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

Mr. Raman, a beneficial owner, lost the value of his securities because his participant, Sunrise Securities, negligently processed a transfer instruction. Under the Depositories Act, 1996, who is first liable to indemnify Mr. Raman?

The depository must indemnify Mr. Raman. The Act makes the depository responsible for loss to a beneficial owner caused by the negligence of the depository or the participant. The depository can then recover the amount from the negligent participant.

  1. AThe depository, which must indemnify himCorrect
  2. BSunrise Securities alone, as the negligent party
  3. CThe issuer company whose securities were held
  4. DSEBI through its investor fund

Explanation

Section 16(1) provides that loss caused to a beneficial owner by the negligence of the depository or the participant is to be indemnified by the depository. Blaming only the participant is wrong because the participant's liability arises only in the depository's recovery right under Section 16(2).

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