SEBI Proposes Overhaul of Online Dispute Resolution Framework, Seeks Public Comments

Markets regulator Securities and Exchange Board of India (SEBI) on Thursday proposed a revamp of the Online Dispute Resolution (ODR) framework for the securities market. The key change involves shifting the responsibility of dispute resolution from ODR institutions to Market Infrastructure Institutions (MIIs) such as stock exchanges, depositories, and clearing corporations, aiming to make the system more efficient and investor-friendly.

Under the proposal, MIIs will operate the technology-driven online conciliation and arbitration platform, handle empanelment, and appoint conciliators and arbitrators. This shift follows feedback from MIIs, investors, and other stakeholders highlighting issues in the existing ODR framework, including delays in arbitrator appointments, payment problems, and procedural bottlenecks.

To address these concerns, SEBI has proposed incorporating features of the pre-ODR mechanism, where MIIs had greater control over empanelment and administration of conciliators and arbitrators. The regulator noted that MIIs have better enforceability over intermediaries and listed entities, as most are registered with them in some capacity.

Additionally, SEBI proposes allowing both disputing parties to indicate their preferred arbitrators from an approved panel before the MII makes the final appointment. Conciliators, however, will continue to be appointed by MIIs from their empanelled list.

In another measure, SEBI has proposed permitting investors in Alternative Investment Funds (AIFs) to choose an alternative dispute resolution mechanism if such arrangement already exists under agreements, instead of mandatorily using the ODR platform. This provides flexibility to parties.

Further, the regulator suggests streamlining the grievance redressal process by allowing unresolved investor complaints under the SEBI Complaints Redress System (SCORES) to move directly from the review stage by Designated Bodies to the conciliation stage under the ODR framework. This is expected to reduce the overall dispute resolution timeline by 21 calendar days.

Separately, SEBI has proposed amending the AIF Regulations to extend protection available to investors' money held in trust against liabilities from dispute resolution to all AIFs, irrespective of structure as trusts, companies, or limited liability partnerships (LLPs). Currently, such protection is only for trusts.

Disputes involving claims above ₹30 lakh would be decided by a three-member arbitral tribunal, while lower-value cases would continue with a sole arbitrator. SEBI also proposes allowing investors to seek interim relief of up to 50% of the award amount or ₹5 lakh, whichever is lower, if a regulated entity challenges an arbitration award. Both parties challenging an award must deposit 100% of the award amount with the MII.

SEBI has invited public comments on the proposals until August 13.