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

Rohan holds shares through a depository participant (DP) of a depository. Due to the DP's negligence, Rohan suffers a loss. As per the Depositories Act, 1996, what is the position regarding indemnity?

The depository must indemnify the beneficial owner for loss caused by the negligence of the depository or the participant. Where the participant was negligent, the depository can afterwards recover the indemnified amount from that participant.

  1. AThe depository must indemnify Rohan and may then recover the amount from the participantCorrect
  2. BOnly the participant is liable, and the depository has no obligation to Rohan
  3. CRohan must first recover from the issuer company before claiming from anyone
  4. DSEBI must pay the loss from its own funds

Explanation

Section 16 says any loss caused to the beneficial owner by the negligence of the depository or participant is to be indemnified by the depository. Where the loss was due to the participant's negligence, the depository has the right to recover it from that participant. Option two ignores the depository's primary obligation.

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