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

Ms. Kapoor pledged 1,000 shares of a company with a bank. The company announces a cash dividend while the shares remain pledged. Who is the registered owner and entitled to receive the dividend from the company?

The pledgor receives the dividend, because a pledge does not transfer beneficial ownership. The shares remain in the pledgor's demat account marked as pledged, so corporate benefits like dividends accrue to the pledgor rather than the pledgee.

  1. AThe pledgee, since the shares are pledged to it
  2. BThe pledgor, since the pledgor remains the beneficial ownerCorrect
  3. CThe depository, until the pledge is closed
  4. DThe DP of the pledgee

Explanation

In a pledge, the shares stay in the pledgor's account as beneficial owner; the pledgee only holds a lien-like security interest. Corporate benefits such as dividends therefore go to the pledgor. The pledgee does not become the owner unless it invokes the pledge on default.

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