India’s Securities and Exchange Board Provides a Gateway into the Future of Dispute Resolution

India’s securities market regulator, the Securities and Exchange Board of India (“SEBI”), was established in 1988. Protecting the interests of investors is a core tenet enshrined in SEBI’s preamble. More recently, and in support of that core tenet, SEBI has become an example of successful alternative dispute resolution at work and, critically, of the importance of choice in dispute resolution.

A. SEBI’s historic mechanism for dispute resolution

SEBI has long recognized the need for an efficient resolution mechanism for the numerous investor grievances that arise, and the organization has evolved and adapted to changing trends in dispute resolution over the years.

From 2010 to 2012, SEBI launched the following initiatives:

1. Market Infrastructure Institution (“MII”)–administered arbitrations, which facilitated arbitration proceedings under the guidance of MIIs like stock exchanges and depositories;
2. SEBI Complaints Redress System (“SCORES”), a centralized web-based investor complaint redressal system; and
3. Investor Grievances Redressal Committee (“IGRC”), which facilitated conciliation and mediation for investor-intermediary disputes.

The MII-administered dispute resolution process covered only a few intermediaries—stockbrokers, commodity brokers, depository participants, listed companies, and share transfer agents.

B. SEBI’s current mechanism for dispute resolution

In recent years, the pandemic and the larger digitization trend in the dispute resolution arena have increased demand for fast, convenient, and cost-efficient Online Dispute Resolution (“ODR”) platforms. Recognizing this trend, in July 2023, SEBI created a comprehensive ODR mechanism—including mediation, conciliation, and arbitration—intended for all intermediaries to use in the securities market.

On July 31, 2023, SEBI published the specifics of its new ODR mechanism (the “ODR Circular”). This publication heralded a new era of streamlined dispute resolution under SEBI’s purview. Investors now have access to two distinct avenues for dispute resolution:

1. the legacy SCORES Platform; and
2. the newer ODR Portal.

Each avenue offers expedited pathways to investors seeking redressal for their grievances.

To use SEBI’s dispute resolution mechanism, an investor may initiate a complaint with listed companies, specified intermediaries, regulated entities, or other securities market participants. If the market participant does not redress the grievance satisfactorily, the investor has two choices:

1. SCORES: The investor may escalate the complaint through the legacy SCORES Platform; or
2. ODR Portal: The investor may initiate dispute resolution through the ODR Portal. Under this method, once the investor’s complaint is filed, the ODR Portal will robotically allocate (through a round-robin system) one of the impaneled ODR institutions to administer the dispute. SEBI has published detailed instructions regarding timelines, procedure, and fees for resolving disputes through the ODR Portal.

C. Amendment to ODR Circular introducing choice of multiple dispute resolution mechanisms

Just a few months after publishing the ODR Circular, SEBI amended it on December 20, 2023 (the “Amendment Circular”). The amendment provides investors and regulated entities with the option to elect one of the following dispute resolution mechanisms by contract:

ODR Circular mechanism

Initiating a complaint and then escalating it under SCORES or, through the ODR Portal, to an ODR institution impaneled by an MII. Choosing this option requires the parties to follow SEBI’s requirements for fees, stringent timelines, and seat and venue selection of the online proceedings. The selection of arbitrators and rules followed shall be those of the ODR institution impaneled by the MII.

Independent mediation, conciliation, and/or arbitration institution

Alternatively, the parties may elect for any independent mediation, conciliation, and/or arbitration institution in India of their choice, thus effectively opting out of the prescriptive ODR Circular mechanism. The dispute resolution process for parties opting for this method shall follow the rules of the independent institution chosen by the parties. The seat and venue shall be India.

Timeline for exercising the choice: For all new contractual arrangements, parties must choose their dispute resolution mechanism at the time of entering the contract. For existing contractual arrangements, investors and regulators are required to exercise this choice within a period of six months from the date of the Amendment Circular. If a party fails to make this selection, the party is presumed to have chosen the ODR Circular mechanism.

Matters outside purview of ODR Portal: SEBI has in the Amendment Circular also made an important clarification that all matters that are appealable before the Securities Appellate Tribunal in terms of Section 15T of SEBI Act, 1992 (other than matters escalated through the SCORES portal in accordance with the SEBI SCORES circular); Sections 22A and 23L of Securities Contracts (Regulation) Act, 1956; and Section 23A of Depositories Act, 1996 shall be outside the purview of the ODR Portal.

D. A careful choice requiring deliberation

The decision between independent arbitration institutions and the ODR Circular mechanism warrants careful consideration—and the decision must be made by contract, not once the dispute arises. Both choices offer compelling benefits.

On one hand, the route of the ODR Portal with an ODR institution impaneled by an MII offers expedited, time-bound, and cost-effective procedures that may be suitable for small claims.

However, it is a relatively new procedure. There may not be real visibility on the arbitrator’s and conciliator’s names and qualifications until they are appointed. Moreover, the quality or subject-matter expertise of the conciliators or arbitrators may vary, since appointments through the ODR Portal are, in some cases, algorithm based.

Although the ODR Circular mechanism is newer, it may be beneficial that it provides for significantly shorter timeframes compared to a regular arbitration process. For instance, upon issuance/pronouncement of an award in an arbitral proceeding through the ODR Portal, the aggrieved party has to convey its intention to challenge the award under Section 34 of India’s Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) within seven calendar days. The Arbitration Act permits an aggrieved party up to 120 days to file an application to set aside an arbitration award. In matters involving significant stakes and a large volume of documents, the aggrieved party may need more than seven days to decide whether to challenge an award. Therefore, the feasibility of such a timeline remains to be seen.

On the other hand, opting for an independent arbitration institution in India may come with its own benefits. It may be possible to avail oneself of the services of an emergency arbitrator for urgent interim relief, if permitted under the chosen rules of the arbitration institution. The parties also have the right to nominate their own arbitrators. Unlike the round-robin system in the ODR Circular mechanism, which robotically allocates one of the impaneled ODR institutions, the parties have the option to select an independent arbitration institution in India of their choice and preference.

Ultimately, the choice between utilizing the ODR Circular mechanism or opting for independent arbitration institutions has to be on a case-by-case basis, considering the claim amount involved, the familiarity and comfort of the parties, the associated costs, and the need for flexibility in timelines or adherence to strict timelines.

Conclusion

SEBI’s proactive approach in enhancing dispute resolution mechanisms reflects its commitment to safeguarding investor interests and fostering confidence in the Indian securities market. By providing investors with a choice between the ODR Portal and independent mediation, conciliation, and arbitration institutions, SEBI has recognised party autonomy and at the same time taken a significant step towards ensuring efficient and equitable resolution of disputes in the securities market.