If you’ve ever faced a dispute with your broker, be it unauthorized trades, fund mismanagement, or non-payment of dues, you’ve likely heard of arbitration as a remedy. But what exactly is the purpose of arbitration in the stock market, and why is it preferred over going to court?
In this blog, we’ll explain the core objective of arbitration, how it works under SEBI-regulated exchanges like NSE and BSE, and how it can help you as a retail investor resolve your trading-related disputes quickly and cost-effectively.
What Is Arbitration in the Stock Market?
Arbitration is a legally recognized alternative dispute resolution (ADR) method used to settle disputes between investors and registered intermediaries (such as brokers, trading members, stock advisors, or clearing corporations) without going through lengthy court procedures.
In India, stock market arbitration is governed by the Securities and Exchange Board of India (SEBI) and conducted through exchange platforms such as NSE, BSE, and MCX, which have their arbitration mechanisms and panels of independent arbitrators.
Purpose of Arbitration in the Indian Stock Market
Here are the core objectives and benefits of arbitration for stock market participants:
1. Faster Resolution of Disputes
Arbitration ensures that investors don’t spend years waiting for court verdicts.
The exchanges set a time-bound process (typically within 4 to 6 months), which helps protect investors from financial uncertainty.
2. Cost-Effective Legal Remedy
Filing a case in court could be a lengthy and costly solution.
Arbitration through stock exchanges is relatively affordable, especially for small claims.
SEBI also provides fee reimbursements for eligible investors under certain schemes.
3. Neutral and Qualified Arbitrators
Arbitrators are chosen from a pre-approved list maintained by the exchanges.
They are independent professionals with expertise in capital markets, ensuring fair judgment based on facts, not influence.
4. Accessible to Retail Investors
Even without a lawyer, a well-documented case can be presented by the investor.
Exchanges offer user-friendly platforms and procedural guidance, making arbitration investor-friendly and non-intimidating.
However, if you need assistance in representing your case in arbitration, register with us now. We will guide you with the process and preparation of documents.
5. Legally Binding Awards
The decision given by the arbitrator is final and binding, just like a court decree.
If one party doesn’t comply, the other can enforce the award through a civil court under the Arbitration and Conciliation Act, 1996.
What Matters can be Referred to Arbitration?
Now, the question is, what kind of cases can you escalate for arbitration in the stock market?
Here is the list of some of the common cases addressed in arbitration:
- Unauthorized trades or misuse of the trading account
- Non-refund of client funds or securities
- Excessive or hidden brokerage/charges
- Technical glitches or trade mismatches
- Wrong advice or misrepresentation by brokers or stock advisors
- Trading account handling with profit sharing by a registered entity.
Procedure of Arbitration Proceedings
The purpose of Arbitration is to provide a resolution to investors or traders who failed to get a fair judgment through SEBI’s SCORES portal or exchange redressal system.
So, if you are stuck in the same situation, here are the steps you can follow to proceed with the same:
- Apply for arbitration through the concerned stock exchange (NSE/BSE)
- Submit required documents, such as contract notes, ledger, communication, etc.
- Pay the required fees (refundable in part if you win the case)
- Attend hearings (in person or virtually)
- Wait for the arbitrator’s award or further directions
How Long Does Arbitration Decision Take?
Once you file for arbitration, it typically takes around 30 days for the appointment of an arbitrator, followed by 90 days for hearings and case processing, and another 15 days for the final award to be dispatched to both parties.
However, certain factors can cause delays, such as internal investigations, incomplete documentation, non-appearance of either party, or adjournments requested during hearings.
On average, the overall time frame for receiving an arbitration decision is estimated to be 4 to 6 months, depending on the complexity of the case and procedural compliance.
Termination of Arbitration Proceedings
Now, there are circumstances where Arbitration is not concluded and is terminated in between.
This generally occurs if:
- The dispute is resolved mutually between the two parties during the process.
- The claimant withdraws the case
- Either party fails to comply with procedural requirements (such as not appearing for hearings or submitting documents).
In such cases, the exchange or arbitrator may issue a termination order, closing the case without a final award.
Final Thoughts
The purpose of arbitration is to empower retail investors with a fair, fast, and cost-efficient way to resolve stock market disputes without getting entangled in court battles.
If you believe your broker has acted in bad faith or violated your trust, arbitration may be your best legal tool.
But timing is everything. Don’t delay. File within the limitation period, prepare your case carefully, and keep track of every communication.
Need help to file arbitration, fill in your details in the form below. Our team will guide you and represent your case.
