The Depositories Act 1996
The Depositories Act 1996
The Depositories Act 1996
2
THE DEPOSITORIES ACT, 1996
(22 of 1996)
Arrangement of sections
Section
Chapter I
Preliminary
1. Short title, extent and commencement
2. Definitions
Chapter II
Certificate of Commencement of Business
3. Certificate of commencement of business by depositories
Chapter III
Rights and obligations of depositories, participants,
issuers and beneficial owners
4. Agreement between depository and participant
5. Services of depository
6. Surrender of certificate of security
7. Registration of transfer of securities with depository
8. Options to receive security certificate or hold securities with
depository
9. Securities in depositories to be in fungible form
10. Rights of depositories and beneficial owner
11. Register of beneficial owner
12. Pledge or hypothecation of securities held in a depository
13. Furnishing of information and records by depository and issuer
14. Option to opt out in respect of any security
15. Act 18 of 1891 to apply to depositories
16. Depositories to indemnify loss in certain cases
17. Rights and obligations of depositories, etc.
Chapter IV
Enquiry and Inspection
18. Power of Board to call for information and enquiry
19. Power of Board to give directions in certain cases
19A. Penalty for failure to furnish information, return, etc.
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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;
1[(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);]
(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 sub-section (1) shall be in such form as may
be specified by the regulations.
(3) The Board shall not grant a 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 under sub-section (1) shall be in such form as may be
specified by the bye-laws.
5. Services of depository
1 Inserted by the Securities Laws (Second Amendment) Act, 1999, w.e.f. 16-12-1999.
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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 sub-section (2), enter
the name of the person referred 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.
1[(2) Nothing contained in sections 153, 153A, 153B, 187B, 187C and 372 of
the Companies Act, 1956 shall apply to a depository in respect of securities held
by it on behalf of the beneficial owners.]
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
1 Substituted by the Depositories Related Laws (Amendment) Act, 1997, (8 of 1997) w.e.f.
15-1-1997, for the following:
"(2) Nothing contained in sections 153, 153A, 153B, 187B, 187C and 372 of the
Companies Act, 1956 (1 of 1956) shall apply to the securities held by a depository on behalf
of the beneficial owners."
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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 an enquiry or inspection in relation to the
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, the 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.
1[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 crores 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
1 Sections 19A to 19J inserted by Securities Laws (Amendment) Act, 2004, w.r.e.f.
12-10-2004.
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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.
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.
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 (15 of 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 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.
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.
19E. Penalty for failure to reconcile records
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), fails to reconcile the
records of dematerilaised securities with all the securities issued by the issuer as
specified in the regulations, 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.
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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.
19G. Penalty for contravention where no separate penalty has been
provided
Whoever fails to comply with any provision of this Act, the rules or
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.
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.
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.
19J. Crediting sums realised 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.]
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CHAPTER V
PENALTY
1[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.]
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.
(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.
1 Substituted by Securities Laws (Amendment) Act, 2004, w.r.e.f. 12-10-2004 for the
following:
"20. Offences.—Whoever contravenes or attempts to contravene or abets the
contravention of the provisions of this Act or any regulations or bye-laws made thereunder
shall be punishable with imprisonment for a term which may extend to five years or with fine,
or with both."
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CHAPTER VI
MISCELLANEOUS
1[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.
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.
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
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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.]
23. Appeals
(1) Any person aggrieved by an order of the Board made 1[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.
2[23A. Appeal to Securities Appellate Tribunal
1 Inserted by the Securities Laws (Second Amendment) Act, 1999, w.e.f. 16-12-1999.
2 Sections 23A to 23F inserted by the Securities Laws (Second Amendment) Act, 1999, w.e.f.
16-12-1999.
3 Inserted by Securities Laws (Amendment) Act, 2004, w.r.e.f. 12-10-2004.
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(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.
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), while 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, 1860 (45 of 1860)
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).
23C. Right to legal representation
The appellant may either appear in person or authorise one or more chartered
accountants or company secretaries or cost accountants or legal practitioners or
any of its officers to present his or its case before the Securities Appellate
Tribunal.
Explanation.—For the purposes of this section,—
(a) "chartered accountant" means a chartered accountant as defined in clause
(b) of sub-section (1) of section 2 of the Chartered Accountants Act,
1949 (38 of 1949) and who has obtained a certificate of practice under
sub-section (1) of section 6 of that Act;
(b) "company secretary" means a company secretary as defined in clause (c)
of sub-section (1) of section 2 of the Company Secretaries Act, 1980 (56
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(aa) the time within which an appeal may be preferred under sub-section (1)
1 Substituted by Securities Laws (Amendment) Act, 2004, w.r.e.f. 12-10-2004 for the
following:
"23F. Appeal to High Court.—Any person aggrieved by any decision or order of the
Securities Appellate Tribunal may file an appeal to the High 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 fact or law arising out of such order:
Provided that the High 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."
2 Substituted by Securities Laws (Amendment) Act, 2004, w.r.e.f. 12-10-2004 for the
following:
"(a) the time within which an appeal may be preferred under sub-section (1) of section 23;"
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of section 23;]
(b) the form in which an appeal may be preferred under sub-section (3) of
section 23 and the fees payable in respect of such appeal;
(c) the procedure for disposing of an appeal under sub-section (4) of section
23;
1[(d) the form in which an appeal may be filed before the Securities Appellate
Tribunal under section 23A and the fees payable in respect of such
appeal.]
25. Power of Board to make regulations
(1) Without prejudice to the provisions contained in section 30 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board may
by notification in the Official Gazette, make regulations consistent with the
provisions of this Act and the rules made thereunder to carry out the purposes of
this Act.
(2) In particular and without prejudice to the generality of the foregoing
power, such regulations may provide for—
(a) the form in which record is to be maintained under clause (i) of sub-
section (1) of section 2;
(b) the form in which the certificate of commencement of business shall be
issued under sub-section (2) of section 3;
(c) the manner in which the certificate of security shall be surrendered under
sub-section (1) of section 6;
(d) the manner of creating a pledge or hypothecation in respect of security
owned by a beneficial owner under sub-section (1) of section 12;
(e) the conditions and the fees payable with respect to the issue of certificate
of securities under sub-section (3) of section 14;
(f) the rights and obligations of the depositories, participants and the issuers
under sub-section (1) of section 17;
(g) the eligibility criteria for admission of securities in the depository under
sub-section (2) of section 17.
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;
1 Inserted by the Securities Laws (Second Amendment) Act, 1999, w.e.f. 16-12-1999.
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