August 12, 2023
The Investor Grievance Redressal Mechanism is a system established by the Securities and Exchange Board of India (SEBI) to protect the interests of investors in securities and to regulate the securities market. It aims to resolve the complaints of investors against intermediaries such as brokers, depository participants, mutual funds, etc. in a timely and effective manner. However, the existing mechanism faces some challenges such as delays, costs, accessibility, and awareness among investors. Therefore, SEBI has proposed to strengthen the mechanism by harnessing Online Dispute Resolution (ODR) mechanisms, which are digital platforms that use technology and human expertise to resolve disputes online. ODR can offer benefits such as speed,convenience, affordability, transparency, and scalability for investors and intermediaries alike. SEBI has published a Consultation Paper on this topic and invited public comments by January 18, 2023. This topic is important because it can enhance the trust and confidence of investors in the securities market and foster its growth and development.
According to the Consultation Paper, SEBI plans to implement ODR through the following steps:
1. It will amend the SEBI (Alternative Dispute Resolution Mechanism) Regulations, 2023 to provide a legal framework for ODR.
2. It will establish a Common ODR Portal in collaboration with the Market Infrastructure Institutions(MIIs) such as stock exchanges and depositories, which will facilitate online filing, communication,conciliation and arbitration of disputes.
3. It will empanel one or more ODR Institutions that will provide qualified and independent conciliators and arbitrators for online dispute resolution.
4. It will prescribe the eligibility criteria, fees, timelines, and procedures for ODR through circulars and guidelines.
5. It will create awareness and capacity-building among investors, market participants, and dispute resolution professionals about ODR.
SEBI will ensure the quality and impartiality of conciliators and arbitrators. It will prescribe the eligibility criteria, code of conduct, and training requirements for conciliators and arbitrators empanelled by the ODR Institutions. It will monitor and review the performance of the ODR Institutions and their conciliators and arbitrators regularly. It will provide a mechanism for disclosure, challenge, and removal of conciliators and arbitrators in case of any conflict of interest or bias. It will ensure that the conciliators and arbitrators are neutral in terms of nationality, language, culture, and background of the parties.
SEBI will ensure the security and privacy of online dispute resolution. It will require the Common ODR Portal and the ODR Institutions to comply with the Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 for data protection and cyber security. It will mandate the use of secure online platforms with features such as encryption, authentication, verification, audit trail, etc. for online communication, document sharing, video conferencing, etc. during the ODR process. It will ensure that the confidentiality of the parties and the proceedings are maintained by the conciliators, arbitrators, ODR Institutions, and MIIs as per the applicable laws and regulations.
The investor grievance redressal mechanism in the Indian securities market is a system that aims to resolve the complaints of investors against intermediaries such as brokers, depository participants, mutual funds, etc.in a timely and effective manner.
The mechanism involves the following steps:
1. The investor can complain online through the SEBI Complaints Redress System (SCORES), which is a centralized web-based system that facilitates online filing and tracking of complaints.
2. The complaint is forwarded to the concerned intermediary or listed company for redressal within 30days.
3. If the investor is not satisfied with the redressal or does not receive any response within 30 days, he/she can escalate the complaint to SEBI for further action.
4. SEBI may take appropriate enforcement or regulatory action against the intermediary or listed company based on the nature and gravity of the complaint.
5. Alternatively, the investor can also opt for Alternative Dispute Resolution (ADR) mechanisms such as mediation, conciliation, or arbitration through Market Infrastructure Institutions (MIIs) such as stock exchanges and depositories.
6. The ADR process is governed by the SEBI (Alternative Dispute Resolution Mechanism) Regulations,2023 and the bye-laws of the MIIs.
7. The ADR process is faster, cheaper, and more flexible than litigation and the award is binding on both parties.
The current state of the investor grievance redressal mechanism in the Indian securities market is not very satisfactory, as it faces some challenges. There are delays in resolving complaints due to backlog, lack of manpower, and procedural complexities. Costs involved in filing and pursuing complaints, especially for small investors who may have to travel long distances or hire lawyers. Accessibility issues for investors who are not familiar with online platforms or do not have internet connectivity. Awareness issues among investors who are not aware of their rights, remedies, and procedures for filing complaints. To overcome these challenges, SEBI has proposed to strengthen the investor grievance redressal mechanism by harnessing Online Dispute Resolution (ODR) mechanisms, which are digital platforms that use technology and human expertise to resolve disputes online.
1. Speed: ODR can reduce the time required for resolving disputes by using technology and human expertise to facilitate online communication, document sharing, video conferencing, etc. The SEBI ODR Circular prescribes time-bound online conciliation and arbitration processes, with a maximum duration of 90 days for conciliation and 180 days for arbitration.
2. Convenience: ODR can make the dispute resolution process more convenient for investors and intermediaries by allowing them to access online platforms from anywhere and at any time, without having to travel long distances or visit physical offices.
3. Affordability: ODR can reduce the costs involved in filing and pursuing disputes by eliminating or minimizing the expenses related to travel, accommodation, lawyers, etc. The SEBI ODR Circular also provides for a fee structure that is reasonable and proportionate to the amount of the claim.
4. Transparency: ODR can enhance the transparency and accountability of the dispute resolution process by providing online tracking, reporting, and feedback mechanisms. The SEBI ODR Circular also requires the ODR Institutions to maintain records and data of the ODR proceedings and submit periodic reports to SEBI and MIIs.
5. Scalability: ODR can increase the scalability and reach of the dispute resolution process by enabling a larger number of disputes to be resolved online with the help of technology and a wider pool of qualified and independent conciliators and arbitrators.
As the world continues to embrace the convenience of e-commerce and startups, it becomes increasingly important to have an efficient means of resolving disputes. While Alternative Dispute Resolution (ADR) has served as a practical alternative to traditional litigation and court proceedings for some time, there is still room for improvement, particularly in the wake of the COVID-19 pandemic. To enhance efficiency, an innovative Online Dispute Resolution (ODR) Mechanism is presently being developed to assist companies,investors, and individuals in resolving disputes using the Internet by making the dispute resolution process more convenient. ODR can reduce the costs involved in resolving disputes by avoiding or minimizing the expenses related to travel, accommodation, lawyers,etc. ODR can also save the parties from the opportunity costs of prolonged litigation or ADR.