• Depositories Act, 1996: Bare Act

  • CHAPTER I : PRELIMINARY

    Preamble

    An Act to provide for regulation of depositories in securities and for matters connected therewith or incidental thereto.

    BE it enacted by Parliament in die Forty-seventh Year of the Republic of India as follows:- 

    2. Definitions.- (1) In this Act, unless die context otherwise requires,-

    (a) "beneficial owner" means a person whose name is recorded as such with depository; 

    (b) "Board" means the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992):

    (c) "bye-laws" means bye-laws made by a depository under section 26;

    (d) "Company Law Board" means the Board of Company Law Administration constituted under section 10E of the Companies Act, 1956 (1 of 1956); 

    (e) "depository" means a company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under sub-section (1A) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); 

    (f) "issuer" means any person making an issue of securities; 

    (g) "participant" means a person registered as Such tinder subsection (1A) of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); 

    (h) "prescribed" means prescribed by rules made under this Act;

    (i) "record" includes the records maintained in the form of books or stored in a computer or in such other form as may be determined by regulations;

    (j) "registered owner" means a depository whose name is entered as such in the register of the issuer; 

    (k) "regulations" means the regulations made by the Board;

    *[(ka) "Securities Appellate Tribunal" means a Securities Appellate Tribunal established under sub-section (1) of section 15K of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]

    *[Inserted by Securities Law (Second Amendment) Act, 1999, Act 32 of 1999, section 13 (w.e.f. 16-12-1999).

    (l) "security" means such security as may be specified by the Board;

    (m) "service" means any service connected with recording of allotment of securities or transfer of ownership of securities in the record of a depository.

    (2) Words and expressions used herein and not defined but defined in the Companies Act, 1956 (1 of 1956) or the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992, (15 of 1992) shall have the meanings respectively assigned to them in those Acts. 

    CHAPTER II : CERTIFICATE OF COMMENCEMENT OF BUSINESS

    3. Certificate of commencement of business by depositories.- (1) No depository shall act as a depository unless it obtains a certificate of commencement of business from the Board.


    (2) A certificate granted under subsection (1) shall be in such form as may be specified by the regulations.

    (3) The Board shall not grant it certificate under Sub-section (1) unless it is satisfied that the depository has adequate systems and safeguards to prevent manipulation of records and transactions: 

    Provided that no certificate shall be refused under this section unless the depository concerned has been given a reasonable opportunity of being heard. 

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

    4. Agreement between depository and participant.- (1) A depository shall enter into an agreement with one or more participants as its agent.

    (2) Every agreement tinder sub-section (1) shall be in such form as may be specified by the bye-laws.

    5. Services of depository.- Any person, through a participant, may enter into an agreement, in such form as may be specified by the bye- laws, with any depository for availing its services

    6. Surrender of certificate of security.- (1) Any person who has entered into an agreement under section 5 shall surrender the certificate of security, for which he seeks to avail the services of a depository, to the issuer in such manner as may be specified by the regulations.

    (2) The issuer, on receipt of certificate of security under sub-section (1), shall cancel the certificate of security and substitute in its records the name of the depository as a registered owner in respect of that security and inform the depository accordingly.

    (3) A depository shall, on receipt of information under subsection (2), enter the name of the person referred to in sub section (1) in its records, as the beneficial owner.

    7. Registration of transfer of securities with depository.- (1) Every depository shall, on receipt of intimation from a participant, register the transfer of security in the name of the transferee.

    (2) If a beneficial owner or a transferee of any security seeks to have custody of such security, the depository shall inform the issuer accordingly. 

     8. Options to receive security certificate or hold securities with depository.- (1) Every person subscribing to securities offered by an issuer shall have the option either to receive the security certificates or hold securities with a depository.


    (2) Where a person opts to hold a security with a depository, the issuer shall intimate such depository the details of allotment of the security, and on receipt of such information the depository shall enter in its records the name of the allottee as the beneficial owner of that security.

    9. Securities in depositories to be in fungible form.- (1) All securities held by a depository shall be dematerialised and shall be in a fungible form.

    *[(2) Nothing contained in sections 153, 153A, 153B, 187B, 187C and 372 of the Companies Act, 1956 (l of 1956), shall apply to a depository in respect of securities held by it on behalf of the beneficial owners.]

    *[Substituted by Act 8 of 1997, section 22, for sub-section (2) (w.e.f. 15-1-1997)]

    10. Rights of depositories and beneficial owner.- (1) Notwithstanding anything contained in any other law for the time being in force, a depository shall be deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner.

    (2) Save as otherwise provided in sub-section (1), the depository as a registered owner shall not have any voting rights or any other rights in respect of securities held by it.

    (3) The beneficial owner shall be entitled to all the rights and benefits and be subjected to all the liabilities in respect of his securities held by a depository.

    11. Register of beneficial owner.- Every depository shall maintain a register and an index of beneficial owners in the manner provided in sections 150, 151 and 152 of the Companies Act, 1956 (1 of 1956).

    12. Pledge or hypothecation of securities held in a depository.-(1) Subject to such regulations and bye-laws, as may be made in this behalf, a beneficial owner may with the previous approval of the depository create a pledge or hypothecation in respect of a security owned by him through a depository.

    (2) Every beneficial owner shall give intimation of such pledge or hypothecation to the depository and such depository shall thereupon make entries in its records accordingly.

    (3) Any entry in the records of a depository under sub-section (2) shall be evidence of a pledge or hypothecation.

     14. Option to opt out in respect of any security.- (1) If a beneficial owner seeks to opt out of a depository in respect of any security he shall inform the depository accordingly.

    (2) The depository shall on receipt of intimation under sub-section (1) make appropriate entries in its records and shall inform the issuer.

    (3) Every issuer shall, Within thirty days of the receipt of intimation from the depository and on fulfilment of such conditions and on payment of such fees as may be specified by the regulations, issue the certificate of securities to the beneficial owner or the transferee, as the case may be.

    15. Act 18 of 1891 to apply to depositories.- The Bankers' Books Evidence Act, 1891 shall apply in relation to a depository as if it were a bank as defined in section 2 of that Act.

    16. Depositories to indemnify loss in certain cases.- (1) Without prejudice to the provisions of any other law for the time being in force, any loss caused to the beneficial owner due to the negligence of the depository or the participant, the depository shall indemnify such beneficial owner.

    (2) Where the loss due to the negligence of the participant under sub-section (1) is indemnified by the depository, the depository shall have the right to recover the same from such participant. 

    17. Rights and obligations of depositories, etc.- (1) Subject to the provisions of this Act, the rights and obligations of the depositories, participants and the issuers whose securities are dealt with by a depository shall be specified by the regulations.

    (2) The eligibility criteria for admission of securities into the depository shall be specified by the regulations. 

    CHAPTER IV : ENQUIRY AND INSPECTION

    18. Power of board to call for information and enquiry.- (1) The Board, on being satisfied that it is necessary in the public interest or in the interest of investors so to do, may, by order in writing,-

    (a) call upon any issuer, depository, participant or beneficial owner to furnish in writing such information relating to the securities held in a depository as it may require; or

    (b) authorise any person to make ail enquiry or inspection in relation to die affairs of the issuer, beneficial owner, depository or participant, who shall submit a report of such enquiry or inspection to it within such period as may be specified in the order.

    (2) Every director, manager, partner, secretary, officer or employee of the depository or issuer or the participant or beneficial owner shall on demand produce before the person making the enquiry or inspection all information or such records and other documents in his custody having a bearing on the subject matter of such enquiry or inspection.

    19. Power of board to give directions in certain cases.- Save as provided in this Act, if after making or causing to be made an enquiry or inspection, die Board is satisfied that it is necessary-

    (i) in the interest of investors, or orderly development of securities market; or

    (ii) to prevent the affairs of any depository or participant being conducted in the manner detrimental to the interests of investors or securities market, it may issue such directions- 

    (a) to any depository or participant or any person associated with the securities market; or

    (b) to any issuer, as may be appropriate in the interest of investors or the securities market. 

    *[19A. Penalty for failure to furnish information, return, etc.-Any person, who is required under this Act or any rules or regulations or bye-laws made thereunder,-

    (a) to furnish any information, document, books, returns or report to the Board, fails to furnish the same within the time specified therefor, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less for each such failure; 

    (b) to file any return or furnish any information, books or other documents within the time specified therefor in the regulations or bye-laws, fails to file return or furnish the same within the time specified therefor, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less; 

    (c) to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. ]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19B. Penalty for failure to enter into an agreement.- If a depository or participant or any issuer or its agent or any person, who is registered as an intermediary under the provisions of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), and is required under this Act or any rules or regulations made thereunder, to enter into an agreement, fails to enter into such agreement, such depository or participant or issuer or its agent or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less for every such failure.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19C. Penalty for failure to redress investors' grievances.- If any depository or participant or any issuer or its agent or any person, who is registered as an intermediary under the provisions of section 12 of the Securities and Exchange Board of India Act, 1992, after having been called upon by the Board in writing, to redress the grievances of the investors, fails to redress such grievances within the time specified by the Board, such depository or participant or issuer or its agents or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19D. Penalty for delay in dematerialisation or issue of certificate of securities.- If any issuer or its agent or any person, who is registered as an intermediary under the provisions of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), fails to dematerialise or issue the certificate of securities on opting out of a depository by the investors, within the time specified under this Act or regulations or bye-laws made thereunder or abets in delaying the process of dematerialisation or issue the certificate of securities on opting out of a depository of securities, such issuer or its agent or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.]
    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19F. Penalty for failure to comply with directions issued by Board under section 19 of the Act.-If any person fails to comply with the directions issued by the Board under section 19, within the time specified by it, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III] 

    *[19G. Penalty for contravention where no separate penalty has been provided.- Whoever fails to comply with any provision of this Act, the rules or the regulations or bye-laws made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19H. Power to adjudicate.- (1) For the purpose of adjudging under sections 19A, 19B, 19C, 19D, 19E, 19F and 19G, the Board shall appoint any officer not below the rank of a Division Chief of the Securities and Exchange Board of India to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty.

    (2) While holding an inquiry, the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document, which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in sub-section (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19-I. Factors to be taken into account by adjudicating officer.-While adjudging the quantum of penalty under section 19H, the adjudicating officer shall have due regard to the following factors, namely:-

    (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; 

    (b) the amount of loss caused to an investor or group of investors as a result of the default;

    (c) the repetitive nature of the default. ]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    *[19J. Crediting sums realized by way of penalties to Consolidated Fund of India.-All sums realised by way of penalties under this Act shall be credited to the Consolidated Fund of India.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 17, Chapter III]

    CHAPTER V : PENALTY

    *[20. Offences.- (1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations or bye-laws made thereunder, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees, or with both.

    (2) If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years, or with fine, which may extend to twenty-five crore rupees, or with both.

    *[substituted by Securities Laws (Amendment) Act, 2004, section 18, Chapter III]

    21. Offences by companies.- (1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

    Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. 5

    (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. 

    Explanation. -For the purposes of this section, - 

    (a) "company" means any body corporate and includes a firm or other association of individuals; and 

    (b) "director", in relation to a firm, means a partner in the firm.

    CHAPTER VI : MISCELLANEOUS

    *[22. Cognizance of offences by courts.-(1) No court shall take cognizance of any offence punishable under this Act or any rules or regulations or bye-laws made thereunder, save on a complaint made by the Central Government or State Government or the Securities and Exchange Board of India or by any person.


    (2) No court inferior to that of a Court of Session shall try any offence punishable under this Act.]

    *[substituted by Securities Laws (Amendment) Act, 2004, section 18, Chapter III]

    *[22A. Composition of certain offences.- Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.]

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 18, Chapter III]

    *[22B. Power to grant immunity.-(1) The Central Government may, on recommendation by the Board, if the Central Government is satisfied, that any person, who is alleged to have violated any of the provisions of this Act or the rules or the regulations made thereunder, has made a full and true disclosure in respect of alleged violation, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect to the alleged violation:

    Provided that no such immunity shall be granted by the Central Government in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of application for grant of such immunity:

    Provided further that recommendation of the Board under this sub-section shall not be binding upon the Central Government. 

    (2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Central Government, if it is satisfied that such person had, in the course of the proceedings, not complied with the condition on which the immunity was granted or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the contravention and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.

    *[Inserted by Securities Laws (Amendment) Act, 2004, section 18, Chapter III]

    23. Appeals.- (1) Any person aggrieved by *[an order of the Board made before the commencement of the Securities Laws (Second Amendment) Act, 1999] under this Act, or the regulations made thereunder may prefer an appeal to the Central Government within such time as may be prescribed.

    (2) No appeal shall be admitted if it is preferred after the expiry of the period prescribed therefor:

    Provided that an appeal may be admitted after the expiry of the period prescribed therefor if the appellant satisfies the Central Government that he had sufficient cause for not preferring the appeal within the prescribed period.

    (3) Every appeal made under this section shall be made in such form and shall be accompanied by a copy of the order appealed against and by such fees as may be prescribed.

    (4) The procedure for disposing of an appeal shall be such as may be prescribed: Provided that before disposing of an appeal, the appellant shall be given a reasonable opportunity of being heard.

    *[Substituted by Act 32 of 1999, section 14 (w.e.f. 16-12-1999)]

    *[23A. Appeal to securities Appellate Tribunal. -- (1) Save as provided in sub-section (2), any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the regulations made thereunder, or *[by an order made by an adjudicating officer under this Act] may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.

    (2) No appeal shall lie to the Securities Appellate Tribunal from an order made by the Board with the consent of the parties.

    (3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Board is received by the person referred to in sub-section (1) and it shall be in such form and he accompanied by such fee as may be prescribed:

    Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

    (4) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

    (5) The Securities Appellate Tribunal shall send a copy of every order made by it to the Board and parties to the appeal.

    (6) The appeal filed before the Securities Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal.

    *[Inserted by Securities Laws (Second Amendment) Act, 1999, section 15, further amended by Securities Laws (Amendment Act, 2004]

    *[23B. Procedure and powers of Securities Appellate Tribunal. - (1) The Securities Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, (5 of 1908) but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Securities Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings.

    (2) The Securities Appellate Tribunal shall have, for the purpose of discharging their functions under this Act. the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), white trying a suit, in respect of the following matters, namely:--

    (a) summoning and enforcing the attendance of any person and examining him on oath;

    (b) requiring the discovery and production of documents;

    (c) receiving evidence on affidavits;

    (d) issuing commissions for the examination of witnesses or documents;

    (e) reviewing its decisions;

    (f) dismissing an application for default or deciding it ex parte',

    (g) setting aside any order of dismissal of any application for default or any order passed by it ex parte; and

    (h) any other matter which may be prescribed.

    (3) Every proceeding before the Securities Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code and the Securities Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).

    *[Inserted by Securities Laws (Second Amendment) Act, 1999, section 15]

    *[23D. Limitation. - The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to an appeal made to a Securities Appellate Tribunal.

    *[Inserted by Securities Laws (Second Amendment) Act, 1999, section 15]

    *[23E. Civil court not to have jurisdiction.- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Securities Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Ac!.

    *[Inserted by Securities Laws (Second Amendment) Act, 1999, section 15]

    *[23F. Appeal to Supreme Court.-Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out of such order:

    Provided that the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.".

    *[Inserted by Securities Laws (Second Amendment) Act, 1999, section 15 & substituted by Securities Laws (Amendment) Act, 2004]

    26. Power of depositories to make bye-laws.- (1) A depository shall, with the previous approval of the Board, make bye-laws consistent with the provisions of this Act and the regulations.

    (2) In particular, and without prejudice to the generality of the foregoing power, such bye-laws shall Provide for- 

    (a) the eligibility criteria for admission and removal of securities in the depository; 

    (b) the conditions subject to which the securities shall be dealt with; (c) the eligibility criteria for admission of any person as a participant; (d) the manner and procedure for dematerialisation of securities; (e) the procedure for transactions within the depository; (f) the mariner in which securities shall be dealt with or withdrawn from a depository; (g) the procedure for ensuring safeguards to protect the interests of participants and beneficial owners; (h) the conditions of admission into and withdrawal from a participant by a beneficial owner; (i) the procedure for conveying information to the participants and beneficial owners on dividend declaration, shareholder meetings and other matters of interest to the beneficial owners; (j) the manner of distribution of dividends, interest and monetary benefits received from the company among beneficial owners; (k) the manner of creating pledge or hypothecation in respect of securities held with a depository; (l) inter se rights and obligations among the depository, issuer, participants and beneficial owners; (m) the manner and the periodicity of furnishing information to the Board, issuer and other persons; (n) the procedure for resolving disputes involving depository, issuer, company or a beneficial owner; (o) the procedure for proceeding against the participant committing breach of the regulations and provisions for suspension and expulsion of participants from the depository and cancellation of agreements entered with the depository; (p) the internal control standards including procedure for auditing, reviewing and monitoring.

    (3) Where the Board considers it expedient so to do, it may, by order in writing, direct a depository to make any bye-laws or to amend or revoke any bye-laws already made within such period as it may specify in this behalf.

    (4) If the depository fails or neglects to comply with such order within the specified period, the Board may make the bye-laws or amend or revoke the bye-laws made either in the form specified in the order or with such modifications thereof as the Board thinks fit.

    28. Application of other laws not barred.- The provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force relating to the holding and transfer of securities.

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