Company Law: The Concept of Depository

The Depositaries Bill, 1996, got the approval of both the Houses of Parliament and received the assent of President of India on 12^th August, 1996. The Depositaries Act, 1996, extends to the whole of India. The Act aims to regulate the depositaries in securities and related matters.

The following are some important definitions under the stipulations of the Act:

• Beneficial Owner: A person whose name is recorded as such with a depository.
• Company Law Board: The Board of Company Law Administration constituted under section 10-E of the Companies Act, 1956.
• Depository: A company formed and registered under the Companies Act, 1956, and which has been granted a certificate of registration under sub-section (1A) of section 12 of the Securities and Exchange Board of India (SEBI) Act, 1992.

Company Law: Certificate of Commencement of Business

A depository company is required to obtain a certificate of commencement of business from the SEBI to start business affairs. However, the certificate of commencement of business is only granted by the SEBI on the satisfaction that the company has sufficient systems and instruments to prevent mismanagement of transactions and records. Nonetheless, the SEBI cannot deny granting a certificate unless a fair chance to hearing has been provided to the concerned company.

Company Law: Trading System of Securities

The working relations of a depository and securities holders are similar to that of a bank and the customer. Just like you deposit money in a bank, you can deposit securities, such as shares and debentures, with a depositary company for safe custody.

An owner of securities is similar to a bank account holder and known as a beneficial owner. A beneficial owner is entitled to transfer the securities owned by him to another person.