Capital Market and Securities Laws · Laws Governing Depositories and Depository Participants

Rights and Obligations of Depositories and Beneficial Owners

Updated 11 October 2026 · Fact-checked

Under the Depositories Act, 1996, a depository is the registered owner only to effect transfers (Section 10(1)) and has no voting or other rights (Section 10(2)). The beneficial owner enjoys all rights and bears all liabilities (Section 10(3)). Section 17 says SEBI regulations specify the rights and obligations of depositories, participants and issuers.

Understand Rights and Obligations of Depositories and Beneficial Owners

Before depositories, the company's register showed the shareholder's name and the shareholder held a paper certificate. In the depository system, securities are held in electronic form. Two kinds of owner then exist side by side, and the Act keeps them apart.

The registered owner is the depository whose name is entered in the issuer's register (Section 2(1)(j)). The beneficial owner is the person whose name is recorded as such with a depository (Section 2(1)(a)). The investor is the beneficial owner. The depository is the registered owner.

Why two owners? The depository needs legal title so that it can transfer securities by book entry, without the issuer re-registering every trade. Section 10(1) gives it that title, 'notwithstanding anything contained in any other law', but only 'for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner'. Section 10(2) then strips it of voting and every other right in the securities. All economic and governance rights remain with the investor under Section 10(3): the beneficial owner is entitled to all rights and benefits and is subject to all liabilities.

The obligations of the players are set in layers. Section 17(1) says the rights and obligations of depositories, participants and issuers are specified by SEBI regulations. Section 17(2) says the same for the eligibility criteria for admitting securities into a depository. Section 25 is SEBI's regulation-making power, and Section 26 requires depositories to make bye-laws with SEBI's previous approval. Beyond this, the Act itself imposes duties: securities held must be dematerialised and fungible (Section 9), a register and index of beneficial owners must be kept (Section 11), information must be exchanged with issuers (Section 13), and the depository must indemnify loss from negligence (Section 16).

Key rules to remember

Depository as registered owner: Depository = registered owner, only for effecting transfer on behalf of beneficial owner (Section 10(1)); Applies notwithstanding any other law. The purpose is limited to transfer.
No other rights for depository: Depository as registered owner: no voting rights or other rights in securities held (Section 10(2)); Subject to the transfer power in Section 10(1).
Beneficial owner's position: Beneficial owner = all rights and benefits + all liabilities (Section 10(3)); Dividends, voting and other rights belong to the investor.
Source of rights and obligations: Rights and obligations of depositories, participants, issuers = specified by regulations (Section 17(1)); Eligibility for admission of securities is also by regulations (Section 17(2)).
Fungible, dematerialised securities: All securities held by a depository: dematerialised and fungible (Section 9(1)); Fungible means one unit is interchangeable with another of the same kind.
Register of beneficial owners: Every depository maintains a register and index of beneficial owners (Section 11); Kept in the manner of Sections 150, 151 and 152 of the Companies Act, 1956, as the Act states.
Information flow: Depository informs issuer of transfers (Section 13(1)); issuer gives depository copies of relevant records (Section 13(2)); Intervals and manner for the depository's information are set by bye-laws.
Indemnity: Loss to beneficial owner from negligence of depository or participant: depository indemnifies (Section 16(1)); may recover from participant (Section 16(2)); Recovery right applies where the participant's negligence caused the loss.

How to solve Rights and Obligations of Depositories and Beneficial Owners questions

Use this method for any question on rights and obligations of depositories, participants, issuers or beneficial owners.

1Read the question and identify which party is involved: depository, participant, issuer or beneficial owner.
2Define the terms you need from Section 2(1): beneficial owner, registered owner, depository, participant, issuer.
3State the governing provision. For ownership and rights, use Section 10. For rights and obligations of the parties, use Section 17 and the regulations.
4Apply it to the facts. Ask who holds title, who holds voting and benefit rights, and who owes the duty.
5Add supporting provisions where relevant: Section 9 (fungible form), Section 11 (register), Section 13 (information), Section 16 (indemnity), Section 26 (bye-laws).
6Close with a clear conclusion that answers the exact question asked.

Quickest way: Three-line ownership test

When to use it: Use when you have little time and the question asks who can exercise a right or who bears a loss.

Line 1: the depository is registered owner only to transfer (Section 10(1)); it has no voting or other rights (Section 10(2)).
Line 2: the beneficial owner has all rights, benefits and liabilities (Section 10(3)).
Line 3: if loss arises from negligence of depository or participant, the depository indemnifies the beneficial owner (Section 16), then may recover from the participant.

Common mistakes in Rights and Obligations of Depositories and Beneficial Owners

Saying the depository has voting rights because it is the registered owner.
Students read 'registered owner' as full ownership, as in the old company register.
Fix: Remember that Section 10(2) says the depository has no voting rights or other rights, save the transfer power in Section 10(1).
Treating the beneficial owner as only a nominal holder with no liabilities.
The word 'beneficial' suggests only benefits.
Fix: Quote Section 10(3): the beneficial owner is entitled to all rights and benefits and is subjected to all liabilities.
Writing that Section 17 lists the detailed rights and duties of depositories.
The heading 'Rights and obligations' suggests a list.
Fix: Section 17(1) only says they are specified by regulations. Say so, then mention the SEBI regulations and bye-laws under Sections 25 and 26.
Confusing who makes regulations and who makes bye-laws.
Both are subordinate rules and look alike.
Fix: Regulations are made by SEBI (Section 25). Bye-laws are made by the depository with SEBI's previous approval (Section 26(1)).
Saying a depository indemnifies loss caused by any reason.
Students remember the indemnity but drop the condition.
Fix: Section 16(1) applies to loss caused to the beneficial owner due to negligence of the depository or the participant.
Mixing up the definitions of beneficial owner and registered owner.
Both include the word 'owner' and sit close in Section 2.
Fix: Beneficial owner: person whose name is recorded as such with a depository. Registered owner: a depository whose name is entered as such in the issuer's register.

Worked examples

Example 1

Explain the distinction between a registered owner and a beneficial owner under the Depositories Act, 1996. Who is entitled to vote on the securities held in a depository?

Show the solution

Provision: Section 2(1)(j) defines a registered owner as a depository whose name is entered as such in the register of the issuer. Section 2(1)(a) defines a beneficial owner as a person whose name is recorded as such with a depository.
Section 10(1): the depository is deemed the registered owner for the purpose of effecting transfer of ownership of security on behalf of a beneficial owner, notwithstanding any other law.
Section 10(2): save for that, the depository as registered owner has no voting rights or any other rights in respect of securities held by it.
Section 10(3): the beneficial owner is entitled to all the rights and benefits and is subject to all the liabilities in respect of his securities.
Application: voting is a right in respect of the securities, so it falls under Section 10(3), not Section 10(1).

Answer: The registered owner (the depository) holds title only to effect transfers. The beneficial owner (the investor) holds all rights, benefits and liabilities. Therefore the beneficial owner is entitled to vote, and the depository is not.

Example 2

Rohan holds shares of an Indian company in a demat account through a participant. Because of the participant's negligence, Rohan suffers a loss. Rohan claims against the depository. Advise him, and state what the depository can do afterwards.

Show the solution

Provision: Section 16(1) says that any loss caused to the beneficial owner due to the negligence of the depository or the participant must be indemnified by the depository, without prejudice to any other law.
Facts: Rohan is a beneficial owner as his name is recorded with the depository. The loss arose from the participant's negligence.
Analysis: this is within Section 16(1). Rohan can claim from the depository even though the participant was at fault.
Section 16(2): where the depository indemnifies a loss caused by the participant's negligence, it has the right to recover the amount from that participant.

Answer: Rohan can claim indemnity from the depository under Section 16(1). After paying, the depository may recover the amount from the negligent participant under Section 16(2).

Exam tips

Quote Section 10(1), (2) and (3) almost word for word. Examiners reward precise use of 'registered owner' and 'beneficial owner'.
For a question on rights and obligations of depositories, participants and issuers, begin with Section 17(1) and say these are specified by regulations. Then add the duties in the Act itself.
Give a short comparison in two columns of text: who holds title, who votes, who bears liabilities. Then conclude in one line.
In case-style questions, name the party, cite the section, apply it to the facts and conclude. Do not stop at the section.
Do not cite the Companies Act, 1956 provisions as current law. Mention them only as the Depositories Act refers to them, for example in Section 11.

Practice questions from Laws Governing Depositories and Depository Participants

Rights and Obligations of Depositories and Beneficial Owners: frequently asked questions

What does Section 17 of the Depositories Act, 1996 say?

Section 17(1) says the rights and obligations of depositories, participants and issuers whose securities are dealt with by a depository are specified by the regulations. Section 17(2) says the eligibility criteria for admission of securities into the depository are also specified by the regulations.

Who is the registered owner and who is the beneficial owner?

The registered owner is the depository whose name is entered in the issuer's register. The beneficial owner is the person whose name is recorded as such with a depository, in practice the investor.

Does the depository have voting rights on the securities it holds?

No. Section 10(2) says that, apart from the transfer power in Section 10(1), the depository as registered owner has no voting rights or any other rights in respect of securities held by it. The beneficial owner has those rights.

Who makes the regulations and who makes the bye-laws?

SEBI makes regulations under Section 25 by notification in the Official Gazette. A depository makes bye-laws under Section 26 with the previous approval of SEBI. The bye-laws must be consistent with the Act and the regulations.