Contributed by Pranjjall Sharma

Introduction

Dispute resolution is a crucial factor for adequate and uniform justice dispensation. The judicial backlog of cases hinders the process of providing justice by causing inadvertent delays. This is leading to the acceptance of Alternate Dispute Resolution (‘ADR’) mechanisms that reduce the time consumed in litigation and court processes. However, while ADR does play an important role in accelerating dispute resolution processes, it is highly expensive and is dependent on the physical presence of a neutral party (arbitrator/ conciliator/ mediator) and the parties to dispute. Furthermore, Geographical limitations have the effect of acting as  a partial restriction on the accessibility to ADR mechanisms, especially seen during the COVID-19 pandemic. For combating this limitation,  Online Dispute Resolution (‘ODR’) began surfacing as a complementary mechanism in order to aid ADR and assisted in making dispute resolution readily available to larger population.

As the name suggests,  ODR involves resolution of disputes by using online modes such as video conferencing, digital circulation of files and maintenance of relevant e-databases. The advent of technological advancements has consequentially fuelled their adoption even in the legal domain. Attempts at making relevant and efficient usage of technology in providing justice can also be inferred from the ‘e-Courts Integrated Mission Mode Project’ which is an initiative of the government that is aimed at achieving digital transformation of district and other subordinate courts through computerisation and digitisation of records, amongst other endeavours. The securities market regulator, Securities and Exchange Board of India (‘SEBI’) by adopting ODR for dispute resolution has taken a revolutionary step ahead, which is inclusive of a plethora of advancements that the Indian justice system potentially holds in the field of Indian security law disputes

Dispute Resolution in the Indian Securities Market: SEBI’s Prerogative  

In parlance to the objective of investor protection, SEBI has previously as well, taken initiatives for harnessing the use of technology in order to foster the benefits for smooth dispute resolution. One such previous attempt was made in the year 2011, when SEBI launched SEBI Complaints Redressal System (‘SCORES’) for filing of complaints. This portal was introduced for the purpose of facilitating ease in filing complaints and checking their status by the respective complainants.

Further, Market Infrastructure Institutions (‘MII’) including Central Depositories Services Limited (‘CDSL’) and National Securities Depositories Limited (‘NSDL’) have introduced an elaborate 3-step procedure for the redressal of investor grievances. This included mediation or conciliation under the aegis of Investor Grievance Redressal Committee (IGRC). The third step which was arbitration was adhered to in cases that required this intervention for resolution of the dispute. After testing this method of dispute resolution extensively during the pandemic, its success was evident. Even the post-pandemic period witnessed a gradual shift towards hybrid or online dispute resolution processes. Through this mechanism 9,419 complaints relating to stock exchanges were resolved in 2022-23. With regards to disputes involving trading members- it was further observed that 354 further complaints were resolved in 2022-23.

SEBI’s ‘Consultation Paper on Strengthening the Investor Grievance Redressal Mechanism in the Indian Securities Market by harnessing Online Dispute Resolution mechanisms’ in December 2022, highlighted that while SCORES had established a centralised system for lodging and resolution of disputes through intermediary, there was a need to adhere to a model similar to the 3-step time bound mechanism being adhered by MIIs. This paper praised the extent to which MII-run dispute resolution was able to cater to the needs for which it had been set up and also hinted that further enhancement of this online mechanism could prove to be revolutionary for dispute resolution in the securities market. This ultimately led to SEBI introducing the ‘Master Circular for Online Resolution of Disputes in the Indian Securities Market’ in July, 2023 which established a common ODR portal for the resolution of disputes in the securities market. As per this circular, MIIs have been given extensive responsibilities relating to empanelling relevant ODR institutions for operating on the Securities Market Approach for Resolution Through ODR (‘SMART ODR’) Portal.

Reviewing the SEBI ODR’s Peculiarity and Predicting its Fate

Certain aspects of the ODR system introduced by SEBI are revolutionary to the extent as have been discussed below:

Enhancing the scope of ODR

The scope of ODR encompasses a vast variety of disputes that might arise in the security market; for instance, between certain investors, clients, intermediaries, listed companies, transfer agents and other registered entities in the securities market. This projects a positive picture in the future, with regards to the ease of adaptability for parties to the dispute. Previously, it has been believed that ODR must be adopted for ‘simpler’ disputes so as to test the waters and the susceptibility of this dispute resolution method. SEBI’s initiative of including all types of disputes under this is a rather empowering step towards putting technology to appropriate use.

Inclusion of Private ODR Institutions

Globally, this is the most unique ODR system where private ODR players are being invited to take the charge post their empanelment by MIIs. The Arbitration and Conciliation Act, 1996 permits certain ODR institutions to conduct conciliation and arbitration proceedings in online mode. These institutions have been permitted by the SEBI ODR Circular for undertaking time bound online conciliation or arbitration.

Delegation of appointing the neutral party

In case of ad-hoc arbitration, courts are given the responsibility for appointing the arbitrator and in MSME disputes government-run facilitation councils are involved for appointing the neutral party. SEBI’s ODR also surpasses this limitation by entirely delegating the power of appointing the neutral party to the private ODR Institutions who are to be empanelled by MIIs. The role of courts, government and SEBI itself, in this regard, has been restricted so as to promote autonomy.

Code of Conduct for ODR Institutions

SEBI’s Master Circular mentions, under Schedule E, a code of conduct that is to be adhered by the ODR Institutions and their conciliators, arbitrators for the purpose of maintaining high standards of independence, ethics and confidentiality. This shall be monitored by the MIIs. This in itself is a revolutionary introduction as ADR/ODR Institutions are being brought under the ambit of a uniform code of conduct. Moreover, this portrays their adoption as ‘service providers’.

Choice among multiple ODR Institutions

Another unique introduction by SEBI’s ODR is the choice of ODR Institution for any dispute interchangeably. This would eliminate the issues arising from having to maintain long term association with one chosen institution.

Greater Investor Independence

SEBI’s adherence to its motto ‘protection of investors’ can be very well re-iterated from the steps that it has previously taken and innovations that it continues to make till date. Earlier, the hierarchy for dispute resolution available with aggrieved investors would take them first to SCORES, if unsatisfied then to dispute resolution through IGRC (Investor Grievance Redressal Committee). With the introduction of ODR, investors now have a chance of raising their concerns over any unsatisfactory resolution of disputes or lack of any resolution thereof. This will definitely lead to empowerment of the investors, as an additional medium been launched so as to allow for a revisit to any such dispute that might be wrongly resolved.

Conclusion

The inclusion of technology is recently becoming a common practice in the legal arena. While SEBI has followed the lead in introducing a revolutionary dispute resolution system, its success is yet impending the adversities that it might encounter. Rest assured, there are hopes for greater transparency, efficiency and accessibility for dispute resolution in the securities market. ODR in general is still evolving which substantiates that SEBI’s ODR as presently launched, might not be a straight-jacket solution for speedy and efficient process for justice. There will be requirements for constant amendments as and when required in this pilot project and it is largely expected that SEBI, being vehemently devoted to the cause of investor protection would incorporate the needful.