Skip to content

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

Ketan, a beneficial owner, suffers a loss because his depository participant negligently mishandled his instructions. Under the Depositories Act, 1996, which statement is correct?

The depository must indemnify Ketan for the loss caused by the participant's negligence, and it then has the right to recover the same amount from that participant. This follows from Section 16 of the Depositories Act, 1996.

  1. AThe depository must indemnify Ketan and may then recover the amount from the participantCorrect
  2. BOnly the participant is liable, and the depository has no obligation to Ketan
  3. CKetan must first recover from the issuer company
  4. DThe depository indemnifies Ketan and cannot recover from the participant

Explanation

Under Section 16(1), a loss caused to the beneficial owner by the negligence of the depository or the participant is to be indemnified by the depository. Section 16(2) gives the depository a right to recover that amount from the negligent participant. The option denying recovery contradicts Section 16(2).

Did you get it right without looking?

One question tells you little. A timed set on Laws Governing Depositories and Depository Participants shows your real accuracy, how long you take and where you lose marks.

Practise Laws Governing Depositories and Depository ParticipantsFree diagnostic mock

More Laws Governing Depositories and Depository Participants questions