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

Narmada Depository Ltd proposes to frame bye-laws laying down the eligibility criteria for admitting any person as a participant. Which statement correctly describes the legal position under the Depositories Act, 1996?

A depository can make bye-laws, including eligibility criteria for participants, only with SEBI's previous approval, and they must be consistent with the Depositories Act and the regulations. Informing SEBI afterwards, or seeking approval from issuers or participants, does not satisfy the statutory requirement.

  1. ABye-laws may be made freely, and SEBI is informed only after they come into force
  2. BBye-laws need the previous approval of SEBI and must be consistent with the Act and the regulationsCorrect
  3. CBye-laws need the approval of the issuer companies whose securities are held
  4. DBye-laws need approval of the participants, and SEBI has no role in them

Explanation

Section 26(1) says a depository shall, with the previous approval of the Board (SEBI), make bye-laws consistent with the Act and regulations. Eligibility criteria for participants are listed in section 26(2)(c). Prior notice after the event is not sufficient.

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