Arbitration

Arbitration is an alternative to going to court. Instead of a judge, an independent arbitrator - or a panel of three for bigger claims - hears both sides and passes an award that is binding on them.

In the Indian securities market it is now the second stage of the online dispute resolution (ODR) process. An investor with a dispute against a broker first tries the broker itself, can escalate on SCORES, and on the ODR portal the matter goes to conciliation. Only if conciliation fails does it move to online arbitration, run by an ODR Institution empanelled by a stock exchange or other market infrastructure institution.

Arbitration is quasi-judicial: the award can be challenged only in the limited way the Arbitration and Conciliation Act, 1996 allows, under its Section 34.

From Chapter 7 (sections 7.3.6, 7.3.8 and 7.3.10):

Starting it. If conciliation is unsuccessful, the investor may initiate online arbitration by paying the fees, and the stock broker must participate. The broker must deposit 100% of the admissible claim value with the relevant MII and pay applicable fees within 10 days of the investor starting arbitration. If the broker initiates arbitration, it must inform the ODR Institution within 10 days of conciliation ending and deposit the full claim value within an additional 5 days. From the deposit, the MII may release up to Rs 5,00,000 to the investor against an undertaking/indemnity.

Arbitrators.

Timelines. For claims above Rs 1 lakh, hearings are held and the award passed within 30 calendar days of appointment, extendable by a further 30 days with reasons. Claims of Rs 1 lakh or below go through a document-only arbitration, award within 30 days (a hearing may be granted with recorded reasons). Non-cooperating parties may face an ex-parte order after 7 calendar days' notice.

After the award. A market participant ordered to pay must pay within 15 calendar days. The losing party must declare any intention to challenge under Section 34 within 7 calendar days on the ODR portal; if no stay is granted within 3 months of receipt of the award, it must be complied with. A market participant challenging an award must first deposit 100% of the amount payable.

Seat and venue. For individual investors, where the investor resides permanently. Late fees: arbitration begun more than one month and up to six months after failed conciliation attracts double the non-refundable fee.

Illustrative claims; the thresholds and timelines are the workbook's.

Case 1 - Rs 85,000. Leela alleges unauthorised trades cost her Rs 85,000. Conciliation fails. Since the claim is Rs 1 lakh or below, a sole arbitrator runs a document-only arbitration and passes an award within 30 days of appointment. Leela submits contract notes, account statements and her margin statement; no hearing is needed unless the arbitrator records reasons for one.

Case 2 - Rs 8,50,000. Vikram's claim is above Rs 1 lakh but under Rs 30 lakh: a sole arbitrator, with hearings, award within 30 days (extendable by 30). The broker must have deposited the admissible claim value the conciliator fixed - say Rs 6,00,000 - within 10 days of Vikram starting arbitration, and Vikram can ask the MII to release up to Rs 5,00,000 of it.

The award goes Vikram's way for Rs 7,20,000. The broker must pay within 15 calendar days, or declare within 7 days that it will challenge under Section 34 - and to challenge, it must deposit the full Rs 7,20,000 with the MII.

Case 3 - Rs 45 lakh. Above Rs 30 lakh, so an arbitral tribunal of three.

Chapter 7 (Investor Grievances and Arbitration, 10% weightage) develops arbitration inside the SMART ODR framework (sections 7.3.6 to 7.3.10 and the ODR flow table). Its sample questions ask "Arbitration for claims up to ___ is decided by a sole arbitrator" (Rs 30 lakh), "Arbitration aims at ___ legal resolution" and "Online arbitration is administered by ___" (ODR Institution). Chapter 3 ties record-keeping to arbitration: brokers keep order-placing evidence for the period arbitration accepts complaints, currently three years, and Chapter 8 brings MTF disputes under the same arbitration mechanism.

• Sole arbitrator up to Rs 30 lakh; three above Rs 30 lakh.
• Document-only arbitration is for claims of Rs 1 lakh or below - not Rs 30 lakh.
• Award within 30 days, extendable by 30 days - not 21 days (that is conciliation).
• Online arbitration is administered by the ODR Institution, not by SEBI, the exchange or an investor association.
• Deposit rules differ by who starts it. Chapter 7 says in section 7.3.6 that the market participant must deposit 100% of the admissible claim value if it wishes to pursue arbitration; section 7.3.8 adds that the broker must also deposit it within 10 days when the investor initiates. Know both.
• Section 34 challenge: intention within 7 days; comply if no stay within 3 months; deposit 100% of the award first.
• Limitation period for an arbitration reference with exchanges is three years (SCORES complaints: one year).