SEBI Proposes Shifting Online Dispute Resolution Framework to Market Infrastructure Institutions

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a fundamental restructuring of the Online Dispute Resolution (ODR) framework for the Indian securities market. The proposed changes would transfer the administrative control of investor grievance resolution from dedicated, independent ODR institutions to Market Infrastructure Institutions (MIIs), which include stock exchanges (BSE, NSE), depositories (NSDL, CDSL), and clearing corporations. The consultation paper invited public comments until August 13, 2026, and the final framework is expected to be notified in the coming months.

Background: The Current ODR Framework

SEBI introduced the Online Dispute Resolution mechanism through its Master Circular on Online Resolution of Disputes in the Indian Securities Market (August 2023), building on the SMART ODR platform launched as a pilot. Under the current framework, independent ODR institutions empanelled by SEBI handle conciliation and arbitration of investor complaints against regulated entities such as stock brokers, depository participants, and listed companies.

The existing system operates alongside the SEBI Complaints Redress System (SCORES), which is SEBI's centralised platform for receiving, tracking, and resolving investor complaints. If a complaint remains unresolved through SCORES, it can be escalated to the ODR framework for conciliation and, if conciliation fails, arbitration.

The Proposed Shift to MIIs

The consultation paper proposes placing the responsibility for managing online conciliation and arbitration directly with MIIs. The rationale is that MIIs already exercise regulatory oversight over brokers, listed companies, and other market participants, and integrating the ODR framework within MIIs would create a more cohesive system. The MIIs would be responsible for maintaining panels of conciliators and arbitrators, managing case allocation, and ensuring compliance with timelines.

In practice, this represents a significant shift in approach. The original ODR framework was designed around independent institutions precisely to avoid potential conflicts of interest, since MIIs derive revenue from the very entities (stock brokers, DPs) against whom investors file complaints. The consultation paper appears to weigh this concern against the efficiency gains from integration.

Integration with SCORES

A key proposal is the direct integration of the ODR framework with SCORES. Under the proposed system, unresolved complaints on SCORES would be automatically escalated to the conciliation stage at the relevant MII, without requiring the investor to separately initiate ODR proceedings. SEBI estimates that this automatic escalation would reduce the total time taken to resolve a grievance by approximately 21 days.

Currently, investors must navigate a multi-step process: file a complaint on SCORES, wait for the regulated entity's response, and if unsatisfied, separately approach an ODR institution. The seamless integration would eliminate the gap between the SCORES complaint and the ODR conciliation stage.

Investor Protection Safeguards

The consultation paper proposes a significant investor protection measure for the arbitration stage. If a regulated entity chooses to challenge an arbitration award that favours an investor, it would be required to deposit the full award amount with the MII before the appeal can proceed. As interim relief, the MII would have authority to release up to 50 percent of the award amount, or Rs 5 lakh (whichever is lower), to the investor immediately.

This mirrors provisions found in other regulatory frameworks. Under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006, for instance, the buyer is required to deposit 75 percent of the amount due before filing an appeal against an MSME Facilitation Council award. The proposed SEBI framework is less onerous but follows the same principle of discouraging frivolous appeals.

Legal Framework and Judicial Precedent

The ODR framework operates within the broader ambit of SEBI's authority under Section 11(1) of the SEBI Act, 1992, which mandates SEBI to protect the interests of investors in securities and to promote the development of and regulate the securities market. The Supreme Court in SEBI v. Sahara India Real Estate Corporation Limited, (2012) 10 SCC 603, affirmed SEBI's broad authority to take measures necessary for investor protection, including establishing dispute resolution mechanisms.

More recently, the Supreme Court in Calcutta Stock Exchange Ltd. v. SEBI, 2023, upheld SEBI's supervisory authority over MIIs, holding that stock exchanges and other MIIs are "first level regulators" subject to SEBI's oversight. This characterisation supports the proposed framework, as it positions MIIs as entities that already bear regulatory responsibility and can therefore also bear dispute resolution responsibility.

Potential Concerns

In practice, the proposed shift raises several questions. First, the conflict of interest concern: MIIs earn listing fees from listed companies and transaction fees from brokers, both of which are common respondents in investor complaints. Whether the proposed framework adequately insulates the dispute resolution function from the commercial interests of MIIs will be closely scrutinised. Second, the capacity question: MIIs would need to build or scale their conciliation and arbitration infrastructure, including panels of qualified neutrals.

Third, the enforceability of arbitral awards through MIIs, as opposed to independent institutions, may face challenges if a regulated entity questions the independence and impartiality of the arbitral process. The Arbitration and Conciliation Act, 1996, requires that arbitral tribunals be independent and impartial (Section 12), and awards can be challenged under Section 34 on grounds of bias.

Sources and References

• SEBI Consultation Paper on Improvements to the ODR Framework for the Securities Market, 2026

• SEBI Master Circular on Online Resolution of Disputes in the Indian Securities Market, August 2023

• SEBI Act, 1992, Section 11(1) (Investor protection mandate)

• SEBI v. Sahara India Real Estate Corporation Limited, (2012) 10 SCC 603 (SEBI's broad investor protection authority)

• Calcutta Stock Exchange Ltd. v. SEBI, 2023 (MIIs as first-level regulators)

• Arbitration and Conciliation Act, 1996, Sections 12 and 34 (Independence, impartiality, and challenge of awards)

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.