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

Anand, a beneficial owner, lost money because his participant, Zenith Brokers, negligently delayed processing his transfer. The depository indemnified Anand in full. Which statement is correct under the Depositories Act, 1996?

The depository can recover the indemnified amount from Zenith Brokers. The depository must first indemnify the beneficial owner for loss caused by the participant's or its own negligence, and it then has a right to recover from the participant whose negligence caused the loss.

  1. AThe depository can recover the indemnified amount from Zenith BrokersCorrect
  2. BAnand must recover the loss from Zenith Brokers, not the depository
  3. CThe depository bears the loss finally and has no recourse
  4. DThe issuer company must reimburse the depository

Explanation

Section 16(1) makes the depository liable to indemnify a beneficial owner for loss caused by the negligence of the depository or the participant. Section 16(2) gives the depository the right to recover from the participant the amount indemnified for the participant's negligence. So the depository, not Anand, pursues Zenith, and the depository has recourse.

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