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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Pledge and Hypothecation

Meera pledged 1,000 shares to a lender, and the company then announces a cash dividend while the pledge is active. Who is entitled to receive the dividend?

The pledgor, Meera, receives the dividend because a pledge creates only a lien and she remains the beneficial owner. The pledgee does not become the owner. Depositories and DPs are intermediaries and have no claim over corporate benefits on pledged shares.

  1. AThe pledgee, since the shares are pledged to it
  2. BThe pledgor, since beneficial ownership and corporate benefits remain with the pledgorCorrect
  3. CThe depository, which holds the shares
  4. DThe DP of the pledgee

Explanation

Pledge only creates a lien. The pledgor remains the beneficial owner and is entitled to dividends and other corporate benefits unless the agreement says otherwise. Hence the pledgee is not the dividend recipient merely by holding the lien, and the depository and DP are only intermediaries.

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