The Securities and Exchange Board of India (SEBI) has proposed a comprehensive overhaul of its three-year-old online dispute resolution (ODR) framework, shifting conciliation and arbitration responsibilities from independent ODR institutions to stock exchanges, depositories and clearing corporations. According to the latest consultation paper issued on Thursday, the regulator seeks to cut delays, tighten accountability and speed up investor grievance redressal by transferring dispute resolution responsibilities to market infrastructure institutions (MIIs), which are better positioned to empanel conciliators and arbitrators, oversee proceedings and enforce compliance. The proposed changes follow feedback from investors, market intermediaries, and market infrastructure institutions who flagged delays in appointing arbitrators, slow payments to arbitrators, weak enforcement of awards and other procedural bottlenecks in the framework introduced in 2023. As per CNBC TV18 and The Economic Times, SEBI stated that the issues raised include the process of appointment of arbitrators, delay in receipt of payment from market intermediaries and listed entities to ODR institutions, enforcement of arbitration awards, and delays in proceedings. To address these concerns, the regulator has proposed incorporating certain features of the pre-ODR mechanism, under which MIIs had greater control over empanelment and administration of conciliators and arbitrators.
Under the revised framework, both parties will indicate their preferred arbitrators from an approved panel, with the concerned MII appointing an arbitrator based on those preferences. Where there is no common choice, the appointment will be made through a centralized allocation process that excludes the names shortlisted by both parties. Conciliators will be appointed directly by MIIs from their empanelled pool. To significantly shorten the process, SEBI has suggested merging the review conducted by designated bodies under the SCORES platform with the pre-conciliation stage, with unresolved complaints moving directly from the designated body to conciliation instead of passing through an additional layer. The regulator estimates this change would reduce timelines by 21 calendar days. Investors will continue to first lodge complaints on SCORES before escalating unresolved disputes to ODR, where applicable. As per CNBC TV18 and The Economic Times, SEBI has also proposed restoring investor participation in the appointment of arbitrators, allowing both parties to indicate their preferred names from an approved panel before the MII appoints the arbitrator.
The consultation paper proposes stronger safeguards after arbitration, with regulated entities challenging arbitration awards in court required to deposit 100% of the award amount with the concerned MII. Investors who secure a favourable award can seek interim relief of up to 50% of the award amount or ₹5 lakh, whichever is lower. If the investor ultimately loses the challenge, the amount must be returned, failing which trading and demat accounts may be frozen until repayment. SEBI has also recommended that investors should not bear the cost of conciliation, with the ₹6,000 conciliation fee paid upfront by the regulated entity. Arbitration fees will continue to apply, with the successful party entitled to a refund of the amount deposited, subject to the arbitral award. Under the proposal, MIIs may release up to 50% of the award amount or ₹5 lakh, whichever is lower, to the investor from the interest-free deposit maintained by the regulated entity, subject to an undertaking. This represents a significant enhancement in investor protection during the dispute resolution process.
The regulator has established tighter timelines across the entire process, with intermediaries required to respond to complaints within 21 days, conciliators completing proceedings within 21 days, extendable by 10 days, and arbitrators issuing awards within three months, extendable by two months with recorded reasons. For alternative investment funds (AIFs), SEBI has proposed allowing disputes to be resolved through mechanisms agreed under contractual arrangements instead of mandating the ODR platform. The regulator has also proposed extending legal protection currently available to trust-based AIF investors to those investing through company or LLP structures, ensuring investor assets remain insulated from liabilities arising out of dispute resolution. As per CNBC TV18 and The Economic Times, SEBI has also proposed allowing Alternative Investment Fund (AIF) investors to choose dispute resolution mechanisms agreed upon in their contracts instead of mandating the ODR platform. Additionally, SEBI has suggested that disputes involving claims above ₹30 lakh would be decided by a three-member arbitral tribunal, while lower-value cases would continue to be heard by a sole arbitrator.
Public comments on the consultation paper have been invited until 13 August, with SEBI emphasizing that the proposed changes are intended to strengthen investor confidence by making securities market dispute resolution more seamless, efficient and technology-driven. The regulator has invited feedback from investors, market intermediaries, market infrastructure institutions and ODR institutions, as well as SEBI's own experience since the framework was introduced in 2023. The proposed framework aims to preserve the robust and transparent dispute resolution mechanism while making it faster and more effective for investors and market participants, with the transfer of responsibilities to MIIs expected to streamline the overall process and improve accountability across participants. As per CNBC TV18 and The Economic Times, SEBI stated that MIIs are better placed to enforce compliance as intermediaries and listed entities are already registered with them in various capacities, making them more effective in managing the technology-driven ODR process. The regulator received feedback from MIIs, investors and other stakeholders highlighting issues in the existing ODR framework, including delays in appointment of arbitrators, payment to arbitrators, enforcement of arbitration awards, and procedural bottlenecks.
