in Madan Mohan Sharma versus Master Capital Services, said sources. A panel in Patna had reportedly awarded a compensation of Rs 9.2 lakh cror, regarded as illogical by many.

Experts believe there is a need to fine-tune the selection criteria for arbitrators. At present, arbitrators include mostly retired judges, bankers, and government officials selected on the basis of their qualification and experience. “Training or a separate qualification in arbitration from a reputed institute should be insisted upon before appointing any arbitrator,” said C Kamdar, fellow, the Chartered Institute of Arbitrators (UK). Current norms mandate regular training for arbitrators after appointment.

Another sore point is that investors have to separately approach arbitration panels of different exchanges even if they are dealing with the same broker, if the latter has membership of more than one exchange.  “Conflicting orders have been passed by arbitration panels of two exchanges for the same transgressions,” said Prakash Shah, a lawyer.  

Experts believe new arbitrators should be made to work with a panel of arbitrators. “The names of retired judges get preference for arbitration. There should be a cap on cases per arbitrator to ensure everyone gets work,” said a source.

By current norms, a panel of three arbitrators is constituted if the claim value is more than Rs 25 lakh and a sole arbitrator is appointed if the claim value is less. Applicants have to give preference of arbitrators while filing their plea, which is then matched in a computer. “While the automated system is good, sometimes inexperienced people are given a case. There needs to be a grading of arbitrators,” said Shah.

According to sources, Sebi is looking at increasing the fees of arbitrators. Currently, they are paid Rs 10,000 per case. “The fees are low. In other commercial cases, arbitrators charge fees per sitting as a percentage of the claim amount,” said a source.

An email to Sebi, NSE (National Stock Exchange), and BSE did not get a response.

There are 14 arbitration centres across India with about 250-plus arbitrators. Most arbitration proceedings are completed within four months and can extend up to six months. Investors do not have to pay any arbitration fees if the claim amount is less than Rs 10 lakh. The party against whom the award has been passed has to bear the costs of arbitration. Exchanges give full refund of deposit to the party in whose favour the award has been passed.