SEBI mainstreams Online Dispute Resolution

Introduction

1. The Securities and Exchange Board of India (SEBI) published a Circular on 31 July 2023 on Online Dispute Resolution of Disputes in the Indian Securities Market (SEBI ODR Circular) making Online Dispute Resolution (ODR) the default mechanism for resolving almost all disputes arising out of transactions on the securities market. The adoption is driven by the need to expand the reach of the dispute resolution process to all market participants while making it exponentially more affordable, accessible and accountable.
2. This Circular was issued pursuant to the Securities and Exchange Board of India (Alternative Dispute Resolution Mechanism) (Amendment) Regulations, 2023 issued on 3 July 2023, which had amended the dispute resolution clause across a wide range of regulations relating to the securities market.
3. The introduction of ODR to resolve securities markets disputes serves to revolutionize both the process and timeframes for resolution of such disputes. The manner in which ODR has been adopted is also path breaking and sets the benchmark for dispute resolution globally.

Background

1. The ODR movement in India has seen a steady uptick in the past few years. The COVID pandemic significantly accelerated the rate of adoption. The time, cost, efficiency and access advantages that are inherent to any ODR process. The use of technology alone has the potential to reduce dispute resolution costs by as much as 95% and overall time required for resolution by more than 90%. 
2. This advantage is further amplified with innovative approaches adopted by various ODR actors across the country including enabling formal dispute resolution through video calls, phone calls, WhatsApp messages, Case Managers, use of vernacular language, use of a wide pool of trained neutrals drawn from across various corners of the country etc.

SEBI’s Adoption of ODR

The adoption of ODR by SEBI started in 2022 with its circular in May 2020 stating that shareholder disputes will now be referred to ODR mechanism. It was a revolutionary step by SEBI in resolving investor grievance. Following are the features of this revolutionary change:

1. First, the adoption of ODR by SEBI is among the first of its kind globally where statutory conciliation and arbitration with private ODR players has been provided for.
2. Second, securities market disputes can range from the super-simple to extremely complex. The fact that ODR has now been provided for the entire spectrum of disputes represents a marked shift in attitude. In the past, ODR has (wrongly) been seen as only being appropriate only for simpler disputes. SEBI’s adoption is a much needed recognition of the true impact and potential of ODR including in more complex disputes.
3. Third, the adoption by SEBI marks an important milestone of regulatory/government bodies delegating the power of appointment of neutrals to private ADR/ODR participants, while also imposing sufficient checks and balances on the exercise of such power. This is particularly relevant in a country like India where appointment of arbitrators by courts (in ad hoc arbitrations) and government run facilitation councils and equivalent (in cases like MSME disputes) has been among the largest contributors of delay in dispute resolution.
4. Fourth, the prescription of quality standards by SEBI for ODR service providers is a much-needed balance to the vesting of responsibilities. This is among the first instances globally where ADR/ODR institutions are being held to basic standards and represents a welcome shift in attitude where ADR/ODR institutions are being seen as service providers rather than proxies to courts necessitating a degree of deference.
5. Fifth, the incorporation of processes allowing for operation of multiple ODR institutions who can be chosen from and plugged into any case inter-changeably is revolutionary. This opens up the possibility of using private sector participants with a degree of ongoing accountability that any long-term engagement with one or more participants cannot achieve.

Salient features of the SEBI ODR Circular

The SEBI ODR Circular provides a detailed framework for escalation of cases to ODR, the manner of selection of ODR institutions, the conduct of various ODR process, the timelines for each process and the costing of each process. Some of the key aspects covered in the Circular are set out below:

1. The SEBI ODR Circular enables resolution of disputes arising out of securities market transactions by ODR institutions capable of undertaking time-bound online conciliation and/or arbitration in accordance with the Arbitration and Conciliation Act, 1996 while harnessing online/audio-video technologies. The Circular prescribes norms of empanelment of ODR institutions to ensure imposition of adequate quality controls.
2. The Circular provides for adoption of ODR across a wide spectrum of cases including disputes between Investors/ Clients and listed companies (Including their registrar and share transfer agents); and any of the specified intermediaries/ regulated entities in the securities market; Listed companies/ specified intermediaries/ regulated entities or their clients/ investors (or holders on account of nominations or transmission being given effect to may refer to any unresolved issue of any service requests/service related complaints. 
3. Under the Circular, each Market Infrastructure Institution (MII) has to empanel one or more ODR institutions and establish and operate on a common Online Dispute Resolution Portal (ODR Portal), whose creation will be overseen by the various MIIs together. The ODR portal shall establish due connectivity with SEBI SCORES portal/ SEBI Intermediary portal.
4. All Market Participants are required to enroll on the ODR portal within a specific timeline identified in the Circular. Post due date mentioned in the circular market participants would be deemed to have been registered on this portal. For listed entities this timeline is September 15, 2023. Listed entities or their RTAs have to register on this portal by September 15, 2023. They are also required to clearly communicate the availability of SCOREs portal and the ODR portal to the investor/ client to resolve their disputes if the investor/client unsatisfied with the response (or the lack thereof) of the Market Participant.
5. Dispute resolution through ODR mechanism will not be applicable to market participants who are under moratorium under IBC or who are under process of liquidation or winding up. Further dispute if referred to ODR institutions should not be under consideration at SCORES platform, or before any court or arbitral proceedings, consumer forum or are non-arbitrable as per Indian Law.
6. This circular also provides for the venue of proceedings depending upon who are disputing parties. 

Features of ODR portal

1. Enrolling an investor/client and market participant, filing of a complaint, uploading documents and papers, status update on the complaint which would be provided by the ODR institution.
2. A complaint/ dispute initiated through the portal will be referred to an ODR institution empanelled by an MII 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 institutions. 
3. Process of Conciliation and Arbitration would start only when matter is referred to ODR institutions and requisite fees, charges, and costs as applicable.

Conciliation

1. The Circular provides a tiered dispute resolution process with Conciliation being the first of the formal dispute resolution process on the ODR platforms to be conducted at the cost of the MIIs.
2. A conciliator must be appointed by the ODR institution within 5 days of receipt of reference of the complaint/dispute by the ODR institution.
3. A conciliator has a period of 21 calendar days (extendable with the consent of the parties) to conduct the conciliation process.
4. If the conciliation is successful, a settlement agreement would be duly executed and duly stamped through an online mode, as permissible in law. If it is unsuccessful, the conciliator still provides his/her view on the “admissible claim value” – which in turn becomes the benchmark for any further resolution of the dispute.

Arbitration

1. On an unsuccessful conciliation, an investor/client may pursue online arbitration (which will be administered by the ODR institution which also facilitated the conduct of conciliation) on or after the conclusion of a conciliation process when the matter has been resolved through such process, subject to the payment of fees as applicable for online arbitration. 
2. If a Market Participant wishes to pursue online arbitration, then they are to deposit 100% of the admissible claim value with the relevant MII prior to the initiation of online arbitration and make the payment of fee as applicable. 
3. When the investor/ client/ MP pursues online arbitration, the ODR institution shall appoint a sole independent and neutral arbitrator from its panel of arbitrators within 5 calendar days of reference. In an event that the aggregate claim exceeds Rs. 30, 00,000 the matter shall be referred to an Arbitral Tribunal consisting of three arbitrators 
4. Once an arbitrator is appointed, withdrawal by the parties is not permitted. 
5. The arbitrators are required to pass an award within 30 days of their appointment. 
6. When the claim value is ₹1, 00,000 or below, the arbitrator is expected to conduct the arbitration on a documents-only basis. 

This mechanism of resolving disputes through ODR mechanism will go a long way in addressing investor grievance.

Matters outside the purview of ODR

All matters appealable before the Securities Appellate Tribunal in terms of Section 15T of SEBI Act, 1992 (except for those compliant that would are appealed to SAT for non-redressal of grievance on SCORES) Sections 22A and 23L of Securities Contracts (Regulation) Act, 1956 and 23 A of Depositories Act, 1996.