SEBI has proposed a major revamp of its Online Dispute Resolution (ODR) framework to speed up investor grievance redressal. The proposals include SCORES integration, MII-led dispute administration, greater investor participation in arbitrator selection, and interim relief during appeals. Public comments have been invited until August 13.
There have been proposals for a thorough revamp of the Online Dispute Resolution (ODR) mechanism by the Securities and Exchange Board of India (SEBI) to ensure that investor grievance redressal is speedy, more efficient, and better organized. The proposal seeks to address issues of delay in the current mechanism where conciliation and arbitration is managed by ODR bodies and has now proposed that MIIs be involved.
SEBI had introduced the Online Dispute Resolution mechanism in 2023 which would help resolve any grievances of investors against entities regulated by SEBI in the online space.
Why SEBI is Revamping the ODR Framework
The recommendations by SEBI came after receiving comments from investors, market participants, and the ODR institutions on the challenges that arise, such as delays in selection of the conciliators and arbitrators, payment related challenges, lengthy process, and difficulties in enforcing the arbitration awards.
Enforcement of arbitration awards has been difficult due to the fact that ODR institutions do not regulate market intermediaries. SEBI argues that MIIs have the capacity to handle this issue since they already regulate most of the listed companies and market intermediaries.
In the recommended framework, the MIIs would be responsible for the administration of the online conciliation and arbitration process, but the process itself would still be conducted using technology.
Investors to Get Greater Role in Arbitrator Selection
SEBI has also suggested that both the parties in a dispute be allowed to choose preferred arbitrators from the list. MII shall try to appoint the arbitrator on the basis of preference first. In case both the parties are unable to reach any consensus, the process for appointment shall be done by centralised method based on certain parameters.
This step is being taken to increase the transparency of the process.
SCORES Integration to Reduce Resolution Time
SEBI has made a proposal for the inclusion of the SCORES review system within the ODR system to facilitate the process of grievance redressal. The complaints that would not be resolved through review will go straight to the conciliation stage.
According to SEBI, the inclusion will cut down the time period of the entire grievance resolution process by 21 days.
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Stronger Investor Protection Through Interim Relief
SEBI suggests that for ensuring greater investor protection, when a regulated entity appeals against an arbitration award in favor of an investor, it should make the deposit of 100% of the award amount with the relevant MII.
The investors can get interim relief in the form of 50% of the award amount or ₹5 lakh, whichever is less, during the course of appeal proceedings. If the final ruling comes out in favor of the regulated entity, then the money will have to be paid back. Any failure to pay it back may result in market participation bans and securities freeze.
The regulated entities will have to pay an initial fee of ₹6,000 for the conciliation proceedings, whereas investors will still enjoy the service free of charge.
Flexibility Proposed for AIF Investors
SEBI has also suggested that investors of Alternative Investment Funds (AIFs) be given the choice of dispute resolution mechanisms available to them under their agreement with the fund manager rather than being mandatorily referred to the ODR platform.
Further, SEBI has suggested that the same legal framework which exists for trust based AIFs can be extended to company and LLP based AIFs.
Eligibility Criteria for Arbitrators and Conciliators
SEBI has proposed that conciliators and arbitrators should be between 40 and 75 years of age, have at least 10 years of experience in finance, law or related fields, and possess strong knowledge of securities markets.
The regulator has invited public comments on the consultation paper until August 13 before finalising the revised framework.
