SEBI Modifies Standard  Operating  Procedures  (SOP)  for  dispute  resolution  under  the Stock  Exchange arbitration  mechanism  for  disputes  between  a Listed Company and/or Registrars to an Issue and Share Transfer Agents (RTAs)and its Shareholder(s)/Investor(s) – 30th May, 2022

• SEBI, vide circular dated 8^th April, 2022 advised Exchanges to put in place a Standard Operating Procedure (SOP) for operationalizing the resolution of all disputes pertaining to  or  emanating  from  investor  services  such  as  transfer/transmission  of  shares, demat/remat,  issue  of  duplicate  shares,  transposition  of  holders,  etc.  and  investor entitlements like corporate benefits, dividend, bonus shares, rights entitlements, credit of securities in public issue, interest /coupon payments on securities, etc.
• Further, SEBI vide its Circulated dated 30^th May, 2022 partially modified above circular, and after consultation with the stock exchanges/ Registrar and Share Transfer Agents (RTAs), the SOP to be followed is as under-

Applicability :-

• The provisions of SOP shall be applicable to Listed Companies/RTAs offering services on behalf of listed companies. In case of claims or disputes arising between the shareholder(s)/ investor(s) of listed companies and the RTAs, the RTAs shall be subjected to  the  stock  exchange  arbitration  mechanism. In all such instances, the listed company shall necessarily be added as a party.

• The Arbitration Mechanism shall be initiated post  exhausting  all  actions  for resolution of complaints including those received through SCORES Portal. The Arbitration reference shall be filed with  the Stock Exchange  where  the  initial complaint has been addressed.

Maintenance of a Panel of Arbitrators and Code of Conduct for Arbitrators :-

• The maintenance of Panel of Arbitrators and the Code of Conduct for Arbitrators shall be in line with the current norms being followed by the Stock Exchanges for arbitration mechanism.

1. Arbitration :-

• The limitation period for filing an arbitration application shall be as prescribed under the law of limitation, i.e., The Limitation Act, 1963.

• In case  of arbitration  matters involving a  claim of up  to  Rs. 25  lakhs,  a  sole arbitrator shall be appointed and, if the value of the claim is more than Rs. 25 lakhs ,a panel of three arbitrators shall be appointed.

• The  process  of  appointment  of  arbitrator(s) shall  be completed by  the stock exchange within 30 days from the date of receipt of complete application from the applicant.
• Disputes pertaining to or emanating rom investor service request such as transfer/transmission of   shares, demat/remat, issue of  duplicate   shares, transposition of holders, investor entitlements like corporate benefits, dividend, bonus shares,  rights  entitlements,  credit  of  securities  in  public  issue,  interest/coupon payments on securities and delay  in  processing/wrongful  rejection  of aforesaid investor service requests may be considered for arbitration.

2. Appellate Arbitration :-

• Any party aggrieved by an arbitral award may file an appeal before the appellate panel of arbitrators of the stock exchange against such award within one month from the date of receipt of arbitral award by the aggrieved party.

• The appellate panel shall consist of three arbitrators who shall be different from the one(s)who passed the arbitral award appealed against.

• The process  of  appointment  of appellate  panel of arbitrator(s) shall  be completed by  the stock  exchange within  30  days  from  the  date  of  receipt of complete application for appellate arbitration.

3. Arbitration Fees :-

• The  fees  per  arbitrator  shall  be  Rs.  18,000/-plus stamp  duty,  service  charge etc. as applicable per case. The fees plus stamp duty, service charge etc. as applicable shall be collected from RTAs/Listed companies and shareholder(s)/ investor(s) separately by the Exchange, for defraying the cost of arbitration.

• If  the value of  claim  is  less  than  or  equal  to  Rs.10  lakhs,  then  the  cost  of arbitration with respect to the shareholder(s)/investor(s)shall be borne by the Exchange.

• Further on passing of the arbitral award,  the fees and stamp charges paid by the party in whose favor the award has been passed would be refunded and the fees and stamp charges of the party against whom the award has been passed would be utilized towards payment of the arbitrator fees.

• For appellate arbitration, fees of Rs.54,000/-plus stamp duty, service charge etc. as applicable shall be paid by the appellant only. The Appellate fees shall be non-refundable.

• In case, an appellant filing an appeal is a shareholder/an investor having a claim of  more  than Rs. 10 lakhs, the appellant shall pay a fee not exceeding Rs. 30,000/-plus stamp  duty,  service  charge  etc.  as applicable and  in  case  of a claim upto Rs. 10 lakhs, the appellant shall pay a fee not exceeding Rs. 10,000/-plus stamp  duty,  service  charge  etc.  as  applicable. Further  expenses  thus arising shall be borne by the Stock Exchanges and the Investor Protection Fund of Stock Exchanges equally.

4. Hearings :-

• No hearing shall be required to be given to the parties involved in the dispute if the  value of the  claim  or  dispute  is upto Rs.  25,000/-.  In  such  a  case, the arbitrator(s)shall  proceed to decide the matter on the basis of documents submitted by the parties concerned.

• If the value of claim or dispute is more than Rs.25,000/-, the arbitrator(s) shall offer to hear the parties to the dispute unless parties concerned waive their right for such hearing in writing.

• After appointment of the arbitrator(s)in the matter, the Exchange in consultation with  the  arbitrator(s)shall  determine  the  date and time  of  the  hearing and  a notice of the same shall be given by the Exchange to the parties concerned at least ten days in advance. The parties concerned may opt for physical hearings which are conducted in the Stock Exchange Premises or hearing through Video Conference.

• The hearings through Video Conference may be conducted by the Stock Exchanges after taking consent from the parties concerned.

• The arbitrator(s) may conduct one or more hearings, with a view to complete the case within the prescribed timelines.

5. Passing of Award :-

• Arbitral Award

• The arbitration proceedings shall be concluded by way of issue of an arbitral  award  within  four  months  from  the  date  of  appointment  of arbitrator(s).
• The stock exchanges may extend the time for issue of arbitral award by not more than two months on a case to case basis after recording the reasons for the same

6. Appeal against Arbitral Award

• The appeal against an arbitral award shall be disposed of by way of issue of an appellate arbitral award within three months from the date of appointment of appellate panel.

• The  stock  exchanges may  extend  the  time  for  issue  of  appellate arbitral award by not more than two months on a case to case basis after recording the reasons for the same.

• A party  aggrieved  by  the  appellate  arbitral  award  may  file  an application  to  the court of  competent  jurisdiction in  accordance  with Section 34 of the Arbitration and Conciliation Act, 1996.

• In case the  parties  wish  to  settle/withdraw  the  dispute, the  arbitrator(s)/appellate panel may pass an award on consent terms.

• Where the award is against the Listed Company/RTA, the Listed Company/RTA shall  update the status  of  compliance with the arbitration award promptly to the exchange.

• The stock exchanges shall put in place a framework for imposition of penalty on Listed Companies in cases where Listed Companies/RTAs do not honor the arbitral award.

7. Record and Disclosures

• The stock exchanges shall preserve the documents related to arbitration for five years from the date of arbitral award,  appellate arbitral award or Order of the Court,  as  the  case  may  be;  and register  of  destruction  of  records  relating  toabove, permanently.
• The stock exchanges shall disclose on  its  website,  details  of  disposal  of arbitration  proceedings  and  details  of  arbitrator-wise  disposal  of  arbitration proceedings  as  per the  formats  prescribed  by  SEBI for already available arbitration mechanism

8.Stock Exchanges/RTAs/ Listed Companies are advised to:

• Make necessary amendments to the relevant bye-laws, rules and regulations,   operational instructions, as the case may be, for the implementation of the above Circular; and

• Bring the provisions of this Circular to the notice of their constituents/shareholder(s)/investor(s)and also disseminate the same on their websites.

• The provisions of this Circular shall come into force with effect from 1^st June, 2022.

Link to the Circular:

https://www.sebi.gov.in/legal/circulars/may-2022/modification-to-standard-operating-procedure-in-the-cases-of-trading-member-clearing-member-leading-to-default_59257.html