Sucheta Dalal :First Order then Clarify
Sucheta Dalal

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First Order, then Clarify  

September 7, 2010

SEBI’s new arbitration fees may rip off the investors

Statistics show that, in the past three years, 84% of arbitration proceedings have gone against investors and, of the 15% that were in their favour, only 7% were implemented. Apparently clueless about these skewed numbers, the Securities and Exchange Board of India (SEBI) ‘streamlined’ arbitration proceedings through its 11th August circular. It decided that arbitration fees will be a percentage of the claim amount, which will, in some cases, lead to an 11-fold jump (maximum) in fees. In the end, the winner’s fee will be refunded and the loser’s fee will be credited to the exchange. If arbitration is filed six months after a dispute, the fee rises sharply and two-thirds of the loser’s fee will go to the bourse’s Investor Protection Fund (IPF). Given the skewed decisions, it is clear that investors will be ripped off by going for arbitration, but after the negative publicity, a panicky SEBI is trying to find out why the process is so anti-investor. Interestingly, just three years ago, SEBI had trotted out statistics to argue that investors win half the cases. Does this mean the sharp skew happened under chairman CB Bhave?

Following our reports, SEBI tweaked its circular to ‘clarify’ its position with hours before the new regime became operational on 1st September. It now says that the sharp increase in arbitration fees only indicates a cap not a mandate. We will see what the exchanges do next. SEBI will also permit arbitration to be filed up to three years (instead of just six months) after a dispute, but there is a twist. Claims filed after six months will attract sharply higher fees. This is surely a new twist in quasi-judicial proceedings, because fees are always linked to the quantum of claim and not the time of filing—and certainly not to both.

A few positives in this bleak picture are that bourses (read NSE) will provide arbitration at several regional centres and appellate proceedings at least at four national locations. They will also have to publish arbitration awards on their websites. But the fees are high—investors filing an arbitration claim of over Rs10 lakh will now pay a minimum fee of Rs14,000 and a maximum of Rs99,370. —
Sucheta Dalal

-- Sucheta Dalal