SEBI's New Redressal Resolutions For Investor Grievance: A Dive Into Online Dispute Resolution Through Scores Platform

This blog is written by Tanvi Ohol. She is a third year student at Gujarat National Law University completing BSc LLB. Her prominent interest lies in technology, international and alternative dispute resolution law. 

ABSTRACT 

India can now claim a multi-tiered, multi-calibrated procedure for investor protection, thanks to the implementation of a new framework for online dispute settlement between investors and intermediaries/listed businesses. Global regulators must strike a delicate balance when it comes to inter-party disputes between intermediaries and their clients; in order to maintain effective dispute resolution without spilling over into the realm of regulatory enforcement, there must be a greater degree of regulatory supervision than regulatory involvement. A centralized web-based system known as the SEBI Complaints Redress System (SCORES) platform was created by SEBI in 2011. Over time, the organization has added and modified the procedures to safeguard investors. The Securities and Exchange Board of India (SEBI) has recently introduced significant amendments to enhance the redressal of investor grievances. This research paper delves into the key aspects of SEBI’s new approach, focusing on the following points: SCORES Platform Integration: The Master Circular on the redressal of investor grievances through the SEBI Complaints Redress System (SCORES) platform outlines the framework for handling investor complaints. The paper examines the integration of SCORES with the Online Dispute Resolution (ODR) platform, emphasizing its impact on dispute resolution efficiency. Online Dispute Resolution (ODR): The paper explores the concept of ODR and its relevance in the context of investor grievance resolution. It discusses how the integration with SCORES streamlines the process, reduces response times, and ensures a seamless experience for complainants. Legal Implications and Investor Confidence: By analyzing the legal implications of these amendments, the paper highlights their potential impact on investor confidence. It also considers the role of technology in enhancing transparency and trust in the securities market. In conclusion, SEBI’s proactive measures aim to empower investors, strengthen market integrity, and foster trust. The research paper provides valuable insights into the evolving landscape of investor grievance redressal in India.

1. Introduction

Global securities regulators have the duty and the objective of safeguarding investors. Giving retail investors efficient channels for managing grievances is a crucial part of investor protection. It is evident from the IOSCO Methodology how important it is to have access to impartial, reasonably priced, responsible, speedy, and effective redress procedures. According to Principle 3, a regulator must possess sufficient authority to enforce reliable and efficient remedial actions, such as rectifying and amending securities law transgressions. An ombudsman, an external dispute-resolution mechanism, or another third-party scheme or through another means is sufficient for a system for the redress of complaints under the regulatory framework, according to Principle 12, which also stipulates that the regulator should provide for an effective and credible use of enforcement powers.

The Securities and Exchange Board of India (SEBI) released a circular on September 20, 2023 (Circular) for the resolution of investor complaints through its Online Dispute Resolution (ODR) Platform and Complaint Redressal Platform (SCORES), marking a significant step towards bolstering investor protection. The notice will go into effect on December 4, 2023.

2. Analysis of the 2023 Amendment

2.1. Relevant Legislative Changes and Implications 

In 2023, the Securities and Exchange Board of India (SEBI) introduced new regulations related to investor complaints. Here are the key changes:

1. Shortened Resolution Time: SEBI reduced the time to resolve investor complaints from 30 days to 21 days. This means that grievances must be addressed more promptly, benefiting investors.

2. Supervision by Body Corporates: The amended regulations now allow body corporates to supervise the grievance redressal process. This change aims to enhance transparency and accountability in handling investor complaints.

3. Furthermore, SEBI divided the rollout of an online dispute resolution tool into two stages. Investors have the option to file complaints against brokers and depository participants during Phase I. As part of Phase II, complaints against other market players can be filed starting on September 16, 2023. One can consult SEBI's circulars on the Online Dispute Resolution platform and the SEBI Complaint Redressal (SCORES) Platform for more comprehensive information on how to resolve investor issues. These regulations aim to safeguard the interests of investors and advance a just securities market.

4. Architecture and Functionality of the SCORES platform: Over time, SEBI has implemented and updated the current investor protection systems. In 2011, the SEBI Complaints Redress System (SCORES) platform, a centralized web-based system, was created. This mechanism permits the regulator to exercise supervision over the process while compelling the intermediary to assume responsibility for the complaint resolution process. The total amount of pending actionable grievances has been continuously decreasing over the years, except for 2020–21, as a result of SEBI's prompt resolution, demonstrating the program's effectiveness. 34,752 complaints were received in 2022–2023; 39,062 of those complaints were resolved; 4,290 of those complaints were still pending regulatory action from the prior year. 

2.2. The Scope of Master Circular 

The Master Circular traces a comprehensive system for building up a solid ODR instrument, besides the consideration of particular mediators within the securities advertise. This development implies that the ODR instrument presently covers debate between financial specialists/clients and 12 directed substances within the securities market. 

In cases where disputes arise between middle people and certain regulation / corporate clients, they can be settled either by taking after the rules within the Master Circular or by utilizing free organization intervention, conciliation, and online intervention administrations accessible in India, depending on the inclination of such regulation. However, it is important to remember that the ODR Entry cannot be used in the following situations: 

(i) The complaint or disagreement is now being considered by SCORES, the market intermediary, or has recently been pending before an arbitral tribunal, court, or other body.

(ii) Where the middle person or MII is going through liquidation or winding-up procedures, or where the dispute falls within the ban period under the Insolvency and Bankruptcy Code, 2016, the matter is not arbitrable under Indian law. Also, it's worth specifying that the ODR instrument will not apply to such things where an appeal will lie some time recently the securities re-appraising tribunal.

The Master Circular also outlines the situations in which the ODR Portal cannot be used to start a dispute resolution process. These situations include when the market participant is the target of liquidation or winding up proceedings, or when the dispute is pending before an arbitral tribunal, court, or consumer forum. This raises a concern about the Securities Appellate Tribunal's (SAT) jurisdiction. The intention is to incorporate conflicts arising from contracts between MIIs and their clients while excluding matters related to enforcement. The statute also makes it clear that the ODR is not empowered to handle any problems that are appealable before the Securities Appellate Tribunal, with the exception of cases that have been escalated through the SCORES system. The ODR Portal's dispute resolution process must be started within the relevant statute of limitations.

3. Online Dispute Resolution (ODR): Conceptual Framework

i) The investor or client should first file a direct complaint with the market participant in question to address the dispute. Investors or clients have the option to escalate complaints through the SCORES Portal if they are not resolved to their satisfaction. If the investor or client is still unsatisfied after trying every other avenue, they can start a dispute using the ODR Portal. The process starts with conciliation. Arbitration is the next step if this doesn't work.

ii) The ODR regulations will be put into effect gradually: Prior to August 1st, the ODR portal will be developed and ODR institutions, conciliators, and arbitrators will be appointed. The market regulator then states that trading members and depository participants must register by August 15 and that complaints against brokers and depository participants must begin to be registered and resolved by August 16.

iii) By September 15, all additional market players must register on the ODR Portal as part of the second phase. Subsequently, complaints and disputes against all other market players shall be registered and resolved on or before September 16; in addition, corresponding procedures and requirements will be implemented by September 16 at the latest.

4. Implementation Strategies

Technological Infrastructure of ODR

Filing a complaint

To try to fix the issue, investors or clients must first directly submit a complaint with the market participant. If complaints are not satisfied, investors and clients can take their complaints further by using the SCORES Portal. If the investor or customer is still dissatisfied with the outcome after exploring every possible option for resolution, they may initiate a dispute using the ODR Portal (sometimes referred to as "SMART ODR"). 

Conciliation

The ODR entity receiving the complaint or dispute reference will designate a single, impartial, and independent conciliator. The conciliator must hold one or more meetings within 21 calendar days of her appointment date unless the disputing parties agree to an extension of 10 calendar days. In addition to actively facilitating a mutually agreeable resolution of the complaint or dispute, the conciliator may, in the case of complaints or disputes related to services, advise the market participant to provide the required service, and, in the case of complaints or disputes related to trade, may consider issuing findings regarding the admissibility of the complaint or dispute or otherwise. Execution of a settlement agreement will follow successful conciliation. But if it fails within the previously mentioned timeframes, either party may pursue online arbitration.

Arbitration

The ODR institution will designate a single, impartial, and independent arbitrator or a panel of three arbitrators, contingent on the value of the claim or counterclaim, should either party want to pursue online arbitration. After the arbitrator(s) is appointed, the parties cannot withdraw from the arbitration.

5. Conclusion

It is obvious that the ODR platform's architecture is intended to be dynamic, changing as it goes along in response to ongoing assessments of its usability and overall effectiveness. By implementing this, SEBI has increased the demand in the securities market for non-litigious settlement tools and, presumably, signaled the start of a parallel, streamlined procedure that offers investors feasible outcomes while simultaneously reducing the backlog of cases before judicial forums. Additionally, it forces both the complainant and the pertinent Market Participant to attend the table by giving them a stake in the outcome (SCORES being a more passive communication exchange). This establishes an intrinsically time-bound framework and a mechanism that will independently identify and remove conflicts that are bothersome.

Sources:-

1. ‘SEBI Master Circulars’ <https://www.sebi.gov.in/sebiweb/home/HomeAction.dodoListing=yes&sid=1&ssid=6&smid=0> accessed 11 May 2024.

2. ‘New Mechanisms & Reduced Timelines: SEBI’s Alternate Dispute Resolution Amendment - Securities - India’ <https://www.mondaq.com/india/securities/1394220/new-mechanisms--reduced-timelines-sebis-alternate-dispute-resolution-amendment-> accessed 10 May 2024.

3. ‘Sebi’s Smart Online Dispute Resolution Portal Goes Live’ <https://www.moneycontrol.com/news/business/markets/sebis-smart-online-dispute-resolution-portal-now-live-11100881.html> 

4. Sarthak Sarin Aggarwal Achint Kaur, Palak, ‘All You Need to Know about SEBI’s Redressal of Investor Grievance through SCORES Platform and Online Dispute Resolution’ (Bar and Bench - Indian Legal news, 23 October 2023)

5. ‘SEBI | Master Circulars’ (n 1).

6. ‘New Mechanisms & Reduced Timelines: SEBI’s Alternate Dispute Resolution Amendment - Securities - India’ (n 2).

7. ‘New Mechanisms & Reduced Timelines: SEBI’s Alternate Dispute Resolution Amendment - Acuity Law’ (22 November 2023)

8. Shruti Rajan Jain Anurag Gupta, Pranvi, ‘SEBI’s Online Dispute Resolution | Reimagining Investor Protection & Grievance Redressal’ (Bar and Bench - Indian Legal news, 5 September 2023)  

9. Vasudha Goenka Chhabra Dhruv Chhajed, Navjot, ‘Resolving Securities Disputes in the Digital Age: A Primer on SEBI’s Master Circular for Online Resolution of Disputes in the Indian Securities Market’ (Dispute Resolution Blog, 17 October 2023)

10. ‘How the Online Dispute Resolution System Announced by Sebi Will Work | Explained News - The Indian Express’