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    Question

    A Company, "Alpha Securities Ltd," has obtained a

    Certificate of Registration from the Board under Section 3 of the Depositories Act. However, before it receives the Certificate of Commencement of Business, it enters into an agreement with an Issuer to dematerialize its securities. Simultaneously, a Participant (DP) seeks to register with Alpha Securities. Which of the following statements is legally accurate regarding the "Effect of Registration"?
    A The agreement with the Issuer is valid because Registration grants the entity the status of a Depository. Correct Answer Incorrect Answer
    B Any act performed as a Depository prior to obtaining the Certificate of Commencement of Business is void ab initio under Section 3(3) of the Act. Correct Answer Incorrect Answer
    C Alpha Securities can register Participants (DPs) but cannot yet dematerialize shares until the Commencement Certificate is granted. Correct Answer Incorrect Answer
    D The Registration Certificate automatically includes the right to commence business if the applicant is a subsidiary of a recognized Stock Exchange. Correct Answer Incorrect Answer
    E The Board may, under the "Power to Exempt," allow Alpha Securities to function if it satisfies the "Fit and Proper" criteria under SEBI Regulations, notwithstanding the lack of a Commencement Certificate. Correct Answer Incorrect Answer

    Solution

    Explanation: The law is restrictive. Section 3(2) of the Depositories Act states that no depository shall commence business without the commencement certificate. In legal jurisprudence, a statutory prohibition on "commencing business" renders any contracts entered into in the capacity of that business (as a Depository) unenforceable and void. The "Fit and Proper" criteria (Option D) are prerequisites for the grant of registration, not a substitute for the Commencement Certificate. Unlike Stock Exchanges, which may have different transitional provisions, Depositories must strictly follow the two-step SEBI approval process.

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