With the initiation of card transactions in the 1950s to the Digital India Programme in 2015, the FinTech Industry has been a topic of conversation and sometimes debate, amongst the Indian citizens. India has witnessed a revolutionary surge of cashless transactions in the recent past.
From Multi-National Companies to street vendors, all of us are now well versed with the working of Unified Payments Interface (UPI) system. The country has observed participation of 261 banks and recorded 4.21 Billion monthly transactions worth over $100 Billion in October’21, as per to Government statistics.
India has witnessed the highest adoption rate globally with approximately more than 2100 FinTech companies being established with a cumulative funding of $27.6 Billion, leaving behind the United States, China and also the United Kingdom.
FinTech is considered as a revolutionary change, where the combination of Finance and the Technology came in force to provide modern age products and services. This change transformed the modern day business model or operations.
With these above-mentioned positive traits, there come the negatives in terms of disputes and their modes of resolution.
Alternative Dispute Resolution (ADR) has been highly encouraged in the recent past wherein one of the popular modes is Arbitration. Moving forward, we are going to understand, the role of Arbitration in FinTech Industry, the procedure involved in it, whether a dispute falls under Domestic Arbitration or International Arbitration, and their analysis.
LAWS GOVERNING THE FINTECH SECTOR
Since there is no single ombudsman regulator for the business under this purview, most would fall under the purview of the Reserve Bank of India (RBI). Additionally, inter alia depending on the nature of activity sought to be regulated, Securities and Exchange Board of India (SEBI), Ministry of Electronics and Communications, the Insurance Regulatory Development Authority of India (IRDAI) and the Ministry of Corporate Affairs have the adjudication authority.
The RBI has broad authority to set payment system directives and guidelines. There is also a proposal to amend the Payment and Settlement Systems Act, 2007 (PSS Act) and establish the Payments Regulatory Board (PRB) as a new regulator.
The industry falls under the purview of statutory laws such as the Information Technology Act, 2000 (IT Act) Data Privacy laws, PSS Act, the Payment and Settlement Systems Regulations, 2008, Prevention of Money Laundering Act, 2002, other cyber laws, etc.
Recently, the RBI launched the Online Dispute Resolution (ODR) mechanism for digital payments in its Statement on Developmental and Regulatory Policies through an announcement dated August 06, 2020, in response to the mounting concerns with various digital payments. Authorized Payment System Operators and their Participating Members are directed to introduce ODR system in a phased manner.
ROLE OF ARBITRATION IN RESOLUTION OF FINTECH DISPUTES
Arbitration is one of the most useful tools or mechanisms to curb down the burden of the courts. This ADR mechanism is preferred as it is comparatively less formal and less time consuming yet equally effective with a legally enforceable and binding award.
FinTech is one of the new emerging markets that has tremendous potential and as we have observed, it has already surpassed many markets in terms of market size. Hence, there is a massive opportunity for the Arbitration proceedings especially as the graphs of disputes in this industry are on a rise.
The International Financial Services Authority (IFSCA) has announced intentions to open an International Arbitration Centre at the Gujarat International Finance-Tec-City (GIFT City) International Financial Services Centre (IFSC).
The proposed International Arbitration centre will play a critical role in resolving disputes more quickly, which is critical for any financial centre. The proposed changes to the IFSC are likely to aid in the creation of an effective trade finance arrangement, allowing India’s small and medium businesses to access foreign funds.
Domestic Arbitration for Indian FinTech disputes:
The Indian Arbitration system is witnessing a drastic change in its approach towards resolving disputes in order to cope up with the emerging and upcoming market. Domestic Arbitration takes place when the contract and the merits of the said dispute between the parties are subject to Indian jurisdiction.
Domestic Arbitration in FinTech is favourable to the parties whose business affairs and subject matter of the contract are limited to the national borders.
Besides, as discussed above, recently the RBI has introduced the ODR mechanism to encounter the issues pertaining to digital payments and transactions, in a simpler and easier process.
International Arbitration for FinTech Disputes:
As the FinTech sector is expanding, companies are entering into more partnership and other lucrative agreements across the borders. Such agreements and association with other global companies or international entities may give rise to the disputes which can be resolved through International Arbitration.
International Arbitration is usually practiced when the parties are situated in different jurisdictions or the subject matter of the dispute is foreign in nature. The parties to the agreement select an International Arbitration Centre as per their choice and the Arbitral proceedings are conducted by the rules of that particular International Arbitration Centre.
The FinTech sector is expanding across the globe and due to the cross-border nature of the agreements, jurisdictional conundrum is likely to take place, and the same can be resolved by opting for International Arbitration. Parties can opt for International Arbitration centres like International Court of Arbitration (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC), etc.
Furthermore, the World Intellectual Property Organization (WIPO) Arbitration and Mediation Centre has encouraged ADR mechanism for FinTech disputes and provides procedural advice and case administration in order to help the parties to resolve FinTech disputes.
PROCEDURE OF ARBITRATION FOR FINTECH DISPUTES
Procedure of Domestic Arbitration:
Under the Indian Law there are two modes of Arbitration the FinTech companies can opt for- ODR procedure as laid down by the RBI or the Arbitration procedure as stipulated under the Arbitration and Conciliation, 1996 (the Act).
Online Disputes Resolution
ODR has been introduced to encounter the inclining graph of various legal issues related to digital payments and transactions.
According to the RBI, the main objective behind this initiative is “transparent, rule-based, system-driven, user-driven, unbiased mechanism for resolving customer disputes and grievances, with zero or minimal manual intervention.”
In simple words, the main reason behind this move or introduction of this mechanism is to curb down the upscaling legal issues regarding digital payments and transactions in India, as digital payments, digital lending and all the other related activities in India are expanding at an increasing rate.
Such expansion of digital payment systems and the FinTech industry might give rise to potential disputes and differences between companies. In the backdrop of the same, ODR will be an efficient and easily accessible solution for the companies.
Procedure for filing a case for ODR:
1. The aggrieved party can file the case either digitally or physically through forms. Filing can be file through mobile application, IVR, web-based services, paper-based services, SMS or even directly to the branch office too.
2. After filing the application, the complainant will get a Unique Identification Code which shall be required in order to receive regular updates about his/her complaint.
3. Generally, under the ODR system a complaint or case should be resolved within 30 days from filling of it. Even after this time limit, if the complaint is not resolved, the complainant can approach the respective Banking Ombudsman.
Under this system every Bank, Payment Service Providers (PSPs) and Payment System Operators (PSOs) should give to opportunity to the consumer to file their case or grievances. This same rule is applicable to the UPI system and other third party apps and web based financial service providers to enable such option in their application or web for the consumer to file grievances under the ODR mechanism.
Arbitration proceedings are a well-known practice in India, especially in the corporate world. Corporate entities, whether it is a small start-up to large multinational companies, everyone tend to opt for Arbitration.
To refer a dispute to Arbitration, the parties shall ensure the inclusion of an Arbitration clause in the agreement. The Arbitration clause includes the details about the Arbitration proceedings which includes the process of invoking Arbitration, appointment of the Arbitrator, seat and venue of the Arbitration, etc.
In case of a dispute, either party can serve a notice and invoke Arbitration as per the Arbitration clause, following which, the Arbitration proceedings are to be held accordingly.
Procedure of International Arbitration:
Either of the party to the agreement can refer the dispute to the International Arbitration Centre specified in the Arbitration clause of the agreement. FinTech companies should necessarily include terms and conditions pertaining to International Arbitration in their Arbitration clause because FinTech companies often deals or collaborates with foreign corporate entities or global companies.
In the event of any dispute, either party can invoke or request for Arbitration and approach the International Arbitration Centre as specified in the Arbitration clause of the agreement. The Arbitration proceedings are held as per the rules and regulations of the respective International Arbitration Centre.
Due to the rise and rapid expansion of the FinTech industry around the globe, several International Arbitration Centres are trying to adopt to the requirements of the FinTech market. Subsequently, even the Arbitration clause providing Domestic Arbitration is drafted in a manner which is suitable for disputes arising in Fintech market.
Some of the emerging disputes area in the Fintech industry includes but is not limited to Outsourcing Agreements, Joint Ventures, development of Application Programming Interfaces (API), Mobile applications, Artificial Intelligence, Software Development Agreements, etc.
FinTech Industry is expanding rapidly and is considered as a future market as it combines both financial services and technology- an essential element in the era of digitalization.
Arbitration will play an important role to curb down the number of disputes and sustain the growth of this industry. ODR or digital Arbitration proceedings should be encouraged as the FinTech industry is completely based on technology and digital advancements.
Moving forward, experts having knowledge about the FinTech market should also be included in the Arbitration proceedings in order to aid the Arbitrators regarding the dispute in hand, as the nature of FinTech disputes are usually technical in nature.
– Team AMLEGALS assisted by Mr. Ankit Mondal (Intern)
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