Future Of ODR In Indian Security Market Identifying Challenges And Way Forward
Recently, the Security and Exchange Board of India (SEBI) released a circular
for Online Dispute Resolution (ODR) in the security market. The circular created
a new ODR portal by an amendment to resolve the security market disputes
effectively and efficiently. This article is an attempt to study the ODR
mechanism in the Indian securities market to contribute to the limited
literature in this domain. Authors after studying the existing ODR framework in
India and other nations have identified some challenges like appellate courts
raising questions on the quality of dispute resolution though the pendency is
witnessing a steep decline, low awareness and financial literacy in ODR and
security market, data security, cybercrime, etc.
The authors have further emphasized and proposed ways to make ODR attractive so that investors would opt for it. The article contributes to the limited literature by proposing SEBI to cover more institutions under request for awareness programs and collaborate with non-governmental organizations and State Legal Services Authorities to display the functioning of a well-regulated security market for awareness and increasing investor base inter alia. Further, the article suggests the use of Blockchain technologies for creating a secure digital infrastructure and employing those officials who have expertise in both the legal and securities market inter alia for conquering the challenges and establishing an effective and efficient digital platform for justice.
Introduction
In the past couple of decades, there has been a surge in e-commerce, global trade, consumerism, investments in the securities market, etc. in India. Simultaneously there has been rapid development in technology and the internet as well. Naturally, there will also be a rise in legal disputes and litigations in any economy where a lot of transactions are occurring relating to e-commerce and investments. Traditionally the parties to these disputes will be choosing the pathway of litigation to reach a settlement, which will increase the already existing burden of pending lawsuits on the judiciary. To reduce the burden on the Judiciary, the mechanism of Alternative Dispute Resolution (ADR) was advertised, as it allows the parties to resolve their dispute amicably by mediation, negotiation, arbitration, etc. without them needing to approach a court of law in the traditional manner.
ADR was meant to exempt the parties from the complexities of the formal court procedures and enable them to redress their disputes within a minimum time and cost. But it appears, and especially after the Covid-19 pandemic, that the mechanism of ADR has also become rather court-like, involving complicated processes, constraints of cost and time, and has not fulfilled its promise of resolving disputes without the parties needing redressal from the conventional court system. To tackle this issue, the mechanism of Online Dispute Resolution (ODR) seems very lucrative since it essentially blends the features of ADR with technology and the internet to make the process of dispute resolution more streamlined.
ODR is not a new concept. In 1999, when the e-commerce marketplace and corporation eBay used this mechanism to resolve more than 200 disputes between the buyers and sellers of its platform within just 2 weeks over the internet, then it became a landmark moment in the development of Alternative Dispute Resolution (ADR).
For the purpose of redressing such disputes in the Indian securities market, the Securities and Exchange Board of India (SEBI) has recently released a circular that expands the scope of ODR in the Indian securities market to further the interests of the investors. Taking steps to strengthen the mechanism of ODR in the Indian securities market is a much-needed and welcome move, as in recent years there has been a surge in investments by people online through applications such as Groww, Upstox, Zerodha, etc. from across the nation and the globe, which will also give rise to disputes among the stakeholders. Using ODR mechanisms to resolve such disputes would be more efficient as the parties to the dispute wouldn't need to travel from one place to another, and they would also be exempted from getting themselves involved in the intricacies of courtroom procedures.
Against this backdrop, this article primarily deals with a brief discussion of the existing landscape of the ODR mechanism in India, along with the existing legal and policy framework that builds the foundation for streamlining ODR. Furthermore, the paper divulges into the framework of ODR in the Indian securities market and the complaint redressal system of the SEBI. Moreover, this paper identifies the challenges that stand as an obstacle to the successful establishment of a robust ODR mechanism in the Indian securities market and discusses logical solutions to such challenges. And lastly, this article is concluded and presents the opportunity for further research.
ODR Landscape in India
The condition of the Indian Judicial System is rather dilapidated as it continues to be under the crushing pressure of the pending cases present across the different levels of the judiciary. In the Apex Court alone - 66, 168 registered cases are pending as of 1st December 2023 and a total of 4,43,06,579 cases are pending across all the judicial forums in India including that of the Supreme Court as of 1st December 2023. It is estimated that at the current rate of disposal, it would take over 300 years to clear the backlog.
It wouldn't be an overstatement to say that the Indian Judiciary is languishing under the immense pressure of all the pending lawsuits. A circumstance like these calls for initiatives to address the backlog of cases. One such method of faster resolution of legal disputes that has amassed much popularity in the recent past is the method of Alternative Dispute Resolution (ADR). The mechanism of ADR is a substitute for the traditional methods of resolving disputes such as litigation. It includes but is not limited to, arbitration, negotiation, mediation and conciliation, etc.
The primary objective of ADR is to prevent disputes from proceeding to the courts so that the parties may easily and quickly reach a just resolution for their dispute without having to navigate through the complex processes and various intricacies of conventional court procedures. The core concept of ADR is the accomplishment of justice within minimum time and cost while at the same time reducing the burden of pending litigations on the courts but after the Covid-19 pandemic hit, it was realized that it would be more beneficial for us to move towards Online Dispute Resolution (ODR) from traditional ADR to achieve speedy justice more conveniently.
"Online Dispute Resolution (ODR) is a mechanism for resolving disputes facilitated through the use of electronic communications and other information and communication technology". To put it in simple terms ODR is the concept of resolving low to medium-value disputes online using the internet and technology. There has been a recent trend of adoption of ODR's mechanism in many forms and forums across different countries such as eBay, Canadian Civil Resolution Tribunal, Financial Ombudsman Service, Resolver, Youstice, Online Schlichter, Cybersettle, Modria, Traffic Penalty Tribunal There are many more systems up and running around the world.
"Today's ODR mechanisms are said to be early harbingers of the future global dispute resolution landscape in the Digital Age." This is due to the rise in commercial transactions between parties, institutions, etc. nationwide as well as globally, that the mechanism of ODR is needed now more than ever as the parties situated at different places would not have to travel across the country or the globe to resolve their dispute.
ODR could be said to be a successful relationship between ADR and technology. The parties who would be opting for resolving their disputes Online would have to discuss through e-mail the choice of law, all the communication transmitted between the parties would be through electronic medium via the Internet, and parties would be entering into any agreement which may arise due to the ODR process online-digitally signed by them, and they would be determining the geographical location of the server through which dispute resolution is to take place and most importantly all the documents and evidence that the parties would need to submit would electronic or through an electronic medium. This online procedure of dispute resolution would make it more amicable and hassle-free for the parties to reach speedy justice and consequently wouldn't add to the already existing burden of pending litigations on the courts.
In India, ODR is still a budding concept that hasn't gained much popularity yet, but the foundation for setting up the ODR mechanism seems very promising. The Indian judiciary has also openly embraced technology as a means to deliver inclusive justice. The existing framework supporting ODR includes different legislation such as section 89 of the Code of Civil Procedure, 1908 which provides that parties to a dispute may be exposed to all forms of the mechanism of Alternate Dispute Resolution by the power of the court and not just be limited to arbitration, mediation, and conciliation. It essentially encompasses all the other potential mechanisms of resolving disputes that could be categorized under the meaning of ODR.
Likewise, electronic records and signatures to be used in the ODR process such as online arbitration agreements have lawful recognition under sections 4 and 5 of the Information and Technology Act, 2000. Furthermore, sections 65-A and 65-B of the Indian Evidence Act, 1872 give recognition to virtual documents and electronic evidence to be submitted while conducting virtual hearings. So, these existing legislations have already in place the necessary foundation that recognizes the online procedures involved in the ODR mechanism.
The Apex court in its multiple judgments has also strengthened the framework for ODR, such as for appointing an arbitrator it had allowed remote conferencing. Likewise, the Supreme Court has also given recognition to the recording of evidence and testimony of witnesses through video conferencing as valid.
In November 2021 NITI Aayog released its report titled 'Designing the Future of Dispute Resolution: The ODR Policy Plan for India' which assesses the existing ADR framework in India and lays out the strategy framework for establishing the mechanism of ODR in India in 3 phases. The 1st phase which will span 3 months will emphasize achieving objectives such as reaffirming ODR as a legitimate mode of dispute resolution, identifying categories of disputes fit for ADR, and ensuring quality ADR professionals trained in effective use of technology. The 2nd phase would focus more on mainstreaming ODR by recognizing it under existing and future legislations in ADR and encouraging entrepreneurship and innovation in ODR by creating an enabling law and policy environment. The 3rd phase of this plan is all about making ODR the new norm.
Despite the existence of various challenges such as a lower rate of digital literacy, lack of appropriate digital infrastructure, privacy and confidentiality concerns in the process of ODR, lack of a mechanism to enforce the outcome of the ODR process, etc. in the pathway of adopting ODR as the go-to mechanism in India, still the potential for full-fledged adoption of ODR appears quite optimistic and even the judiciary as well as the government is bolstering up this concept. With a strategic plan in place, its proper enforcement by the government, and its adoption by the stakeholders ODR mechanisms could easily be established in India as the norm for any Alternative Dispute Resolution process.
ODR Framework in Indian Securities Market.
Introduction
After the 1990s, the major economic reforms in India led to a surge in the securities market. Since then, the market has continuously evolved with the latest advancements. Presently the Indian security market is technologically advanced, globally well-integrated, and attracts investments worldwide. The market is set to achieve a USD 4 Trillion market valuation.
In every nation, the capital market is considered to be the most effective way to promote the development of the country. The effective and efficient functioning of the market depends on what every country needs for its economy and the regulatory framework and dispute resolution mechanisms. It is the regulatory framework that determines the strength and efficiency of the dispute resolution mechanism of a country.
To regulate the market the Security and Exchange Board of India (SEBI) came into existence in 1988 and was later established as a statutory body by the SEBI Act, 1992. The objective of SEBI is to promote the development of this market and protect the interests of investors . Almost every transaction in the market by concerned parties is done by agreement or contract.
The dynamics of this market often result in disputes as a consequence of various reasons e.g. breach of contract, regulatory non-compliance, operational errors, etc. From time-to-time SEBI takes steps to further the interests of investors. SEBI recently in July 2023 released a circular on the SEBI (Alternative Dispute Resolution Mechanism) (Amendment) Regulations, 2023. The circular expands the scope of the regulations by creating a new portal. It establishes an Online Dispute Resolution Portal (ODR Portal).
The online dispute resolution mechanism is very effective and efficient considering the changing dynamics of the country. ODR has emerged as an efficient dispute resolution mechanism while minimizing the financial disruption to the market. Nowadays, investors can invest their money online through smartphone applications like ICICI Direct, Groww, Upstox, Zerodha, etc. from any corner of the country. Hence, there is a need to protect the interests of increasing investors. Online dispute resolution offers a cost-effective opportunity to help parties negotiate. The step to expand the traditional Alternative Dispute Resolution (ADR) mechanisms has the potential to bring a paradigm shift in dispute resolution.
Framework
Thereafter, to pursue online arbitration, the ODR institution appoints a neutral arbitrator or an arbitral tribunal. The claim should be referred to either of both according to the value of the claim. The hearing(s) shall start then and within 30 calendar days, the award must be passed by the arbitrator or tribunal. The arbitral award must be fulfilled by both parties within 15 calendar days. The award may be challenged by the party against whom the order has been passed within 7 calendar days under Section 34 of the Arbitration Act. Globally, the adoption of the ODR by enacting statutory regulation for private ODR players by SEBI is unique in its kind.
Global trend toward ODR
The world is witnessing a surge in the adoption of ODR. The security market is particularly witnessing the growth of ODR due to a growing investor base, technological advancements, transparency and accessibility, and cost-effectiveness and speed. The origin of ODR traces back to the late 1990s when it was used to resolve disputes regarding online purchases. Early adopters like eBay and Internet Corporation for Assigned Names and Numbers (ICANN) showcased their potential in resolving cross-jurisdictional conflicts. ODR has also been promoted by international organizations to provide access to justice.
A working group was convened by the United Nations Commission on International Trade Law (UNCITRAL) devoted to ODR. Gradually, ODR started spreading in different nations. The nations who have taken seriously the challenges of access to justice have found ODR a better option for adjudging disputes in the future. In the United States, the Financial Industry Regulatory Authority (FINRA) facilitates ODR for resolving security market disputes. Moreover, it covers a broad range of financial disputes.
The United Kingdom Financial Conduct Authority (FCA) approved the Financial Ombudsman Service (FOS), an ADR entity in 2015 . It is FOS which handles ODR in the UK and complaints to it can be made online on their website. The European Commission also provides an ODR platform to resolve the dispute either directly with the consumer or through a dispute resolution body. There are many states in every continent that have adopted ODR to resolve disputes effectively. ODR has gained traction worldwide for resolving issues effectively and conveniently.
Challenges and Solutions
In order to tackle the challenges of quality dispute redressal through the SCORES portal SEBI has launched the ODR portal with a tiered dispute resolution process. This can effectively handle the dispute by maintaining the neutrality and expertise of ODR providers. The round-robin method for the allocation of experts is a way to prevent biases in resolution processes. Moreover, the ODR officials must have knowledge of the legal field and securities and capital market. The stock exchanges should identify such persons who understand such nuances and pass the right, fair, and equitable award.
When it comes to awareness and financial illiteracy it is high time for SEBI to run awareness campaigns and programs. Merely uploading awareness videos and Frequently Asked Questions on websites will not help in growing the investor base. SEBI website provides certain institutions with to request for awareness programs. The request program is limited to educational institutions, governmental organizations, and corporate entities.
The efforts should be made by SEBI to expand and provide these programs across the length and breadth of India. SEBI should set up a pavilion to showcase the Indian securities market functioning which can spread awareness and financial literacy. Recently, at India International Trade Fair SEBI has set up a pavilion and showcased the regulated securities market. More such exhibitions should be organized in collaboration with different Non-Governmental Organisation and State Legal Services Authorities.
The aforementioned challenges, if rectified, shall no longer impede the nation from witnessing a paradigmatic change in the market. The ease of investing money and resolving disputes will attract more native as well as foreign investors. India would achieve much more than a USD 4 Trillion market valuation.
Conclusion
ADR emerged as a better path for resolving disputes than traditional court litigation. ADR has been inexpensive, fast, and beneficial for both the parties. ADR has brought a paradigm shift in resolving disputes. The latest change in resolving disputes happened due to the growing online purchase and sale of securities. Multiple applications have started offering platforms for investment. Post and during covid the country witnessed online hearings, online filings, etc. The interplay of technologies has also been brought in ADR which led to the development of the ODR system. ODR has huge potential to serve the needs of citizens. The expansion of internet services and access to smartphones have further increased the scope of ODR. Hence, it is upon the market regulator to shrewdly harness the benefit of ODR in the Indian securities market.
The Indian security market regulator SEBI set up the SCORES portal in 2011 for resolving disputes online. The SCORES portal was effective in reducing the number of pending disputes however the quality of disposal was often questioned. Thereafter, in 2023 SEBI came up with the ODR portal which creates a tiered dispute resolution for resolving disputes effectively and efficiently to further the interest of investors. However, the article has identified challenges like appellate courts raising questions on the quality of dispute resolution though the pendency is witnessing a steep decline, low awareness and financial literacy in the ODR and security market, data security, cybercrime, and lack of attractiveness in existing ODR framework due to lack of experts and quality disposal.
Thereafter, to redress the challenges of awareness and financial illiteracy active participation of SEBI with Non-Governmental Organisation and State Legal Services Authorities to run awareness programs. This step will not only provide financial literacy but also a growing base of native investors. To tackle the challenges of cybercrimes, data security, and financial fraud efforts shall be made to use blockchain technology and establish an infallible and efficacious ODR platform.
Moreover, the ODR officials shall have knowledge from both the legal field and the securities market. The ODR portal after redressing the challenges shall become an attractive option for redressing disputes which will increase the ease of investing money. The attractiveness and growing investor base will contribute more to Indian economic growth and security market valuation.
The authors have further emphasized and proposed ways to make ODR attractive so that investors would opt for it. The article contributes to the limited literature by proposing SEBI to cover more institutions under request for awareness programs and collaborate with non-governmental organizations and State Legal Services Authorities to display the functioning of a well-regulated security market for awareness and increasing investor base inter alia. Further, the article suggests the use of Blockchain technologies for creating a secure digital infrastructure and employing those officials who have expertise in both the legal and securities market inter alia for conquering the challenges and establishing an effective and efficient digital platform for justice.
Introduction
In the past couple of decades, there has been a surge in e-commerce, global trade, consumerism, investments in the securities market, etc. in India. Simultaneously there has been rapid development in technology and the internet as well. Naturally, there will also be a rise in legal disputes and litigations in any economy where a lot of transactions are occurring relating to e-commerce and investments. Traditionally the parties to these disputes will be choosing the pathway of litigation to reach a settlement, which will increase the already existing burden of pending lawsuits on the judiciary. To reduce the burden on the Judiciary, the mechanism of Alternative Dispute Resolution (ADR) was advertised, as it allows the parties to resolve their dispute amicably by mediation, negotiation, arbitration, etc. without them needing to approach a court of law in the traditional manner.
ADR was meant to exempt the parties from the complexities of the formal court procedures and enable them to redress their disputes within a minimum time and cost. But it appears, and especially after the Covid-19 pandemic, that the mechanism of ADR has also become rather court-like, involving complicated processes, constraints of cost and time, and has not fulfilled its promise of resolving disputes without the parties needing redressal from the conventional court system. To tackle this issue, the mechanism of Online Dispute Resolution (ODR) seems very lucrative since it essentially blends the features of ADR with technology and the internet to make the process of dispute resolution more streamlined.
ODR is not a new concept. In 1999, when the e-commerce marketplace and corporation eBay used this mechanism to resolve more than 200 disputes between the buyers and sellers of its platform within just 2 weeks over the internet, then it became a landmark moment in the development of Alternative Dispute Resolution (ADR).
For the purpose of redressing such disputes in the Indian securities market, the Securities and Exchange Board of India (SEBI) has recently released a circular that expands the scope of ODR in the Indian securities market to further the interests of the investors. Taking steps to strengthen the mechanism of ODR in the Indian securities market is a much-needed and welcome move, as in recent years there has been a surge in investments by people online through applications such as Groww, Upstox, Zerodha, etc. from across the nation and the globe, which will also give rise to disputes among the stakeholders. Using ODR mechanisms to resolve such disputes would be more efficient as the parties to the dispute wouldn't need to travel from one place to another, and they would also be exempted from getting themselves involved in the intricacies of courtroom procedures.
Against this backdrop, this article primarily deals with a brief discussion of the existing landscape of the ODR mechanism in India, along with the existing legal and policy framework that builds the foundation for streamlining ODR. Furthermore, the paper divulges into the framework of ODR in the Indian securities market and the complaint redressal system of the SEBI. Moreover, this paper identifies the challenges that stand as an obstacle to the successful establishment of a robust ODR mechanism in the Indian securities market and discusses logical solutions to such challenges. And lastly, this article is concluded and presents the opportunity for further research.
ODR Landscape in India
The condition of the Indian Judicial System is rather dilapidated as it continues to be under the crushing pressure of the pending cases present across the different levels of the judiciary. In the Apex Court alone - 66, 168 registered cases are pending as of 1st December 2023 and a total of 4,43,06,579 cases are pending across all the judicial forums in India including that of the Supreme Court as of 1st December 2023. It is estimated that at the current rate of disposal, it would take over 300 years to clear the backlog.
It wouldn't be an overstatement to say that the Indian Judiciary is languishing under the immense pressure of all the pending lawsuits. A circumstance like these calls for initiatives to address the backlog of cases. One such method of faster resolution of legal disputes that has amassed much popularity in the recent past is the method of Alternative Dispute Resolution (ADR). The mechanism of ADR is a substitute for the traditional methods of resolving disputes such as litigation. It includes but is not limited to, arbitration, negotiation, mediation and conciliation, etc.
The primary objective of ADR is to prevent disputes from proceeding to the courts so that the parties may easily and quickly reach a just resolution for their dispute without having to navigate through the complex processes and various intricacies of conventional court procedures. The core concept of ADR is the accomplishment of justice within minimum time and cost while at the same time reducing the burden of pending litigations on the courts but after the Covid-19 pandemic hit, it was realized that it would be more beneficial for us to move towards Online Dispute Resolution (ODR) from traditional ADR to achieve speedy justice more conveniently.
"Online Dispute Resolution (ODR) is a mechanism for resolving disputes facilitated through the use of electronic communications and other information and communication technology". To put it in simple terms ODR is the concept of resolving low to medium-value disputes online using the internet and technology. There has been a recent trend of adoption of ODR's mechanism in many forms and forums across different countries such as eBay, Canadian Civil Resolution Tribunal, Financial Ombudsman Service, Resolver, Youstice, Online Schlichter, Cybersettle, Modria, Traffic Penalty Tribunal There are many more systems up and running around the world.
"Today's ODR mechanisms are said to be early harbingers of the future global dispute resolution landscape in the Digital Age." This is due to the rise in commercial transactions between parties, institutions, etc. nationwide as well as globally, that the mechanism of ODR is needed now more than ever as the parties situated at different places would not have to travel across the country or the globe to resolve their dispute.
ODR could be said to be a successful relationship between ADR and technology. The parties who would be opting for resolving their disputes Online would have to discuss through e-mail the choice of law, all the communication transmitted between the parties would be through electronic medium via the Internet, and parties would be entering into any agreement which may arise due to the ODR process online-digitally signed by them, and they would be determining the geographical location of the server through which dispute resolution is to take place and most importantly all the documents and evidence that the parties would need to submit would electronic or through an electronic medium. This online procedure of dispute resolution would make it more amicable and hassle-free for the parties to reach speedy justice and consequently wouldn't add to the already existing burden of pending litigations on the courts.
In India, ODR is still a budding concept that hasn't gained much popularity yet, but the foundation for setting up the ODR mechanism seems very promising. The Indian judiciary has also openly embraced technology as a means to deliver inclusive justice. The existing framework supporting ODR includes different legislation such as section 89 of the Code of Civil Procedure, 1908 which provides that parties to a dispute may be exposed to all forms of the mechanism of Alternate Dispute Resolution by the power of the court and not just be limited to arbitration, mediation, and conciliation. It essentially encompasses all the other potential mechanisms of resolving disputes that could be categorized under the meaning of ODR.
Likewise, electronic records and signatures to be used in the ODR process such as online arbitration agreements have lawful recognition under sections 4 and 5 of the Information and Technology Act, 2000. Furthermore, sections 65-A and 65-B of the Indian Evidence Act, 1872 give recognition to virtual documents and electronic evidence to be submitted while conducting virtual hearings. So, these existing legislations have already in place the necessary foundation that recognizes the online procedures involved in the ODR mechanism.
The Apex court in its multiple judgments has also strengthened the framework for ODR, such as for appointing an arbitrator it had allowed remote conferencing. Likewise, the Supreme Court has also given recognition to the recording of evidence and testimony of witnesses through video conferencing as valid.
In November 2021 NITI Aayog released its report titled 'Designing the Future of Dispute Resolution: The ODR Policy Plan for India' which assesses the existing ADR framework in India and lays out the strategy framework for establishing the mechanism of ODR in India in 3 phases. The 1st phase which will span 3 months will emphasize achieving objectives such as reaffirming ODR as a legitimate mode of dispute resolution, identifying categories of disputes fit for ADR, and ensuring quality ADR professionals trained in effective use of technology. The 2nd phase would focus more on mainstreaming ODR by recognizing it under existing and future legislations in ADR and encouraging entrepreneurship and innovation in ODR by creating an enabling law and policy environment. The 3rd phase of this plan is all about making ODR the new norm.
Despite the existence of various challenges such as a lower rate of digital literacy, lack of appropriate digital infrastructure, privacy and confidentiality concerns in the process of ODR, lack of a mechanism to enforce the outcome of the ODR process, etc. in the pathway of adopting ODR as the go-to mechanism in India, still the potential for full-fledged adoption of ODR appears quite optimistic and even the judiciary as well as the government is bolstering up this concept. With a strategic plan in place, its proper enforcement by the government, and its adoption by the stakeholders ODR mechanisms could easily be established in India as the norm for any Alternative Dispute Resolution process.
ODR Framework in Indian Securities Market.
Introduction
After the 1990s, the major economic reforms in India led to a surge in the securities market. Since then, the market has continuously evolved with the latest advancements. Presently the Indian security market is technologically advanced, globally well-integrated, and attracts investments worldwide. The market is set to achieve a USD 4 Trillion market valuation.
In every nation, the capital market is considered to be the most effective way to promote the development of the country. The effective and efficient functioning of the market depends on what every country needs for its economy and the regulatory framework and dispute resolution mechanisms. It is the regulatory framework that determines the strength and efficiency of the dispute resolution mechanism of a country.
To regulate the market the Security and Exchange Board of India (SEBI) came into existence in 1988 and was later established as a statutory body by the SEBI Act, 1992. The objective of SEBI is to promote the development of this market and protect the interests of investors . Almost every transaction in the market by concerned parties is done by agreement or contract.
The dynamics of this market often result in disputes as a consequence of various reasons e.g. breach of contract, regulatory non-compliance, operational errors, etc. From time-to-time SEBI takes steps to further the interests of investors. SEBI recently in July 2023 released a circular on the SEBI (Alternative Dispute Resolution Mechanism) (Amendment) Regulations, 2023. The circular expands the scope of the regulations by creating a new portal. It establishes an Online Dispute Resolution Portal (ODR Portal).
The online dispute resolution mechanism is very effective and efficient considering the changing dynamics of the country. ODR has emerged as an efficient dispute resolution mechanism while minimizing the financial disruption to the market. Nowadays, investors can invest their money online through smartphone applications like ICICI Direct, Groww, Upstox, Zerodha, etc. from any corner of the country. Hence, there is a need to protect the interests of increasing investors. Online dispute resolution offers a cost-effective opportunity to help parties negotiate. The step to expand the traditional Alternative Dispute Resolution (ADR) mechanisms has the potential to bring a paradigm shift in dispute resolution.
Framework
- SEBI Complaint Redressal System (SCORES).
The concept of ODR in the Indian securities market started in 2011 with the inception of SCORES. SCORES is an online platform for resolving complaints pertaining to the securities market. The complaints were lodged with SEBI against the listed companies and registered intermediaries. The time limit to lodge a complaint is three years from the cause. It can take complaints arising under the Companies Act, 2013, SEBI Act, 1992, and Securities Contract Regulation Act, 1956. However, it cannot consider complaints relating to unlisted or delisted companies, companies under insolvency or liquidation or winding up, companies whose name has been struck off, etc. Since the inception of the SCORES portal, the pending complaints have been significantly reduced .
The involved parties in the SCORES Portal are Investors, Market Intermediaries like stock exchanges, registrars, brokers, etc., and ODR Institutions enlisted by Market Infrastructure Institutions (MII) like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These institutions conduct online ADR procedures. The dispute resolution process of SCORES Portal is firstly, to lodge a complaint on the ODR Portal where the complainant has to provide the required details of the dispute and opt for a suitable resolution. Secondly, the facilitation stage is where an ODR mediator facilitates as a liaison between both parties to reach an amicable settlement thereby.
Thirdly, the arbitration stage if conciliation fails between the parties to reach an amicable settlement. In this stage, a qualified arbitrator is appointed by the ODR institution to reach an amicable settlement. Lastly, upon the conclusion of the arbitration, the arbitrator issues an award that is binding on both parties and they must comply with it. The dissatisfied investor or complainant can request a review within 15 days of the resolution of the complaint.
- ODR in the Indian Securities Market
On July 31, 2023, the SEBI published a Circular on ODR for the Indian Securities Market. The circular makes ODR the default mechanism to resolve the disputes arising under its ambit. This move is very beneficial to the investors as it is affordable, easily accessible, and adaptable. Traditional dispute resolution mechanisms are expensive and time-consuming hence it is always preferable for investors to opt for the ODR mechanism. This is the reason why the SCORES portal is successful in reducing pending disputes. The SEBI has also proposed to link the SCORES portal to the ODR platform. The MIIs will develop, establish, and operationalize a common ODR portal with their empaneled ODR institutions.
The independent ODR institutions will be empaneled on their capability to undertake time-bound online conciliation and/or online arbitration following the Arbitration and Conciliation Act, 1996 (Arbitration Act) . The dispute resolution process of the ODR portal is as follows- In order to initiate the resolution process through the ODR portal following conditions need to be satisfied.
The investor must lodge a complaint directly with the concerned market participant and upon dissatisfaction with the SCORES portal, if the client is still not satisfied with the outcome, then he/she/they can initiate through the ODR portal . Also, after being dissatisfied at the first stage, that is the complaint with market participants, the complainant may directly register the complaint with the ODR portal . Once the complaint is initiated through the ODR portal, it will be forwarded to an ODR institution and allocation will be done through a round-robin method among the ODR institutions accredited by MIIs.
Thereafter, to pursue online arbitration, the ODR institution appoints a neutral arbitrator or an arbitral tribunal. The claim should be referred to either of both according to the value of the claim. The hearing(s) shall start then and within 30 calendar days, the award must be passed by the arbitrator or tribunal. The arbitral award must be fulfilled by both parties within 15 calendar days. The award may be challenged by the party against whom the order has been passed within 7 calendar days under Section 34 of the Arbitration Act. Globally, the adoption of the ODR by enacting statutory regulation for private ODR players by SEBI is unique in its kind.
Global trend toward ODR
The world is witnessing a surge in the adoption of ODR. The security market is particularly witnessing the growth of ODR due to a growing investor base, technological advancements, transparency and accessibility, and cost-effectiveness and speed. The origin of ODR traces back to the late 1990s when it was used to resolve disputes regarding online purchases. Early adopters like eBay and Internet Corporation for Assigned Names and Numbers (ICANN) showcased their potential in resolving cross-jurisdictional conflicts. ODR has also been promoted by international organizations to provide access to justice.
A working group was convened by the United Nations Commission on International Trade Law (UNCITRAL) devoted to ODR. Gradually, ODR started spreading in different nations. The nations who have taken seriously the challenges of access to justice have found ODR a better option for adjudging disputes in the future. In the United States, the Financial Industry Regulatory Authority (FINRA) facilitates ODR for resolving security market disputes. Moreover, it covers a broad range of financial disputes.
The United Kingdom Financial Conduct Authority (FCA) approved the Financial Ombudsman Service (FOS), an ADR entity in 2015 . It is FOS which handles ODR in the UK and complaints to it can be made online on their website. The European Commission also provides an ODR platform to resolve the dispute either directly with the consumer or through a dispute resolution body. There are many states in every continent that have adopted ODR to resolve disputes effectively. ODR has gained traction worldwide for resolving issues effectively and conveniently.
Challenges and Solutions
- Challenges
The SCORES and ODR portals hold massive potential for effective and efficient dispute resolution in the Indian market. It is transforming the digital path to justice. However, certain challenges need to be addressed to reach maximum efficiency. Presently, the SCORES portal has been in operation since 2011 and has evidently reduced the number of pending disputes. When it comes to numbers, the performance of SCORES is excellent. However, this disposal of disputes has raised questions on the quality of disposal. The Securities Appellate Tribunal (SAT) has said that the disposal of complaints on the SCORES platform is merely an eye wash. The complaints were disposed of without settling the issues or controversies arising between the parties. The issue of non-application of mind or even not considering the interest of investors was prima facie apparent before the SAT bench. The Karnataka High Court has also in a case issued notice to SEBI for their poor handling of complaints about the SCORES platform. There are multiple such cases raising questions on the handling of complaints by the SCORES portal. Moreover, the former officials of SEBI have also pointed out the lack of qualitative assessment in resolving the disputes on the SCORES portal.
By the virtue of Preamble and Section 11 of the SEBI Act, the prime duty of the SEBI shall be to protect the investors and promote the development of the Indian security market. The awareness of ODR and literacy among the securities market of investors is still relatively low. In 2019 a survey done by the National Centre for Financial Inclusion (NCFE) found only 27% of the Indian population was financially literate. Even this percentage was 20% higher than the 2013 survey. Imagine how the benefits of the ODR and SCORES platform will serve the needs of people and investors when there is such a scarcity of financial illiteracy prevailing in India. Assuming a counter argument stating that the percentage of literacy is higher in investors as compared to the non-investors in India. Then, the simple answer could be that Indian economic potential cannot be utilized when only a certain percentage of people invest in the securities market. The funding in India would improve if more Indians would invest in the Indian market. Hence, it is high time for the regulatory body in collaboration with Stock Exchanges to raise awareness and increase literacy among the citizens of India.
In order to foster the economic condition of a nation it must have an effective and efficient dispute resolution mechanism. A developing nation like India needs a large amount of funds for developing various infrastructural projects, schemes, policies, etc. Native investors can solve the problem of funding and contribute to the Indian economy. They can cut more reliance on a nation on foreign investment. Unfortunately, problems like data security, privacy, cybercrimes, digital divide, and neutrality of ODR providers pose a major challenge to the ODR Mechanisms in India. These problems create fear in the minds of investors. These obstacles inter alia affect the commitment of parties to ODR. The commitment of the parties in good faith to involve and start resolving disputes is very important to reach an amicable settlement. Therefore, it is urgently required that the ODR mechanisms be rectified and made investor-friendly friendly which can build trust in the minds of investors for resolving their disputes. These effective and efficient ODR mechanisms will create ease of investing capital in the security market.
- Solutions
The identified challenges can be rectified by the following suggestions and solutions. Primarily, before dealing with the identified challenge it should be important to observe here that not every dispute is required compulsorily to deal with an arbitration agreement or system. The process of opting for ADR should be consensual, not compulsory. It has been observed that compelling investors in an arbitration system will ruin its credibility.
The investor's or complainant's right to jurisdiction or method of resolving disputes should not be defeated by compulsory ODR clauses. Moreover, if every dispute including disputes on legal rights will be resolved via ADR or ODR then it will cease the development of law in that particular area. Also, there are limitations regarding the kind of disputes that can be resolved by ODR. If the disputes go beyond a threshold level it would be difficult to resolve the same via ADR.
Therefore, it would be better if all the cases weren't directly coming for resolution by ODR mechanisms. The rectification needs to be done in both the process of ODR and opting for ODR as a means of settlement. Efforts should be made to make ODR look attractive. When the ODR mechanisms are attractive people will choose ODR. ODR can be made attractive by making the portal user-friendly, transparent, with clear timelines, neutral and expert ODR providers, and by reducing the cost of the whole process. The providers should equip the portal with the latest and most suitable technology. Where efforts should be made to make the portal accessible in all major languages.
In order to tackle the challenges of quality dispute redressal through the SCORES portal SEBI has launched the ODR portal with a tiered dispute resolution process. This can effectively handle the dispute by maintaining the neutrality and expertise of ODR providers. The round-robin method for the allocation of experts is a way to prevent biases in resolution processes. Moreover, the ODR officials must have knowledge of the legal field and securities and capital market. The stock exchanges should identify such persons who understand such nuances and pass the right, fair, and equitable award.
When it comes to awareness and financial illiteracy it is high time for SEBI to run awareness campaigns and programs. Merely uploading awareness videos and Frequently Asked Questions on websites will not help in growing the investor base. SEBI website provides certain institutions with to request for awareness programs. The request program is limited to educational institutions, governmental organizations, and corporate entities.
The efforts should be made by SEBI to expand and provide these programs across the length and breadth of India. SEBI should set up a pavilion to showcase the Indian securities market functioning which can spread awareness and financial literacy. Recently, at India International Trade Fair SEBI has set up a pavilion and showcased the regulated securities market. More such exhibitions should be organized in collaboration with different Non-Governmental Organisation and State Legal Services Authorities.
The aforementioned challenges, if rectified, shall no longer impede the nation from witnessing a paradigmatic change in the market. The ease of investing money and resolving disputes will attract more native as well as foreign investors. India would achieve much more than a USD 4 Trillion market valuation.
Conclusion
ADR emerged as a better path for resolving disputes than traditional court litigation. ADR has been inexpensive, fast, and beneficial for both the parties. ADR has brought a paradigm shift in resolving disputes. The latest change in resolving disputes happened due to the growing online purchase and sale of securities. Multiple applications have started offering platforms for investment. Post and during covid the country witnessed online hearings, online filings, etc. The interplay of technologies has also been brought in ADR which led to the development of the ODR system. ODR has huge potential to serve the needs of citizens. The expansion of internet services and access to smartphones have further increased the scope of ODR. Hence, it is upon the market regulator to shrewdly harness the benefit of ODR in the Indian securities market.
The Indian security market regulator SEBI set up the SCORES portal in 2011 for resolving disputes online. The SCORES portal was effective in reducing the number of pending disputes however the quality of disposal was often questioned. Thereafter, in 2023 SEBI came up with the ODR portal which creates a tiered dispute resolution for resolving disputes effectively and efficiently to further the interest of investors. However, the article has identified challenges like appellate courts raising questions on the quality of dispute resolution though the pendency is witnessing a steep decline, low awareness and financial literacy in the ODR and security market, data security, cybercrime, and lack of attractiveness in existing ODR framework due to lack of experts and quality disposal.
Thereafter, to redress the challenges of awareness and financial illiteracy active participation of SEBI with Non-Governmental Organisation and State Legal Services Authorities to run awareness programs. This step will not only provide financial literacy but also a growing base of native investors. To tackle the challenges of cybercrimes, data security, and financial fraud efforts shall be made to use blockchain technology and establish an infallible and efficacious ODR platform.
Moreover, the ODR officials shall have knowledge from both the legal field and the securities market. The ODR portal after redressing the challenges shall become an attractive option for redressing disputes which will increase the ease of investing money. The attractiveness and growing investor base will contribute more to Indian economic growth and security market valuation.
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