For every country’s economy, its financial market plays a most vital role. In India, SEBI (The Securities and Exchange Board of India) has been responsible for regulating the financial market. SEBI’s framework incorporates a wide spectrum of market participants, including listed businesses, stock exchanges, brokers, and investment advisers. It also works to protect the interests of investors who invest their capital in such markets. In furtherance of the intention, SEBI has been relentlessly working to provide speedy justice to the investors. Its dispute redressal include SCORES ( SEBI complaint redress system ), IGC (Investor grievance committee) and now a newly introduced common Online Dispute Resolution Portal (‘ODR Portal’). In June 2023, the portal is introduced by SEBI to facilitate the online resolution of all kinds of disputes that may exist between investors and market participants. Since the erstwhile system could settle the disputes of investors but it was only possible against limited set of intermediaries. Through this revolutionary step, SEBI has broadened and revamped its earlier dispute redressal mechanism. ODR will help experts resolve their dispute against intermediaries by initiating conciliation and arbitration proceedings. The landmark decision was taken with the consultation of the stakeholders of the market and in the backdrop of rising investor grievances in the market like issue and transfer of securities, non-payment of dividends, technical problems on trading and investing platforms This paper delves into the analysis of the SEBI’s complaint redressal system with its specific focus on ODR Portal, its adjudication procedure, features and characteristics.
KEYWORDS
Investors, Market Participants, Market Infrastructure Institutions, Alternative Dispute Resolution, Arbitration, and Conciliation.
INTRODUCTION
With India’s economy booming and becoming the third largest in the world, there has been an increase in disputes and complexities in the country’s securities market. Investors have been constantly harmed by the misrepresentation and misconduct of Market participants (i.e., listed companies/ specified intermediaries/ regulated entities). The Securities and Exchange Board of India (hereinafter referred to as SEBI) has been given the responsibility to address these issues and provide effective solutions. It has undertaken various initiatives to resolve disputes in the Indian financial market. One such mechanism is the Online Dispute Resolution portal of SEBI which is established to harness online conciliation and arbitration for resolution of disputes in the Indian securities market. While the erstwhile system of dispute resolution was largely physical, new mechanism will now be online in accordance with the recommendations of the Justice AK Sikri committee organised by NITI Aayog.
RESEARCH METHODOLOGY
This paper being a descriptive one, relies on a review of secondary sources of data such as pre-existing research papers, articles, journals, blogs, as well as detailed examination of SEBI’s official circulars. These sources has been taken to gather diverse perspective and authoritative regime of stakeholders in the field. The methodology involves a systematic approach of conducting a detail analysis of circular and related articles. The research paper, though doctrinal in nature, had been presented after the due analysis of the master circular of SEBI regarding ODR portal.
REVIEW OF LITERATURE
The literature available on the subject of online dispute resolution in the securities market has explored the increasing complexities of disputes in tandem with the growth of India’s security market and the changes that the security market has encountered over time in terms of dispute resolution. The NITI Aayog circular and SEBI’s circular on ODR have been fundamental in this research. The Circular by NITI Ayog has provided deep insight into how technology will shape the future of dispute resolution in India. Through the master circular titled “Online Resolution of Disputes in the Indian Securities Market” SEBI has explained the functioning of ODR portal along with its features and the adjudicating procedure. Different schedules are provided to explain the list of Intermediaries who will be using the portal, the Norms for empanelment of ODR Institutions by MIIs and continuing obligations of ODR Institutions, norms for empanelment of conciliator or arbitrator and their specified Code of Conduct.
METHOD
There is a comprehensive analysis of the SEBI dispute redressal mechanism particularly focusing upon SEBI’s Master circular on the ODR portal. The terms for search were “dispute resolution in securities market”, “online dispute resolution”, “SCORES”.
ONLINE DISPUTE RESOLUTION
Online Dispute Resolution (ODR) is a method of resolving disputes through the use of electronic and digital platforms. ODR is a way to streamline technology within the field of law and justice. ODR is generally considered as e-ADR or ADR with the use of technology. Its potential advantages, therefore, go much beyond those of its parent system. Alternative Dispute Resolution refers to any method of resolving disputes without litigation. ADR regroups all processes and techniques of conflict resolution that occur outside of any governmental authority. ODR’s popularity can be ascribed to its convenience and cost-effectiveness, which also expands the potential for remote resolution. It depends on asynchronous communication, does away with the need for parties to be present in person, and gets rid of unconscious prejudice.
SEBI’s DISPUTE REDRESSAL MECHANISM
SEBI has crafted its own efficacious ADR mechanism to protect the interests of investors and build confidence, awareness, trust and transparency in securities markets. The mechanism is used to address and resolve any dispute arising between Investors/Clients, Market Participants and Market Infrastructure Institutions (hereinafter referred to as “MIIs”).
In 2011, SEBI launched its complaint redressal online platform called “SEBI Complaint Redressal” (hereinafter referred as SCORES) where Investors can lodge their complaints against listed firms, registered intermediaries or market infrastructure institutions (MIIs) under various legislations such as (a) SEBI Act, 1992; (b) Depositories Act 1996; (c) Securities Contract Regulation Act, 1956; and (d) Companies Act 2013. An Action Taken Report (ATR) has to be uploaded by the concerned party within 21 days on the platform which will further be routed to the aggrieved party. All the processes will be monitored by SEBI. If the grievance is not settled up to the expectation of the investor or remains unresolved, he/she can file for arbitration.
The success of SCORES is demonstrated by the number of actionable grievances that remain unresolved, which has been continuously decreasing over time (excluding 2020–21) as a result of SEBI’s prompt resolution. In the span of 2022-23, 34,752 complaints were received and 39,062 complaints were redressed, which included 4,290 complaints pending for regulatory action from the previous year. Out of the complaints received during the timeframe of 2022-23, 88.1 % were e-complaints lodged on SCORES. In July 2023 itself, 2,886 complaints were disposed of against 4,014 complaints pending at the beginning of July 2023 and 3,494 complaints received in July 2023.
To fortify its dispute resolution mechanism, SEBI has amended its various ADR regulations vide the SEBI (Alternative Dispute Resolution Mechanism) (Amendment) Regulations 2023 thereby (i) Approved the revamping of the SCORES (ii) New portal to collect Market intelligent inputs (iii) Lastly, linking of scores with an Online Dispute Resolution (ODR) platform, in pursuit of providing an additional avenue to investors for their grievances.
SMART ODR
SMART ODR, Online Dispute Resolution Portal (‘ODR Portal’) of SEBI, launched on July 31, 2023, via a circular titled “Master Circular for Online Resolution of Disputes in the Indian Securities Market”. The circular outlines that the erstwhile dispute resolution mechanism in the Indian securities market is now being streamlined under the aegis of Stock Exchanges and Depositories which harnesses online conciliation and arbitration for resolution of disputes arising in the Indian Securities Market. This means extending the conciliation and arbitration mechanism administered by MIIs to all specified intermediaries/ regulated entities.
The portal has within its ambit an expansive range of Market Participants including AIFs (Fund managers), collective investment management companies, depository participants, investment advisors, InvITs, mutual funds, portfolio managers, registrars, REIT managers and stock brokers.
MIIs and their empanelled ODR Institutions will create and establish the ODR portal. They will then enter an agreement to specify the nature of their responsibilities, the cost of development, operation, upgradation, maintenance (including the security of data of investors and intermediaries as specified by the Board from time to time) and for inspection and/or audit of the ODR Platform. SEBI has made it mandatory for all the MIIs to participate in the ODR Portal. All market participants and MIIs are advised to display a link to the ODR Portal on the home page of their websites and mobile apps.
FEATURES OF ODR PORTAL
The ODR Portal is built to have all the necessary features and facilities required to file any complaint/dispute. The investors carrying grievances have to register themselves with all the required documents on the portal. There is no fees for filing complaints on the portal. The investor clients/market participants will be provided with status updates on their respective complaints which can be obtained from the ODR Institutions. All the features and facilities will be periodically reviewed and upgraded by the MIIs.
A complaint/dispute will be referred to an ODR Institution and the allocation system on a market-wide basis will be a round-robin system to govern the allocation of each such dispute among all such empanelled ODR Institution/s subject to that for an initial period.
The complaints/disputes comprising specific trading members for an exchange transaction or a listed company shall be referred to the ODR Institution/s empanelled by the relevant Stock Exchange, and disputes arising with a specific depository participant, shall be referred to the ODR institution/s empanelled by the relevant Depository. If the MIIs have empanelled more than one ODR Institution, then at such level as well, a round-robin system will govern the allocation of references among them.
As per the circular, all the new contractual agreements between the intermediaries/entities and the investor must have a grievance redressal clause which should be updated within six months. This platform will help these entities/companies resolve their disputes with corporate or investor clients as they can initiate the proceedings with a prior 15-day notice to the client. The new platform for dispute resolution will impact these intermediaries at an elementary level ensuring their proper functioning, transparency and fairness in the securities market.
NEED FOR ODR
The amendment aims to widen the ambit of MII administered conciliation and arbitration mechanism. Prior to this, the MII’s dispute resolution mechanism encompassed Stockbrokers, Depository Participants, listed companies, and Registrars and Share Transfer Agents. The ODR mechanism now covers a comprehensive set of intermediaries to streamline the dispute resolution process including mutual funds, portfolio managers, depository brokers, and stock brokers etc.
Under SCORES, the dispute between these digital investment intermediaries such as Groww , Zerodha, 5paisa, Upstox etc. and the investors, particularly the small-time investors/retail investors would largely go unaddressed. The implementation of the new ODR platform makes them answerable for their procedure and policies. This amendment has widened the adjudicating power of SEBI on third-party rights in the context of investigating & granting compensation or relief.
The ODR system will be used to bring the resolution process under the preview of SEBI. In the era of digitisation, it is indispensable to monitor and regulate these digital investment platforms which are on the rise in the financial market.
LIST OF INTERMEDIARIES
Schedule A and B of the circular contains the list of the intermediaries and regulated entities
- Disputes between investors/ clients AND listed companies (including their registrar and share transfer agents) OR intermediaries/ regulated entities form a part of Schedule A, 7 arising out of the latter’s activities in the securities market, will be resolved in accordance with the ODR Master Circular under the ODR Mechanism.
The following is the List of securities market intermediaries / regulated entities against whom investors may invoke the ODR process:
- AIFs – Fund managers
1A. Banker to an Issue and Self-Certified Syndicate Banks
- CIS – Collective Investment management company
2A. Commodities Clearing Corporations
- Depository Participants
- Investment Advisors
- InvITs – Investment Manager
5A. Investment bankers
- Mutual Funds – AMCs (Including for any claims/complaints/disputes arising on account of Mutual Fund Distributors of the Mutual Fund AMCs)
- Portfolio Managers
- Registrars and Share Transfer Agents
- REITs – Managers
9A. Research Analyst
- Stock brokers including Online Bond platforms and its providers.
- On the other hand, the disputes between institutional or corporate clients and specified intermediaries / regulated entities form part of Schedule B can be resolved, at the option of the institutional or corporate clients. The clause also involves the claims/complaints/disputes that arise from the activities or roles performed or to be performed by the specified intermediaries or regulated entities. They can choose whether to resolve their disputes in accordance with SEBI circular and harnessing online conciliation and/ or online arbitration or by harnessing any independent institutional mediation, independent institutional conciliation and/or independent arbitration in India. The seat and venue of such mediation, conciliation and arbitration shall be in India and shall be conducted in online mode.
The intermediaries and regulated entities covered under this category are as follows:
1. Clearing Corporations and their constituents
1A. Commodities Clearing Corporations
2. Credit Rating Agency and rating clients
3. Custodians and their clients/FPIs
4. Debenture Trustees and issuers
5. Designated Depository Participant and their clients/FPIs
5A. ESG Ratings Providers and their clients
6. KYC Registration Agency and their clients/intermediaries
7. Merchant Banker and issuers
8. Mutual Funds and Mutual Fund Distributors
9. Proxy Advisory and their clients
10. Proxy advisors and listed entities
11. Registrars and Share Transfer Agents and their clients
12. Research Analyst and their clients
13. Stock brokers and their Authorised Persons
14. Trading Members and Clearing Members
15. Vault Managers and beneficial owners
NAVIGATING THE RESOLUTION PROCESS UNDER ODR PORTAL
- Initiation of dispute :
- The investor/client shall directly lodge a complaint with the respective Market Participants regarding their grievance.
- If the investor/client remains unsatisfied with the resolution provided or in case the grievance is not addressed by the Market Participant, they can then register their complaint on SCORES.
- After exhausting all these options, if the investor/client is still not satisfied with the outcome, they can raise their dispute on the ODR portal (‘SMARTODR‘). There is also an option available with the investor to altogether skip the stage of filing the grievance on the SCORES platform and can escalate the dispute resolution process directly through the ODR portal. The Market Participants also possess the option to initiate dispute resolution with a notice of 15 days to the investor/client.
- After registration on the portal , The parties have to go through the two-tiered dispute resolution mechanism as described below for resolving their grievance :
i. Conciliation
The ODR institution has to appoint an independent and neutral conciliator within 5 days of receiving the complaint. The conciliator should not be linked to either party and shall possess the relevant expertise or qualification. The whole process shall be completed within 21 calendar days which can be further extended by 10 days with the consent of the parties. In the event the conciliation becomes successful, the proceedings shall be concluded by a duly stamped and executed settlement agreement via the ODR Portal. Conciliator fees is Rs. 4800 when successful, if it fails, Conciliator Fees is Rs. 3240. If conciliation does not get resolved within 21 days, the conciliator shall determine the admissible claim value of the complaint/dispute which also provides for the computation of fees being applied for online arbitration.
In case of failure of conciliation, an investor/client may pursue online arbitration, subject to payment of fees (as applicable) for online arbitration. The Market Participant against whom the investor/client pursues the online arbitration shall, within 10 days deposit 100% of the admissible claim value with the relevant MII and make the payment of the fees as applicable for online arbitration. In case they fail to comply with the foregoing, it may result in action against the Market Participant by MIIs and/or the Board.
If a Market Participant wishes to pursue arbitration, it shall intimate its intent to the ODR institution within 10 days of the conclusion of the conciliation process and shall deposit 100% of the admissible claim value with the relevant MIIs and pay the fees for the same within 5 days of this intimation. In case, the Market participant fails to pay the amount, then the proceedings will not be initiated and they will be subjected to financial penalties and their licence to practise will be terminated.
ii. Arbitration
When an investor/client or market participant approaches the arbitration, the ODR institution shall appoint an independent and neutral arbitrator within 5 days. In the event, the subject matter under consideration exceeds the value of Rs. 30,00,000/- the matter shall be referred to an Arbitral Tribunal consisting of three Arbitrators. In case the value of the matter is Rs. 1,00,000/- or above, then the sole arbitrator or arbitral tribunal shall conduct one or more arbitral proceedings and the award must be issued within 30 days, although, the arbitrator has the authority to extend this period, especially if the claim or counterclaim exceeds Rs. 1,00,000/-. If the claim or counterclaim is Rs. 1,00,000/- or below, a document-based arbitration process will only be followed. After the issuance of the arbitral award, the Market Participant shall make the payment within a period of 15 calendar days from the date of such arbitral award (unless such award requires payment sooner), and/or performance within such period as specified by the arbitral award.
If a party wants to challenge the arbitral award, it shall do so under Sec. 34 of the Arbitration and Conciliation Act 1996, within 7 calendar days from the date of issuance of the arbitral award. The Market Participant intending to challenge such an award has to deposit 100% of the amount payable in terms of the arbitral award with the relevant MII. Moreover, the arbitral award will become enforceable after the expiry of the time period to challenge the arbitral award i.e. 3 months.
FORM OF PROCEEDINGS
The conciliation and arbitration proceedings shall be conducted in online mode, enabling online/audio-video participation by the investor/client, the Market Participant, and the conciliator or arbitrator, as the case may be. The venue and seat of the online proceedings shall be deemed to be the place where the registered office of the relevant MIIs is located.
JURISDICTION OF ODR PORTAL
- Matters pending before any arbitral process, court, tribunal, or consumer forum or is non-arbitrable. If the subject matter in consideration is appealable before the Securities Appellate Tribunal in terms of Section 15T of SEBI Act, 1992,[3] Sections 22A and 23L of Securities Contracts (Regulation) Act, 1956, and 23A of Depositories Act, 1996.
- Disputes/ challenges/ reviews/ appeals related to the enforcement and regulatory role of MII.
- The contractual disputes between MIIs and their constituents.
SUGGESTIONS
Through the above-mentioned initiatives, SEBI has been trying to build confidence among investors in the securities market. However, there are various concerns regarding its accessibility pertaining to retail investors. Will these retail investors with limited financial literacy who are considered most prone to get defrauded be able to understand the complexities and timelines of this mechanism? They will have to engage external assistance to understand the complexities of the procedure which may further restrict their ability to lodge complaints due to financial constraints. SEBI should undertake measures to publicize these initiatives through various communication mediums in simpler and easy-to-understand languages barring the confusing jargon.
Although the ODR Portal appears to be an attempt to speed up the dispute resolution procedure, its efficacy is still unknown. It is important to remember that arbitration procedures are fundamentally adversarial and motivated by party autonomy. In actuality, party autonomy encompasses both procedural and arbitral tribunal selection. Parties have a history of bringing up trivial matters under the pretence of choosing a particular procedure, which undermines the effectiveness of arbitration. In addition, the arbitrators frequently have due process phobia. Given this context, it is unclear if the deadlines established in statutes will be seen as mandatory or directory. Only when all parties involved in the process mainly the small investors utilise the ODR Portal it will be beneficial.
CONCLUSION
The introduction of the ODR portal has significantly boosted the erstwhile dispute resolution process of SEBI. This initiative of SEBI has been celebrated by stakeholders of the market as the ODR platform now enhances its ambit to even cover the grievances of the intermediaries as well. The expansion of coverage, the introduction of a hybrid approach and the focus on timeliness all contribute to creating a more investor-friendly dispute resolution ecosystem, promoting trust and confidence in the Indian capital markets. This amendment aims to make a comprehensive dispute resolution mechanism by eliminating the extant structural and procedural impediments and providing an end-to-end solution. Moreover, the enhanced stringency on the market participants will ensure the transparency and efficacy in the market.
Chunauti gupta
Campus law centre, University of Delhi