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

Mehta Textiles Ltd's shares are held in demat form with a depository. At the company's AGM, the depository itself seeks to vote on a resolution using the shares recorded in its name as registered owner. Under the Depositories Act, 1996, what is the position?

The depository cannot vote. It is deemed the registered owner only to effect transfer of ownership on behalf of beneficial owners. Beyond that purpose, it has no voting or other rights over the securities it holds, so voting rights belong to the beneficial owner.

  1. AThe depository may vote, as it is the registered owner of all the shares
  2. BThe depository may vote only on special resolutions
  3. CThe depository has no voting rights or other rights in respect of those securities, except to effect transfer of ownershipCorrect
  4. DThe depository may vote if the participant authorises it in writing

Explanation

The Act deems the depository the registered owner only for the purpose of effecting transfer of ownership on behalf of a beneficial owner. Apart from that, the depository as registered owner has no voting rights or any other rights in respect of the securities it holds. The first option wrongly treats registered ownership as carrying voting rights.

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