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

Meridian Depository Ltd proposes to frame bye-laws on the procedure for suspension and expulsion of participants who breach the regulations. Under the Depositories Act, 1996, what is the correct position?

A depository makes bye-laws with the previous approval of SEBI, and they must be consistent with the Act and regulations. Bye-laws must also cover the procedure for proceeding against defaulting participants, including suspension and expulsion, so approval cannot be skipped.

  1. ABye-laws need no approval if they are consistent with the Act
  2. BBye-laws may be made with the previous approval of SEBI and must be consistent with the Act and regulationsCorrect
  3. CBye-laws are made by the issuer companies and noted by the depository
  4. DBye-laws take effect only after approval by the Central Government

Explanation

Section 26(1) says a depository shall, with the previous approval of the Board (SEBI), make bye-laws consistent with the Act and the regulations. Section 26(2)(o) covers the procedure for proceeding against participants, including suspension, expulsion and cancellation of agreements. Approval is therefore needed, so the no-approval option is wrong.

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