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

Investor Meera suffers a loss because her participant, Ganga Securities, negligently mishandled her demat instruction. Under the Depositories Act, 1996, what is the position of the depository?

The depository must indemnify the beneficial owner for loss caused by the participant's negligence, and it then has the right to recover that amount from the negligent participant. The investor does not have to bear the loss or wait for an order from SEBI.

  1. AIt need not pay because the negligence was of the participant only
  2. BIt must indemnify Meera and may then recover the amount from the participantCorrect
  3. CIt must pay only if SEBI first orders the participant to compensate
  4. DIt may recover the loss from Meera since she chose the participant

Explanation

Section 16(1) makes the depository indemnify the beneficial owner for loss caused by negligence of the depository or participant. Section 16(2) lets it recover the indemnified amount from the participant at fault.

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