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

A depository has paid Rs 4 lakh to a beneficial owner for a loss that arose solely from the negligence of one of its participants. What right does the Depositories Act, 1996 give the depository in this situation?

The depository can recover the Rs 4 lakh from the negligent participant. The Act states that when a depository indemnifies a loss caused by a participant's negligence, it has the right to recover that sum from the participant concerned.

  1. ATo recover the amount from that participantCorrect
  2. BTo recover it from the beneficial owner
  3. CTo recover it from the issuer of the securities
  4. DNo right of recovery, since indemnity is final

Explanation

Section 16(2) states that where loss due to participant negligence is indemnified by the depository, the depository has the right to recover the same from that participant. Indemnity is therefore not final as against the participant.

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