On December 20, 2023, the Securities and Exchange Board of India (SEBI) issued a significant circular, SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2023/191, amending the guidelines for online dispute resolution in the Indian securities market. This article provides an in-depth analysis of the amendments, highlighting key changes and their potential impact on market participants.
Detailed Analysis
1. Background and Previous Circulars SEBI had previously issued Circular No. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/131 on July 31, 2023, providing guidelines for online dispute resolution. Subsequent amendments and consolidation were made via Circular No. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/135 on August 04, 2023, and Master Circular No. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/145 on August 11, 2023.
2. Key Modifications in the Circular (December 20, 2023)
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- Clarification on parties involved, with the inclusion of institutional/corporate clients.
- Amendments to the mediation, conciliation, and arbitration processes, emphasizing the online nature and venue in India.
- Inclusion of fees, charges, and costs details for mediation, conciliation, and arbitration institutions.
3. Specific Amendments in Clauses
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- Changes in Clauses 5, 8, 13, 20(a), 20(b), 20(c), and 28(c), affecting ODR Portal, enrollment, initiation, and fees for arbitration.
- Detailed modifications in Clause 28(c) regarding the slab ‘Above Rs. 50 lakh’ and provisions for claims of Rs. 1 crore and above.
4. Incorporation of New Entities in Schedules
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- Additions to Schedule A and Schedule B, including entities like Banker to an Issue, Self-Certified Syndicate Banks, Merchant Bankers, Commodities Clearing Corporation, ESG Ratings Providers, and more.
5. Effective Date and Regulatory Authority
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- The circular comes into force immediately.
- Issued under the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992.
Conclusion
The amendments introduced by SEBI in the circular signify a commitment to enhancing the online dispute resolution framework in the Indian securities market. The emphasis on clarity, inclusivity of entities, and transparent fee structures aims to streamline the resolution process. Market participants, including listed companies, brokers, and intermediaries, need to promptly adapt to these changes. The circular’s availability on the SEBI website ensures accessibility for all stakeholders. For more details, refer to the official circular on the SEBI website.
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Securities and Exchange Board of India
Circular No. SEBI/HO/OIAE/OIAE_IAD-3/P/CIR/2023/191 Dated: December 20, 2023
To,
All Recognized Stock Exchanges (including Commodity Derivatives)
All Clearing Corporations
All Depositories All Stock Brokers
All Depository Participants
All SEBI Registered Intermediaries / All SEBI Regulated Entities
All Listed Companies
All Registrar & Share Transfer Agents
All Asset Management Companies
Sir / Madam,
Subject: Amendment to Circular dated July 31, 2023 on Online Resolution of Disputes in the Indian Securities Market
1. SEBI issued circular no. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/131 dated July 31, 2023 providing the guidelines for online resolution of disputes in the Indian securities market. Amendments cum Corrigendum to the same was issued vide circular no. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/135 dated August 04, 2023. These regulatory norms were consolidated vide Master Circular No. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/145 on August 11, 2023.
2. Pursuant to feedback received for providing clarity on certain aspects, it has been decided to modify the circular dated July 31, 2023 (as amended) as under:
I. In clause 2 of the circular, the words and brackets “(including institutional/corporate clients)” are added after the words “Investors/Clients”.
II. In Clause 3(b) of the circular, the words ‘independent institutional’ are added before the word ‘conciliation’ and the word ‘online’ as appears before the words ‘arbitration institution in India’ is substituted with the word ‘independent’.
III. In Clause 3(b) of the circular, after the end of the existing paragraph, the following is added:
“The seat and venue of mediation, conciliation and/or arbitration shall be in India and can be conducted online.
The fees, charges and costs for the independent mediation institution or independent conciliation institution and/or independent arbitration institution (and of the mediators/conciliators/arbitrators), and other applicable costs, charges and expenses may be as prescribed by such institution/s or as agreed upon by the parties with such institution/s.
The claims / complaints / disputes that arise from the activities or roles performed or to be performed by the specified intermediaries or regulated entities pertaining to the Indian securities market are in scope of this clause1.”
IV. Clause 5 of the circular shall include the following as a footnote to ‘ODR Portal’:
URL – https://smartodr.in/login
V. Clause 8 of the circular shall include the following after the end of the last line: “Entities that obtain registration from the Board as an intermediary or issuers that are getting their securities listed on or after the date of implementation of this circular, shall enrol in the ODR Portal immediately upon grant of registration or listing, as the case may be”.
VI. In Clause 13 of the circular, the following are added at the end of the line: “or is against the Government of India / President of India or a State Government / Governor of a State. It is clarified that Listed companies (and their registrars and transfer agents), specified intermediaries and regulated entities specified in Schedules A and B as well as institutional or corporate clients shall initiate claims or disputes in accordance with Clause 3(a) and/or 3(b), as applicable, unless the matter is non-arbitrable in terms of Indian law (including when moratorium under the Insolvency and Bankruptcy Code is in operation due to the insolvency process or if liquidation or winding up process has been commenced) or is against the Government of India / President of India or a State Government / Governor of a State”
VII. In Clause 20(a) of the circular, at the end of the current paragraph, the following sentence is added: “The nature of determination made by the conciliator is only to provide an admissible claim value of the complaint / dispute for purposes of appropriate slab for computation of fees being applied for online arbitration. Subject to the forgoing, the investor / client, the market participant and the arbitrator/s would not be bound by such determination for the making or defending or deciding the claim / complaint / dispute, as the case may be”.
VIII. In Clause 20(b) of the circular, at the end of the current paragraph, the following sentence is added: “The Market Participant against whom the investor/client pursues the online arbitration shall participate in the arbitration process. Accordingly, within 10 days of the initiation of the online arbitration by the investor/client, the Market Participant shall make the deposit of 100% of the admissible claim value with the relevant MII and make the payment of the fees as applicable for online arbitration. Non-adherence of the foregoing by the Market Participant may result in action against the Market Participant by MIIs and/or the Board.”
IX. In Clause 20(c) of the circular, the first sentence is substituted as follows: “In case the Market Participant wishes to pursue online arbitration (which will be administered by the ODR Institution which facilitated the conduct of conciliation), it shall intimate the ODR Institution within 10 days of the conclusion of the conciliation process of its intent to do so and within further 5 days of this intimation, shall deposit 100% of the admissible claim value with the relevant MII and make the payment of fees as applicable for online arbitration for initiating the online arbitration”.
X. In Clause 28(c) of the circular, the slab ‘Above Rs. 50 lakh’, stands modified as follows:
| Above Rs. 50 lakh – Rs. 1 crore | |
| Arbitrator’s Fee | Rs. 1,20,000/-** |
| ODR Institution’s Fees, in addition to the arbitrator’s fees (to be collected by the ODR institution) | Rs. 15,000/- |
| Applicable GST, Stamp Duty, etc. on actual outgoings |
Further, for claims of Rs. 1 crore and above, an ad valorem fees @ 1% of the claim value or Rs.1,20,000/-, whichever is more, towards Arbitrator’s Fees** (to be collected by the ODR institution and paid to the arbitrator) and fees @ Rs 35,000/- towards ODR Institution’s Fees, in addition to the arbitrator’s fees (to be collected by the ODR institution), together with Applicable GST, Stamp Duty, etc. on actual outgoings, shall be applicable.
XI. In Clause 28 (c) of the circular, at the end of the first paragraph appearing after the table, the following sentence is added: “The investor may choose to initiate arbitration for a higher claim value subject to payment of applicable fees and charges”.
XII. In Clause 28 (c) of the circular under ‘Late Fee’, after the last line, the following is added: “……The concerned ODR Institution may collect this fee on behalf of the MII as per mutually agreed terms between them.”
XIII. Schedule A of the circular shall also include the following:
1 A. Banker to an Issue and Self-Certified Syndicate Banks2
5 A. Merchant Bankers3
Further, entry 2A and 10 are modified as under:
2A. Commodities Clearing Corporation4
10. Stock brokers5 (including Online Bond Platforms & Online Bond Platform Providers)
XIV. Schedule B of the circular shall also include the following:
2 A. Commodities Clearing Corporations6
5A. ESG Ratings Providers and their clients
3. This circular shall come into force with immediate effect.
4. This Circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities This circular is issued with the approval of the competent authority.
5. This Circular is available on the SEBI website at https://www.sebi.gov.in/ under the link “Legal > Circulars”. The Master Circular for Online Dispute Resolution is available on the SEBI website at sebi.gov.in under the link “Legal> Master Circulars”.
Yours faithfully,
S. Manjesh Roy
General Manager
Tel no.: 022- 2644 9710 & 4045 9710
Email: manjeshsr@sebi.gov.in
Notes:
1 For example, non-disclosure agreements signed by specified intermediaries or regulated entities with their institutional or corporate clients for receiving confidential corporate or other information by itself would not be related to the Indian securities market. Separately, regulated entities such as Credit Rating Agencies or Debenture Trustees also undertake non-securities market related work which would be outside the scope of the clause
2 including for any claims / complaints / disputes pertaining to compensation to investors for grievance emanating from application to Public Issues using UPI payment with ASBA.
3 For any claims/complaints/disputes arising on account of compensation to investors for grievances emanating from application for public issues.
4 Including for any claims / complaints / disputes raised by investors/clients on account of Warehouse Service Providers / Vault Service Providers
5 Including for any claims/compalints/disputes arising on account of Authorised Persons of the Trading Members
6 For any claims / complaints / disputes arising between or amongst Warehouse Service Providers / Vault Service Providers and depositors / ginners.
