📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!

    Question

    Under Section 16 of the Depositories Act, 1996, if any

    loss is caused to the beneficial owner due to the negligence of the depository or the participant, the beneficial owner shall be indemnified by:
    A The Participant Correct Answer Incorrect Answer
    B The Depository Correct Answer Incorrect Answer
    C The Issuer Company Correct Answer Incorrect Answer
    D The Securities and Exchange Board of India Correct Answer Incorrect Answer
    E The Central Government Correct Answer Incorrect Answer

    Solution

    Correct Answer: The Depository Explanation: This is governed by Section 16 of the Depositories Act, 1996.

    • The Provision: Section 16(1) explicitly states that "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."
    • Key Distinction: Even if the negligence is committed by the Participant (the Depository Participant or DP), the Act places the primary liability to indemnify the investor on the Depository (e.g., NSDL or CDSL).
    • Recovery: Under Section 16(2), where the loss is caused by the negligence of a participant, the depository has the right to recover the amount indemnified from that participant, but the initial protection to the investor comes from the depository itself.

    Practice Next
    More Administrative Interpretation and Maxims Questions
    ask-question