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

A depository indemnified a beneficial owner for a loss caused solely by the negligence of a participant, Lotus Depository Services. What right does the Depositories Act, 1996 give the depository afterwards?

The depository can recover the amount it paid from the negligent participant. Section 16(2) gives this right where the loss was due to the participant's negligence and the depository indemnified the beneficial owner. Indemnity is therefore not final as between depository and participant.

  1. AA right to recover the indemnified amount from that participantCorrect
  2. BA right to recover it from the issuer of the securities
  3. CA right to recover it from the beneficial owner's other holdings
  4. DNo right, because indemnity is final once paid

Explanation

Section 16(2) states that where the loss due to the participant's negligence is indemnified by the depository, it has the right to recover the same from that participant. The issuer and the beneficial owner are not the parties from whom recovery is provided.

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