Question
As per Section 12 of the Depositories Act, 1996, a
beneficial owner may create a pledge or hypothecation in respect of a security owned by him through a depository, only with the previous approval of:ÂSolution
This provision is governed by Section 12 of the Depositories Act, 1996, which deals with the "Pledge or hypothecation of securities held in a depository." 1. The Statutory Requirement (Section 12(1)) The Act specifically outlines the authority required to create a pledge. It states: "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. The Process Flow: • Intimation: The beneficial owner (investor) gives intimation of the pledge to the depository. • Recording: The depository then makes entries in its records (Section 12(2)). • Evidence: These entries in the depository's records serve as legal evidence of the pledge (Section 12(3)).
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