Sebi proposes faster online dispute resolution, bigger role for exchanges and depositories

The Securities and Exchange Board of India (Sebi) has proposed an overhaul of its three-year-old online dispute resolution (ODR) framework, shifting conciliation and arbitration from independent ODR institutions to stock exchanges and depositories as it seeks to cut delays, tighten accountability and speed up investor grievance redressal.

In a consultation paper issued on Thursday, Sebi said the proposed overhaul follows feedback from investors, market infrastructure institutions (MIIs) and intermediaries, who flagged delays in appointing arbitrators, slow payments to arbitrators, weak enforcement of awards and other procedural bottlenecks in the framework introduced in 2023.

The biggest change is the transfer of dispute resolution responsibilities to MIIs, including stock exchanges, depositories and clearing corporations. While the process will remain fully digital, Sebi said these institutions are better placed to empanel conciliators and arbitrators, oversee proceedings and enforce compliance because most intermediaries and listed entities already fall within their regulatory ambit.

The regulator has also proposed restoring investor participation in appointing arbitrators. Under the revised framework, both parties will indicate their preferred arbitrators from an approved panel. The concerned MII will appoint 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, meanwhile, will be appointed directly by MIIs from their empanelled pool.

To shorten the process, Sebi has suggested merging the review conducted by designated bodies under the SCORES platform with the pre-conciliation stage. Unresolved complaints would move directly from the designated body to conciliation instead of passing through an additional layer, a change the regulator estimates would reduce timelines by 21 calendar days. Investors will continue to first lodge complaints on SCORES before escalating unresolved disputes to ODR, where applicable.

The consultation paper proposes stronger safeguards after arbitration. If a regulated entity challenges an arbitration award in court, it will have 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.

For investors in alternative investment funds (AIFs), Sebi has proposed allowing disputes to be resolved through mechanisms agreed under contractual arrangements instead of mandating the ODR platform. It 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.

The regulator has also suggested that investors should not bear the cost of conciliation. Instead, the ₹6,000 conciliation fee would be 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.

Sebi has also recommended tighter timelines across the process. Intermediaries would have to respond to complaints within 21 days, conciliators would be required to complete proceedings within 21 days, extendable by 10 days, and arbitrators would have to issue awards within three months, extendable by two months with recorded reasons.

Public comments on the consultation paper have been invited until 13 August.

Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them....