Contributed by Aryan Soni and Hrishikesh Goswami

Over the years, the Securities and Exchange Board of India (SEBI) has refined its dispute resolution mechanisms to safeguard the interests of investors. In 2011, the SEBI Complaints Redress System (SCORES) was launched as a centralised web-based platform, reducing the pendency of actionable grievances through regulatory oversight and intermediary responsibility. Notably, during 2022-23, 34,752 new complaints were registered, while 39,062 pending complaints were resolved, highlighting SCORES’ effectiveness. Building on SCORES’ success and harnessing technological advancements,  introducing an improved ‘Version 2.0’ was inevitable. While SCORES empowered investors to voice concerns, the resolution process was beyond the regulator’s oversight. Addressing this gap, SEBI, through a master circular dated 11th August 2023, revamped the dispute resolution regime in the securities market through the introduction of Online Dispute Resolution (ODR) as the preferred dispute resolution mechanism. The framework will now operate under Stock Exchanges and Depositories, also known as Market Infrastructure Institutions (MIIs), expanding their scope and establishing a standard Online Dispute Resolution Portal (ODR Portal).This article explores the prevailing dispute resolution framework and the ODR development and compares it with international equivalents. It also highlights alterations from the 20th December 2023 circular and proposes remedies for deficiencies.

Existing Resolution Methods

SEBI’s existing complaint management system, SCORES, provides a platform for investors to lodge complaints only against authorised intermediaries and listed firms. Grievances falling within the purview of the SEBI Act (1992), Depositories Act (1996), Securities Contract Regulation Act (1956), and Companies Act (2013) are subject to resolution within a three-year limitation period. If grievances remain unresolved, the next recourse may involve arbitration based on the specific rules and regulations of the relevant institution preferred by the parties.

‘Harmonizing Disputes Digitally’: Analysing the ODR Portal’s Debut

Regulated Players in the ODR Sphere

Before introducing the ODR Platform, dispute resolution in the securities market was limited to addressing conflicts involving stockbrokers, depository participants, listed companies, registrars, and transfer agents, leaving investors with limited access. The ODR Master Circular expands upon this, categorising participants into Schedule A and B.

Schedule A covers disputes between investors and listed companies or intermediaries, resolved according to the ODR Master Circular. Schedule B involves conflicts with institutional clients, offering resolution options, including the ODR mechanism or independent institutions in India.

This marks a significant step towards broadening and efficiently resolving disputes within the securities market, providing clearer guidelines and multiple options for resolution.

Unveiling the ODR Process

The MIIs will collaboratively establish and manage a unified ODR Portal. Through mutual agreements, each MII will identify and enlist independent ODR institutions with qualified arbitrators and conciliators proficient in time-sensitive online dispute resolution via audio-video technologies. This portal will be accessible to all entities within the ODR framework.

All listed companies, specified intermediaries, and regulated entities (Market Participants) must register on the ODR Portal, utilising the credentials from the SEBI SCORES portal. MIIs and the empanelled ODR Institutions will maintain Management Information Systems (MIS) reports, shared with the concerned Market Participant, for tracking dispute timelines. Dispute initiation is permissible within the legal limitation period and when not under SCORES guidelines or pending before any court. The ODR Portal stipulates a 21-day (extendable by 10 days) timeframe for conciliation and a 30-day (extendable by 30 days) timeframe for arbitration.

According to the ODR Master Circular, investors/clients with grievances should follow these steps:

1. Complain directly with Market Participants.
2. If unsatisfied, register the complaint on the SCORES platform.
3. If still dissatisfied, register on the ODR portal to file a grievance.
4. Alternatively, if the Market Participant fails to resolve the grievance, the investor can directly initiate an online dispute resolution, skipping SCORES.
5. Market Participants can initiate dispute resolution after serving a 15-day notice to the investor.
6. ODR portal registration leads to conciliation; if unsuccessful, arbitration follows per the ODR Master Circular.

Disputes Outside the ODR Realm

The initiation of dispute resolution via the ODR mechanism is precluded under the following circumstances:

1. While a grievance is under consideration by either the Market Participant or the SCORES platform.
2. In cases where a matter is pending before any arbitral process, court, tribunal, or consumer forum or is deemed non-arbitrable.
3. Disputes, challenges, reviews, or appeals related to the enforcement and regulatory functions of MII are excluded.
4. The ODR framework currently does not encompass contractual disputes between MIIs and their constituents; however, such disputes may be incorporated later.

Comparative Approaches to Dispute Resolution Worldwide

The implementation of ODR by SEBI and subsequent enhancements represents a progressive step in India. Though new to India, this concept has been globally deliberated by experts. Notably, the United Kingdom initiated pilot projects in 2016 to assess the effectiveness of ODR in civil disputes, incorporating a framework that supports conciliation and mediation throughout dispute stages, including those arising from securities market transactions. However, the UK’s ODR Bill, based on Briggs LJ’s recommendations, lapsed in 2017 and has since been kept in abeyance.

Conversely, Commonwealth members Australia and New Zealand have well-established ODR mechanisms. Australia’s External Dispute Resolution (EDR) system, overseen by the Australian Securities and Investments Commission, efficiently resolves complaints related to credit facilities and securities market transactions. EDR operates as a distinct Alternative Dispute Resolution (ADR) mechanism, running parallel to the court system, expediting adjudication and ensuring cost-effective accessibility.

New Zealand’s Financial Markets Authority employs ADR Schemes, notably the  Financial Dispute Resolution Scheme (FDRS) and caters to various stakeholders and market participants. These ADR schemes primarily focus on mediation and conciliation, offering a user-friendly experience with flexible proceedings through voice and video calls.

Despite their ODR leadership, Australia and New Zealand heavily emphasize mediation and conciliation, excluding arbitration as a dispute resolution method. While parties can resort to courts and obtain binding orders if mediation fails, the absence of arbitration ignores a valuable redressal mechanism. This position contrasts with the Indian ODR framework, which significantly encourages arbitration among consenting parties.

A Closer Look at the New Developments

In its recent circular dated 20^th December 2023, SEBI addressed lingering ambiguities surrounding ODR following its initial introduction.

• In the context of ADR mechanisms, the choice of seat and venue has traditionally posed challenges due to the involvement of independent institutions and varied procedural laws. This aspect significantly impacts the feasibility of the mechanism, costs incurred, and procedural complexities encountered. The latest circular clarifies this issue by restricting the determination of the seat and venue to any mutually agreed independent institution in India. Notably, participants are now allowed to opt for online ADR mechanisms.

• Operational aspects of ODR compliance were also clarified. Entities registering with SEBI or getting securities listed post the 31^st July 2023 Master Circular issuance must promptly enrol on the ODR portal. SEBI clarified that market participants undergoing arbitration must deposit the admitted claim value with SEBI or MIIs, such as stock exchanges or clearing corporations, within 10 days of initiating the proceedings. This ensures commitment and certainty in the ADR process.

• To streamline post-conciliation arbitration, SEBI specified a timeline, holding that proceedings must be instituted within the same facilitating institution, with a duty to intimate the institution within 10 days of the conclusion of conciliation. The claim amount is then to be deposited within an additional 5-day period.

• SEBI also outlined fee structures for arbitrators and ODR institutions based on the value of the claims, introducing modified slabs for claims exceeding ₹1 crore and falling between ₹50 lakhs and ₹1 crore.

• In a move to reinforce ODR, SEBI also empowered itself and the MIIs to take action against market participants failing to adhere to the modified ODR procedures and timelines. This underscores SEBI’s commitment to effective dispute resolution within the financial market.

Conclusion

In conclusion, SEBI’s Smart Online Dispute Resolution represents a significant leap forward in leveraging technology to streamline financial dispute resolution. The earlier method operated outside the regulator’s oversight; however, the revamped dispute resolution system is now more systematic and falls under SEBI’s regulation. While the framework shows promise, several key issues require attention for its effective implementation.

Firstly, navigating the selection of ODR institutions and determining arbitration procedures for different claim sizes pose significant challenges. Ensuring transparency, accessibility, and accountability for all parties involved is paramount. Secondly, while regulatory supervision is crucial, it must not overshadow the resolution process itself. Finally, technological preparedness is essential, particularly in ensuring the security of sensitive data. Addressing these challenges is imperative for SEBI’s Smart ODR to evolve into a trusted and intelligent mechanism for resolving financial disputes comprehensively and equitably for all parties involved.