EL/U1 Topic 2 Depositories Act. 1996
The Depositories Act, 1996 was enacted to provide for regulation of depositories in securities and for matters connected therewith or incidental thereto. It came into force from 20th September, 1995.
The terms used in The Depositories Act,1996 are defined as under:
(1) “Beneficial owner” means a person whose name is recorded as such with a depository.
(2) “Depository” means a company, formed and registered under the Companies Act, 1956 and which has been granted a certificate of registration under sub-section (1A) of section 12 of the SEBI Act, 1992.
(3) “Issuer” means any person making an issue of securities.
(4) “Participant” means a person registered as such under sub-section (1A) of section 12 of the SEBI Act, 1992.
(5) “Registered owner” means a depository whose name is entered as such in the register of the issuer.
Agreement between depository and participant
A depository shall enter into an agreement in the specified format with one or more participants as its agent.
Services of depository
Any person, through a participant, may enter into an agreement, in such form as may be specified by the bye-laws, with any depository for availing its services.
Surrender of certificate of security
Any person who has entered into an agreement with a depository shall surrender the certificate of security, for which he seeks to avail the services of a depository, to the issuer in such manner as may be specified by the regulations. The issuer, on receipt of certificate of security, shall cancel the certificate of security and substitute in its records the name of the depository as a registered owner in respect of that security and inform the depository accordingly. A depository shall, on receipt of information enter the name of the person in its records, as the beneficial owner.
Registration of transfer of securities with depository
Every depository shall, on receipt of intimation from a participant, register the transfer of security in the name of the transferee. If a beneficial owner or a transferee of any security seeks to have custody of such security, the depository shall inform the issuer accordingly.
Options to receive security certificate or hold securities with depository
Every person subscribing to securities offered by an issuer shall have the option either to receive the security certificates or hold securities with a depository. Where a person opts to hold a security with a depository, the issuer shall intimate such depository the details of allotment of the security, and on receipt of such information the depository shall enter in its records the name of the allottee as the beneficial owner of that security.
Securities in depositories to be in fungible form
All securities held by a depository shall be dematerialised and shall be in a fungible form.
Rights of depositories and beneficial owner
A depository shall be deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner. The depository as a registered owner shall not have any voting rights or any other rights in respect of securities held by it. The beneficial owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in respect of his securities held by a depository.
Pledge or hypothecation of securities held in a depository
A beneficial owner may with the previous approval of the depository create a pledge or hypothecation in respect of a security owned by him through a depository. Every beneficial owner shall give intimation of such pledge or hypothecation to the depository and such depository shall thereupon make entries in its records accordingly. Any entry in the records of a depository under Section 12 (2) shall be evidence of a pledge or hypothecation.
Furnishing of information and records by depository and issuer
Every depository shall furnish to the issuer information about the transfer of securities in the name of beneficial owners at such intervals and in such manner as may be specified by the bye-laws. Every issuer shall make available to the depository copies of the relevant records in respect of securities held by such depository.
Option to opt out in respect of any security
If a beneficial owner seeks to opt out of a depository in respect of any security he shall inform the depository accordingly. The depository shall on receipt of intimation make appropriate entries in its records and shall inform the issuer. Every issuer shall, within thirty days of the receipt of intimation from the depository and on fulfillment of such conditions and on payment of such fees as may be specified by the regulations, issue the certificate of securities to the beneficial owner or the transferee, as the case may be.
Depository to indemnify loss in certain cases
Any loss caused to the beneficial owner due to the negligence of the depository or the participant, the depository shall indemnify such beneficial owner. Where the loss due to the negligence of the participant is indemnified by the depository, the depository shall have the right to recover the same from such participant.
Securities not liable to stamp duty
As per Section 8-A of Indian Stamp Act, 1899:
a) An issuer, by the issue of securities to one or more depositories shall, in respect of such issue, be chargeable with duty on the total amount of security issued by it and such securities need not be stamped;
b) Where an issuer issues certificate of security under sub-section (3) of Section 14 of the Depositories Act, 1996, on such certificate duty shall be payable as is payable on the issue of duplicate certificate under the Indian Stamp Act, 1899;
c) Transfer of registered ownership of securities from a person to a depository or from a depository to a beneficial owner shall not be liable to any stamp duty;
d) Transfer of beneficial ownership of shares, such securities dealt with by a depository shall not be liable to duty under Article 62 of Schedule I of the Indian Stamp Act, 1899;
e) Transfer of beneficial ownership of units, such units being units of mutual fund including units of the Unit Trust of India, dealt with by a depository shall not be liable to duty under Article 62 of Schedule I of the Indian Stamp Act, 1899