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

Sunrise Depository Ltd wishes to appoint Kavya Securities Pvt Ltd as its agent for opening and servicing demat accounts. Under the Depositories Act, 1996, which statement about the agreement between the depository and the participant is correct?

The agreement between a depository and a participant must be in the form specified by the depository's bye-laws. Section 4 of the Depositories Act treats the participant as the depository's agent, so the form is prescribed by bye-laws rather than left to the parties or the issuer.

  1. AThe agreement must be in the form specified by the bye-laws of the depositoryCorrect
  2. BThe agreement may be in any form agreed privately between the parties
  3. CThe agreement must be in the form specified by the issuer company
  4. DThe agreement is valid only if it is executed on the stock exchange premises

Explanation

Section 4 requires a depository to enter into an agreement with one or more participants as its agent, and every such agreement must be in the form specified by the bye-laws. The form is not left to private choice or to the issuer, so the option allowing any private form is wrong.

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