DHC STRUCK DOWN TIME LIMIT OF SIX MONTH FOR INVOKING ARBITRATION IN STOCK EXCHANGE DISPUTES

This post was written by Neeraj Aarora on October 1, 2009
Posted Under: Arbitration

Arbitration is an alternative dispute resolution mechanism provided by a stock exchange to resolve disputes between the trading members and between trading members & constituents (i.e. clients of trading members), in respect of trades done on the Exchange. This process of resolving a dispute is faster than other means of redressal by civil courts. Arbitration comes under the Arbitration and Conciliation Act 1996. The Act allows two options— conciliation and arbitration. Conciliation is similar to an out-of-court settlement where the parties find acceptable resolution and a stamp of legal finality is marked on the case. Arbitration, on the other hand, is a quasi-judicial mechanism where arbitrators decide on a case (like a judge or a bench) and pass an order which is called an arbitration award. However, the byelaws of the exchange provide the procedure for Arbitration. The investor can procure a form for filing arbitration from the concerned stock exchange. All the cases have to be filed within 6 months of the dispute arising.

In the recent judgment of Delhi High court in SMT BIBA SETHI Vs DYNA SECURITIES LTD, OMP NO. 63/2007 decided on 17th March, 2009 Hon’ble Judge, RAJIV SAHAI ENDLAW held that “the part of Byelaw 3 of Chapter XI of NSE Byelaws, to the extend prescribing limitation of six months for reference of disputes/claims to arbitration is void. The time therefore will be governed by the limitation act.”

The Judgment shall provide a relief to the thousand of investors who has to file the suits in the civil courts on expiry of six Months time for filing the claim with the arbitration. Normally, the broker uses delay/dilatory tactics with the client resulting into loss of opportunity of clients to invoke the arbitration clause. The clients are left with no option but to file suit in the civil court where the adjudication process takes a couple of year. Now, the clients can invoke the arbitration clause within three years i.e. the time prescribed by the law of limitations. The decision of the High Court would also result into substantial reduction in the number of cases filed in the civil court in last two years as these cases can now be adjudicated/referred to the summery proceedings of the arbitral mechanism of the stock exchanges.

Reader Comments

It is good to see that the judgment rejecting the NSE Byelaws and enforcing the Limitation Act which would be helpful to investors who can now invoke the arbitration clause within three years i.e. the time prescribed by the law of limitations

#1 
Written By Sujay Ghosh on October 28th, 2009 @ 2:39 AM

Sir ,
The Order is by a judge of DHC and hence it seems is applicable to Arbitrations at Delhi centre of NSE . How it can be enforced on Mumbai Centre and consequentl on whole of India . Pls. advise
Thanking You
With Regards
Narendra Agarwal

#2 
Written By narendra agarwal on December 3rd, 2009 @ 10:06 AM

Dear Narendra
Subsequent to this judgment, DHC in the recent judgment of Delhi High Court in Ashwani Kumar Mittal V’s Vimla Securities Pvt. Ltd, OMP no. 341/2006, Hon,ble Judge Sh. S.N. Dhingra held that ” It is an undisputed fact that the while applying to National Stock Exchange seeking adjudication of its claims, the petitioner had requested for adjudication of his differences with the respondent within the purview of byelaws, rules and regulations of the exchange. Now there are two judgments of Delhi High Court with different prepositions. In the earlier judgment of Delhi High Court63/2007 decided on 17th March, 2009 Hon’ble Judge, RAJIV SAHAI ENDLAW held that “the part of Byelaw 3 of Chapter XI of NSE Byelaws, to the extend prescribing limitation of six months for reference of disputes/claims to arbitration is void. The time therefore will be governed by the limitation act.”.
Thus the proposition is still unsettled and only the judicial announcement of the superior court can resolve the issue.

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