DEPOSITORIES ACT 1996 NOTES

Depositories Act 1996 notes : Definitions under depositories act and salient features of depositories act 1996, dematerialization of securities.

QUESTION: Discuss the main features of Depositories Act, 1996?

                                                         OR

                       Write a note on Depositories Act, 1996.

Answer: DEPOSITORIES ACT 1996: This Act came into force on September 20^th, 1995 and extends to the whole of India. It is an act to provide for regulation of depositories in and for matters connected therewith and incidental thereto.

SALIENT FEATURES OF DEPOSITORIES ACT 1996

DEFINITIONS UNDER THE ACT: This act defines the following terms:

• Beneficial owner: Means a person whose name is recorded as such with a depository.
• Depository: Means a company formed and registered under the Companies Act 2013 and which has been granted the certificate of registration under section 12(1A) of SEBI Act,1992.
• Issuer: means any person making any issue of securities.
• Participant: Means a person registered under section 12(1A) of SEBI Act 1992.

RIGHTS AND OBLIGATIONS OF DEPOSITORIES, PARTICIPANTS, ISSUERS AND BENEFICIAL OWNERS:

The depositories Act 1996 features the following rights, obligations, participants and issuers and beneficial owners:

• Agreement between depository and participant must be there.
• Services of depositories can be availed as per the bye-laws of the company.
• Surrender of certificate of security.
• Registration of transfer of securities with depository.
• Options to receive security certificate or hold securities with depository.
• Securities in depositories are to be in fungible form.
• Maintenance of register of index of beneficial owners by depository.
• Pledge or hypothecation of securities held in depository.
• Furnishing of information and records by depository and issuer.
• Depository to indemnify the loss in certain cases.

ENQUIRY AND INSPECTION PROCEDURES: This Act empowers the Board to call for information or enquiry or inspection in relation to the affairs of the issuer, beneficial owner, depository or participant to ensure no harm to public interest or interest of investors.

PENALITIES: Depositories Act 1996, also describes penalities for various offences. Some of them are:

• Penalty of 1,00,000 to 1 crore rupees on failure of maintaining the books or accounts as per the manner prescribed.
• Penalty of 1lakh to 1 crore on failure of entry into agreement by and depository, participant or issuer.
• Penalty from 1Lakh to 1 crore for failure to redress the greivances of the investors within the time specified by the Board.
• Penalty of 1lakh to 1crore for delay in dematerialization of securities or delay in issuance of certificates of securities.
• Penalty of 1lakh to 1crore in case of failure in reconciliation of records of dematerialized securities with actual securities issued or dealt with by the issuer.
• Penalty for failure to comply with the directions issued by Board calls for fine of 1lakh which may extend to 1crore.
• Any failure on compliance with board rules or bye laws calls for the fine penalty which may extend to 1crore.

OFFENCES: Failure to pay the penalty imposed by the adjudicating officer or failure to comply with his directions or orders will be considered as an offence.

This offence is punishable with the imprisonment of one month which may extend to 10 years or with a fine which may extend to 25crore rupees or with the both.

Where any offence is committed by the company every person who was in-charge at the time of commitment of offence will be found guilty.

APPEALS: Depositories Act 1996 provides for the appeals to securities appellate tribunal against the order Board.

Any person aggrieved by the order of the Board can make an appeal to the Securities Appellate Tribunal within prescribed time, along with copy of the order of the Board and fee prescribed.

POWER OF CENTRAL GOVERNMENT TO MAKE RULES: The central government may by notification in official Gazette, makes rules for carrying out the provisions of this Act. The rules may be made for any matter namely:

• Time within which the appeal may be preferred.
• Form in which appeal may be preferred.
• Procedure for disposing of an appeal
• Form in which the appeal may be filed with Securities Appellate Tribunal.

POWER OF BOARD TO MAKE REGULATIONS: Board has been granted the powers under the Depositories Act, 1996 which may provide for or exercised in relation to the matters namely:

• Form in which record is to be maintained.
• Form in which the certificate of commencement of business shall be issued.
• The manner in which the certificate of security shall be surrendered.
• The manner of creating pledge or hypothecation in respect of security owned by beneficial owner.
• The conditions and fees payable with respect to the issue of certificate of securities.
• Rights and obligations of Depositories, participants and the issuers under section17(1).
• Eligibility criteria for admission of securities in the depository.

POWER OF DEPOSITORIES TO MAKE BYE-LAWS: Depository shall have powers to make bye-laws regarding:

• Eligibility criteria for admission and removal of securities.
• Conditions subject to which securities should be dealt with.
• Procedure of transactions with the depository.
• Manners and procedure of dematerialization of securities.