Skip to content

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

Mr. Rao, a beneficial owner, lost the benefit of a corporate action because his participant, Sagar Securities, negligently failed to process his instruction. Under the Depositories Act, 1996, who is first liable to indemnify Mr. Rao?

The depository must indemnify Mr. Rao. Section 16(1) provides that any loss to a beneficial owner due to negligence of the depository or the participant is indemnified by the depository. The participant's responsibility is dealt with through the depository's later right of recovery.

  1. AThe depository, which must indemnify the beneficial owner for loss caused by the participant's negligenceCorrect
  2. BThe issuer company whose securities were involved
  3. CSEBI, from its investor protection resources
  4. DOnly the participant, since the depository is not liable for an agent's negligence

Explanation

Section 16(1) makes the depository indemnify the beneficial owner for loss caused by negligence of the depository or the participant. The participant is not the only party liable; the depository answers to the beneficial owner first.

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