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 (D

Q: Answer-A Company, 'Alpha Securities Ltd,' has obtained a Certificate of Registration from the Board under S...

Explanation The law is restrictive. Section 32 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.

P 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.

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.

C Alpha Securities can register Participants (DPs) but cannot yet dematerialize shares until the Commencement Certificate is granted.

D The Registration Certificate automatically includes the right to commence business if the applicant is a subsidiary of a recognized Stock Exchange.

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.

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