This article has been authored by Saumya Rajpal & Vihaan Acharya, 3rd year law students at Himachal Pradesh National Law University, Shimla.
In a circular dated August 31, 2023, SEBI promulgated the Online Dispute Resolution policy. It was a considerable step towards aligning the Alternative Dispute Resolution (ADR) frameworks to the complexities of the securities market and meeting a critical need within the sector. The securities market, being volatile in nature, requires quick resolution of disputes to prevent any further damage to the parties concerned.
The circular maps an exhaustive framework for dispute resolution, providing concrete pathways specific to the circumstances at hand and the character of the matter. The Market Infrastructure Institutions (hereinafter “MII”) have been responsible for setting up and operating a Common Online Dispute Resolution Platform. The resolution process begins with the client/investor filing a complaint through the Securities Market Approach for Resolution Through the ODR Portal (hereinafter “SMART-Portal”) after raising concerns with Market Participants. The complaint is then referred to an ODR institution allocated by a MII on a round-robin basis.
The ODR institution appoints an independent conciliator who must conclude proceedings within 21 days along with an additional 10 days for exceptional cases. If an agreement is reached, it is duly signed by the parties. If not, the Conciliator determines a claim value. If accepted, the dispute is resolved. Otherwise, the parties can proceed to online arbitration with an independent arbitrator appointed within five days, and an arbitral order needs to be issued within 30 days with an additional 30 days for exceptional cases.
Comparison with Different ODR Frameworks
India is among several nations poised to implement alternative dispute resolution methods outside the courtroom to expedite the resolution of conflicts in the securities market. Countries such as the United States, the United Kingdom, and Australia have taken proactive steps in establishing a strong out-of-court dispute resolution system to administer justice with efficiency and efficacy, setting a precedent for others to follow.
The United States, at the very outset, provides various options for investors embroiled in disputes with member brokerage firms through the Financial Industry Regulatory Authority (hereinafter “FINRA”), which is a government-authorized Not-for-Profit Organization that looks after the American broker-dealers. It provides a wide variety of services ranging from mediation, arbitration, and simplified arbitration for minor claims. The procedure commences with filing a complaint with FINRA, accompanied by scrutiny, which finally results in the resolution of the disputes through mediation. If mediation proves unsuccessful, parties can opt for arbitration, with two types available: standard arbitration for larger claims and simplified arbitration for smaller ones. Fairness and impartiality of the entire procedure are upheld under FINRA’s supervision.
Likewise, the Financial Ombudsman Service (hereinafter “FOS”) operates as an independent mediator in the United Kingdom, resolving disputes between financial consumers and institutions. It offers a cost-free and unbiased service covering a wide range of financial products and services, including investments. Initiating the process entails filing a complaint with the FOS, including supporting documentation. The FOS conducts an inquiry into the issue at hand and strives to facilitate an amicable resolution through mediation. In the event that mediation proves unsuccessful, the FOS retains the authority to render a determination. As a customary practice, it is observed that both parties willingly embrace the adjudication rendered by the FOS. Australia similarly offers dispute resolution services through the Australian Financial Services and Credit Ombudsman (hereinafter “AFSCO”), which is an independent ombudsman service for financial consumers and institutions. Like the U.K., the Australian counterpart strives to provide free and impartial service, covering various financial products and services and involves complaint filing, investigation, mediation attempts, and, if needed, a non-binding decision by AFSCO.
When comparing these varied ODR systems in different security markets, though some key similarities might have been noticed, India still can learn and implement these models to augment its dispute resolution process in the securities market. However, differences arise in the types of disputes they handle, and their level of independence and India definitely has a lot to learn from its foreign counterparts.
Scope for Improvement
Analyzing the multifaceted policies within various systems and conducting a comprehensive evaluation of SEBI’s policy, it becomes evident that certain aspects warrant scrutiny and enhancement. Presently, the scope of the beneficiaries is limited to addressing issues exclusively between investors and market participants. However, SEBI needs to expand this ambit, align the resolution mechanism closely with global standards and incorporate an all-encompassing nature as observed in other frameworks.
Furthermore, an essential facet that demands refinement is the overall fairness and transparency of the system. SEBI currently supervises the entire mechanism, which poses certain serious threats to a potential conflict of interest, given that SEBI’s primary mandate is to ensure the market’s overall health. To bolster confidence in the ODR system, it is imperative to implement measures that ensure its autonomy and impartiality. This entails establishing an independent body or regulatory framework to oversee ODR proceedings, thus ensuring that justice is served without any influence from market performance considerations. This proactive approach will fortify investor protection and enhance SEBI’s credibility as a guardian of financial integrity. Furthermore, enhancements are needed to ensure the ODR system’s fairness and accessibility. The empanelment of ODR Institutions by an independent external entity should oversee the ODR system to guarantee its perpetual fairness. Also, the insufficiency of transparency in the provisions concerning funding and oversight underscores the need for an explanation. SEBI has envisioned a meticulous system of ODR Platform where one or more independent ODR Institutions will be empanelled by the MII and integrated together to ensure timely Arbitration and Conciliation services to the requesting parties through online mediums like audio-visual technologies. The Portal is entrusted to provide proper connectivity between the Market Participants and the requesting party. As promising and efficient as the system seems, its implementation will be onerous and formidable. The journey from paper to the practical field will be tough and formidable.
The introduction of online dispute resolution has been done in the backdrop of surmounting cases so as to ensure quick and efficient disposal of cases. Harnessing an online dispute resolution mechanism can help foster the broad goals of the SEBI but the circular remains silent on putting in place a sound tracking system. A good tracking system will ensure that one party does not slack off and delay the resolution process given that a fixed time for Conciliation and Arbitration has already been provided. Another concern that crops up is that having a fixed time period for resolution can often result in hasty sessions and the real disputes still remain unaddressed thereby frustrating the basic tenets of justice.
A feedback mechanism can be a good forum for the SEBI to communicate directly with the customers and accordingly enhance and elevate the entire process as per the needs of the Portal users. In addition to this, it is essential to understand that a significant problem with any online dispute resolution mechanism in a developing country like India is accessibility and technological advancement. Ensuring regular updates, maintaining the high levels of online security and preventing recent shutdowns are some of the primary problems that can be anticipated in SMART Portal in the long run. Other problems may include technological bottlenecks, lack of proper internet connections, and frequent absenteeism in the absence of a proper platform to follow up on an ongoing case.
India is a nation characterized by its rich tapestry of diverse cultures and languages. Even though SEBI has formulated a well-established and integrated system of arbitrators and conciliators within the Smart ODR Policy, the conspicuous absence of vernacular language support within the system poses a notable challenge to enhance accessibility to dispute resolution. Therefore, there is a compelling need to augment the policy’s user-friendliness by incorporating provisions catering to the country’s linguistic diversity. Currently, the Portal offers services in English and Hindi, but making it accessible in other prominent Indian languages will make it more user-friendly.
Even though the SMART ODR Platforms signifies a revolutionary transformation in the realm of dispute resolution, it is imperative to acknowledge that while the SMART ODR Portal is innovative, it still grapples with several deficiencies that obstruct its journey toward becoming a truly user-friendly platform capable of redressing grievances and administering justice impartially and equitably. By addressing these shortcomings comprehensively, ODR platforms can fully realize their potential to reshape the landscape of dispute resolution and uphold principles of fairness and justice.
The security market is a volatile platform with greater susceptibility to even the slightest change in any political or economic arena; thus, quick redressal of disputes is of prime importance. SEBI took a big decision and established an ODR Platform to provide a streamlined and digital mechanism for resolving disputes related to securities markets. It aims to enhance investor protection and foster fair and efficient dispute resolution within the Indian financial markets and provides a convenient and accessible avenue for investors and market participants to seek redressal for their grievances and reduce any sort of barriers to entry for individuals who may not have easy access to traditional legal channels. It furthermore contributes to overall market stability and investor confidence by swiftly addressing issues and reinforcing the integrity of India’s securities markets.
Despite its favorable aspects, it is imperative to acknowledge that the prevailing issue is marked by several deficiencies that need to be rectified. SEBI should focus on the seamless implementation of the SMART ODR Portal, addressing potential challenges such as technological bottlenecks, accessibility issues, and linguistic diversity within India. Implementing a robust tracking system and establishing a feedback mechanism can enhance accountability and customer communication.
It is, thus, essential to understand that even though SEBI’s SMART Platform is a significant step forward in streamlining dispute resolution in the securities market, it is imperative to acknowledge that there is still work to be done. By addressing the identified deficiencies, SEBI can continue to enhance its ODR system and fulfill its mission of ensuring fairness, efficiency, and accessibility in resolving disputes within India’s dynamic securities market. Ultimately, the success of the SMART ODR Platform will be measured by its ability to uphold the principles of fairness and justice while adapting to the ever-changing landscape of the turbulent and ever changing finance sector.
- Doss, Jason R.; Frankowski, Richard S. (2013). The Practitioner’s Guide to Securities Arbitration. Chicago:American Bar Association. p. 17. ISBN 9781614387596