SEBI’s Proactive Approach: Strengthening the Dispute Resolution Mechanism introducing ADRM – Chetna Alagh

SEBI’s Proactive Approach: Strengthening the Dispute Resolution Mechanism

Chetna Alagh
5th year B.B.A., LL.B. Hons. student at UPES, Dehradun


The foundation of each nation’s financial system is its capital market, which promotes opportunities for investing and economic progress. As the capital market landscape becomes more competitive and intricate, addressing customer disputes along with resolving securities market issues efficiently has become indispensable for its continued success.   

Recognizing the significance of a customer-centric dispute resolution mechanism, the Securities and Exchange Board of India (SEBI) has been at the forefront of implementing measures to protect investors’ interests and foster market transparency. In this regard, SEBI via its wide notification SEBI/LAD-NRO/GN/2023/137 dated 03rd July 2023  issued a circular introducing a comprehensive alternative dispute resolution mechanism (ADRM, hereinafter) framework to provide a swift, approachable, and equitable resolution of securities market disputes. 

The Flourishing of Alternative Dispute Resolution in India: Paving the Way Forward in All Sectors

As Warren Burger once said, “The obligation of the legal profession is to serve as healers of human conflict we should provide mechanisms that can produce an acceptable result in the shortest possible time, with the least possible expense, and with a minimum of stress on the participants. That is what justice is all about.” The essence of Alternative Dispute Resolution (ADR), which has seen remarkable growth and success in recent years, is captured in this profound statement. ADR has become a crucial tool in the nation’s legal system, revolutionizing how disputes are settled in all industries.

The mechanism for dispute resolution has come a long way in India. The course of ADRM flourished in India for the very first time when the India Arbitration Act of 1899 was enacted, but the said enactment was restricted to Madras, Bombay, and Calcutta. Therefore, it was further codified in Section 89 and Schedule II of the Code of Civil Procedure 1908, where the provisions of ADR were extended to various regions of British India where the act of 1899 was not extended. The Act of 1899 along with provisions of the Code of Civil Procedure were found to be more technical and injudicious, paving the way for the Arbitration Act of 1940 to come into existence which was a reflection of the English Arbitration Act. Unfortunately, the Arbitration Act of 1940 was found to be time-consuming, interminable, and complex and the court procedures were also found to be expensive. The way in which Arbitrational proceedings were challenged in courts made the legal fraternity weep. The Act of 1940 garnered severe criticism but no amendment was made to it and it was only after the economic liberalization of 1991 that important steps were undertaken to entice foreigners’ investments. In the conspectus of the aforesaid reasons, the Arbitration and Conciliation Act of 1996 took the place of the 1940 Act. The UNCITRAL Model was introduced through this action. This model lays out the specifics and procedures for resolving disputes and states that courts should not interfere much with the entire process. To bring about societal changes, the act’s provisions have also been amended with time. For example, the process is now being included in almost all kinds of industries to get a hassle-free, cost-effective, and quick solution. Similarly, SEBI regulations have also included the process in almost all of the regulations interrelated to SEBI, thus, making the ADRM process a faster-growing and compatible procedure for the resolution of disputes. 

SEBI’s New Dispute Resolution Mechanism – Aim and Scope

In order to improve investor protection in India’s capital market, SEBI’s regulatory framework now includes dispute resolution procedures including “Arbitration, Conciliation, and Mediation.” This aims to provide investors with an easily accessible and effective means of resolving any disputes that may come up during their interactions with market participants. These procedures provide equitable and transparent avenues for investors to voice complaints to market participants. Investor trust is increased and market integrity is strengthened by quick resolutions, reduced litigation costs, and the promotion of out-of-court settlements. SEBI has demonstrated its dedication to promoting a reliable investment environment, safeguarding the capital market’s expansion and sustainability through these actions.

Key Amendments

In the exercise of its power to amend under Section 30 of the SEBI Act 1992, many regulations have been amended to bring up the new and necessary changes. Firstly, Merchant Banker Regulations have been amended by adding a clause for ADRM. By serving as a bridge between businesses looking to raise funds and potential investors, merchant bankers play a crucial role in the securities market. Merchant bankers do a variety of tasks as part of their duties, such as underwriting, portfolio management, problem management, and corporate advising services. likewise, section 28B to handle these issues fairly and effectively was added.

Thereafter, SEBI made an important amendment to the Registrars to an Issue and Share Transfer Agents Regulations, 1993 by introducing Regulation 15B. To resolve any claims, disagreements, or conflicts that could develop between a registrar to issue, a share transfer agent (RTA), and its customers and investors in the securities market, this rule provides a strong dispute resolution process.  Regulation 14A, which handles disagreements between debenture trustees and the body corporates who appoint them in the securities market, has also been adopted with the revision to the SEBI (Debenture Trustees).

SEBI also made amendments to the Mutual Funds Regulations in 1996, introducing Regulation 59B. Any complaints or disagreements between an asset management company and investors must be resolved through a formal dispute resolution process. SEBI (Custodian) Regulations 19967 has also been amended. By inserting regulation 17A, any claims, disagreements, or disputes between a custodian and its client relating to or resulting from the custodian’s activities in the securities market shall be submitted in accordance with the Board’s prescribed procedure. This creates a level playing field, protects investors’ rights, and further creates a mutual fund market that is successfully accessible to investors. 

The KYC (Know Your Client) Registration Agency Regulations were amended by the Securities and Exchange Board of India (SEBI) in 2011. It helps to regulate the activities of KYC Registration Agencies in India, ensuring adherence to the standards for customer identification and verification in the financial industry. Regulation 16B is one of the amendments made that states that the resolution of disagreements between a KYC Registration Agency (KRA) and an Intermediary in the securities market is covered by this regulation and both parties must submit any claims, disagreements, or disputes to a dispute resolution mechanism.

Similarly, The LODR Guidelines specify the requirements that companies listed on stock exchanges must meet in order to be transparent and protect investors. For claims and disagreements pertaining to sub-regulation (8) of regulation 40, the requirement for mandatory arbitration was removed. Instead, a new sub-regulation (5) was added to regulation 67 that mandates that any claims, disagreements, or disputes between listed entities and their investors resulting from operations in the securities market be submitted to a dispute resolution mechanism.

Likewise, all the similar regulations of SEBI such as the Credit Rating Agencies Regulations 1999, Collective Investment Schemes Regulations 1999, Alternative Investment Funds Regulations 2012, Investment Advisers Regulations 2013, Research Analysts Regulations 2014, Infrastructure Investment Trusts Regulations 2014, Foreign Portfolio Investors Regulations 2019, Real Estate Investment Trusts Regulations 2014, Portfolio Managers Regulations 2020 and Vault Managers Regulations, 2021 have also been amended and the mechanism for dispute resolution has been included. The inclusion of arbitration, conciliation, and mediation as methods of resolving disputes in accordance with the procedure specified by the board, these revised regulations demonstrate SEBI’s dedication to fostering a vibrant and investor-friendly securities market in India.

Merchant bankers, registrars, debenture trustees, mutual funds, credit rating agencies, investment advisers, research analysts, custodians, foreign portfolio investors, and other market participants are all covered by SEBI’s ADRM. The regulator hopes to create a culture of accountability and responsibility among various organizations through this all-encompassing approach, ensuring a level playing field for all market participants. 

This has helped in gearing up the process of dispute resolution under the regulations of SEBI so that solutions can be reached easily. The specific amendments to all the regulations are almost similar as all have created a path for a speedy process of resolving disputes between concerned parties. Therefore, it can be said that the ADRM is going to have a positive effect on market dynamics because investors can now anticipate a quick, affordable, and impartial resolution of disputes. The mechanism is also anticipated to encourage investment activities and contribute to the long-term growth of the Indian capital market by fostering trust and accountability.


The establishment of the ADRM by SEBI is a significant step forward in strengthening investor protection and fostering confidence in the Indian securities market. The wide-ranging ADRM’s scope and the inclusion of a variety of market players show SEBI’s dedication to defending investor interests and fostering a fair and transparent marketplace. The insertion of sub-sections via amendments has raised the scope for dispute resolution in resolving issues between investors, registrar management companies and agents, etc.

However, the ADRM can only be a game changer in the country provided we have the infrastructure facilities and services of skilled mediators, arbitrators, and conciliators who can uphold the integrity and fairness of the ADRM and ensure that the parties involved in ADRM have a good understanding of all the aspects of the process so that the mechanism flourishes in our country effectively and efficiently.


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