The Bombay High Court dismissed ITC Limited’s petition challenging communications issued by Metropolitan Stock Exchange (MSE) and its empanelled ODR Institution calling upon ITC to participate in arbitration proceedings initiated by a complainant under SEBI’s Online Dispute Resolution (ODR) framework. The Court held that the mere fact that ITC’s securities are not listed on MSE cannot, standing alone, be treated as conclusively establishing the absence of authority of every participant in the ODR mechanism, and that what was required to be examined was whether, on a proper application of paragraph 16 and the facts relevant to the allocation, the reference to MSE was impermissible.
The Court was not persuaded, on the facts before it, that the allocation of the complaint to MSE constituted such a patent and demonstrable absence of authority as would justify preventing the arbitral process at the threshold, though this conclusion was confined to the exercise of writ jurisdiction and did not preclude ITC from raising before the arbitral forum its objection that the reference was not maintainable before an ODR Institution empanelled by MSE having regard to paragraph 16 of the Master Circular.
The Court held that the substantial objections raised by ITC, including the considerable lapse of time, previous complaints, alleged absence of locus, alleged absence of a valid transfer in favour of the complainant and the nature of the relief claimed, were matters which ITC was entitled to raise but before the appropriate arbitral forum, and that the mere fact that an objection was substantial did not, by itself, convert it into a jurisdictional bar warranting exercise of writ jurisdiction.
The Court held that the question of whether earlier proceedings operated as res judicata, constituted an abuse of process, or otherwise barred the present claim would require examination of the nature of each earlier proceeding, the orders passed therein, the parties thereto, the reliefs claimed and the basis on which the complaints were disposed of, and that it would neither be appropriate nor desirable for the Court to undertake such adjudication when the regulatory framework itself provided for an arbitral forum.
The Court held that the mere age of the underlying transaction did not, by itself, permit the Court to dispense with the adjudicatory process contemplated by the Master Circular, since the Master Circular itself contained a specific provision concerning limitation under paragraph 14, and whether the complainant’s claim satisfied that requirement was a matter to be tested by applying paragraph 14 to the facts of the claim. The Court held that the submission regarding locus stood on substantially the same footing, since the question of whether the complainant was the registered shareholder or had produced any valid instrument establishing his entitlement was a disputed question going to the maintainability and substantive basis of the claim which could not be conclusively determined in writ proceedings merely on the basis of ITC’s assertion.
The Court further held that the Master Circular did not confer upon a Market Participant a unilateral power to declare a complaint frivolous and withdraw from the ODR mechanism on that basis, and that if ITC contended that the complaint was barred, repetitive, not maintainable or otherwise liable to be rejected, those objections could be placed before the arbitral forum.
The Division Bench comprising Justice R. I. Chagla and Justice Farhan P. Dubash observed that the principal question for consideration was whether the initiation and continuation of arbitral proceedings against ITC through the ODR mechanism disclosed such a patent lack of jurisdiction or authority as would warrant interference under Article 226 of the Constitution. The Court noted that the jurisdiction under Article 226 is not an appellate jurisdiction over the proceedings conducted under the ODR mechanism, and that the Court was required to examine whether the impugned action was demonstrably without authority, contrary to the governing regulatory framework, or otherwise suffered from a jurisdictional defect of such patent character as would warrant intervention at the threshold.
The Court observed that it was not called upon at this stage to determine the merits of the dispute, including the substantive entitlement of the complainant to the bonus shares or the corporate benefits claimed, nor to adjudicate disputed questions concerning limitation, locus, maintainability, res judicata or the effect of previous complaints, unless the material established a clear and patent bar to the proceedings themselves.
The Court examined the architecture of the ODR mechanism under the Master Circular and noted that it establishes a structured mechanism for resolution of disputes arising between investors or clients and listed companies and specified intermediaries or regulated entities in the securities market, and that the scheme is not merely an optional administrative facility but a regulatory dispute-resolution mechanism established by SEBI. The Court observed that paragraph 14 of the Master Circular provides that dispute resolution through the ODR Portal may be initiated only within the applicable period of limitation, and that ITC undoubtedly had a substantive objection on limitation, but the question was whether that objection rendered the initiation of arbitration a nullity or whether it was required to be adjudicated in the arbitral process.
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The Court further observed that paragraph 16 deals with allocation of disputes to ODR Institutions and provides for a market-wide round-robin allocation system, subject to the specific stipulation that complaints or disputes arising with a specific trading member in relation to an exchange transaction or with a listed company are to be referred to the ODR Institution(s) empanelled by the relevant Stock Exchange, and that this allocation provision was required to be read as a whole and not in isolation.
The Court observed that paragraph 20(b) of the Master Circular provides that where the dispute remains unresolved after conciliation, the investor or client may pursue online arbitration, and that the language employed therein is mandatory, meaning that once a dispute has validly entered the ODR framework and conciliation has concluded without resolution, the Market Participant cannot merely by expressing disagreement with the claim elect not to participate in the arbitral process.
However, the Court clarified that this mandatory provision cannot be read as conferring jurisdiction where the Master Circular itself excludes the dispute from the ODR framework or where there is a patent and demonstrable absence of jurisdiction, and that participation in arbitration does not amount to an admission of the claim or a waiver of legally sustainable objections to jurisdiction, limitation, maintainability, locus or arbitrability. The Court further observed that the mandatory character of paragraph 20(b) does not render every objection incapable of consideration but prevents the Market Participant from unilaterally bringing the ODR process to an end merely because it disputes the claim.
Briefly, the dispute traces back to the year 1989, when Prakash Chand Baid is stated to have purchased 85 base shares of ITC Limited from three original shareholders. Around the same time, ITC declared a one-to-one bonus issue pursuant to a Board Resolution dated 11th August 1989, with the record date fixed as 19th September 1989 and the date of issue as 21st September 1989. Since the base shares stood in the names of the original shareholders on the record date, 85 bonus shares were issued in their names under three separate share certificates. The base shares were thereafter registered in the name of Mr. Baid on 28th September 1989, and Mr. Baid subsequently transferred them to Mr. N. Ramaswamy under a transfer deed dated 20th March 1990. By a letter dated 20th April 1990, ITC, through its erstwhile share transfer agent, informed Mr. Baid that the bonus shares would be kept in abeyance pending submission of duly completed transfer forms, which were never submitted.
Respondent No. 2, Mr. Ashok Mootha, who claims to have been the stock broker of Mr. Baid, addressed letters dated 2nd/3rd May 1994 complaining of non-receipt of the bonus shares, to which ITC replied on 10th May 1994 stating that the bonus shares had inadvertently been returned to the original shareholders. SEBI was established under the SEBI Act, 1992, and by a Circular dated 3rd June 2011, introduced the SCORES Portal for electronic investor grievance redressal with effect from 20th May 2011. More than two decades after the bonus issue, the Complainant commenced fresh correspondence with ITC in 2014 seeking details of the bonus shares and corporate benefits accruing thereon, and in 2015 produced a Power of Attorney allegedly executed by Mr. Baid in his favour, which ITC disputes having been furnished. In 2016, one Mr. V. Narayanan, claiming to be the legal heir of one of the original shareholders, sought issuance of duplicate shares, and ITC replied that it was unable to take any action. The Complainant thereafter addressed a notice dated 11th April 2019 to the original shareholders calling upon them to hand over the bonus shares, and by a letter dated 15th March 2021, sought transfer of the bonus shares and related corporate benefits from ITC.
In 2021, the Complainant lodged a complaint against ITC on the SCORES Portal, which was dismissed and closed on 16th August 2021 and was not thereafter challenged. With effect from 31st July 2023, SEBI introduced the Online Dispute Resolution framework under the Master Circular dated 31st July 2023, providing for online conciliation and arbitration in disputes arising in the Indian securities market. Thereafter, the Complainant filed several complaints against ITC on the ODR Portal, which were allotted on a round-robin basis to various Market Infrastructure Institutions including NSE, BSE, NSDL, CDSL and MSE, and were rejected or dismissed on grounds including limitation, locus, jurisdiction, maintainability and duplication. The fourteenth such complaint was allotted to MSE on 25th August 2024, and the Conciliation Officer appointed by Respondent No. 3 issued a Conciliation Report dated 16th October 2024 recording that the complaint was time-barred, with the conciliation process ending without settlement.
On 24th October 2024, ITC requested MSE not to entertain any further complaint from the Complainant on the ground that MSE lacked jurisdiction since ITC’s securities were neither listed nor traded on MSE. By a letter of the same date, MSE replied acknowledging that ITC’s securities were not listed on its exchange but stated that the complaint had been allotted to it through the ODR Portal on a round-robin basis in accordance with the Master Circular. On 28th October 2024, ITC addressed communications to SEBI requesting it to examine the matter, and SEBI thereafter informed ITC telephonically that it was not empowered to grant an entity-specific exemption or adjudicate the objections raised, which could be urged before the appropriate arbitral forum. By an email dated 26th November 2024, MSE, through Respondent No. 3, informed ITC that the Complainant had initiated arbitration and called upon ITC to comply with the applicable requirements, including payment of arbitration fees. ITC, by communication dated 13th January 2025, called upon Respondent Nos. 1 and 3 to cease further proceedings.
