Cancellation of certificate

A Depository Participant does not keep its certificate of registration forever, no matter what it does. SEBI can take it away.

SEBI has two separate powers here, and they are not the same thing. It can suspend a certificate temporarily, for a list of lesser breaches. It can also cancel a certificate outright, which is far more serious and far harder to reverse.

Cancellation is reserved for the worst cases: fraud, or a conviction for an offence involving moral turpitude, or a pattern of repeated defaults of the kind that would otherwise only lead to suspension.

SEBI may cancel the certificate of registration granted to a DP if it finds that the DP is guilty of fraud, or has been convicted of an offence involving moral turpitude, or has been guilty of repeated defaults of the kind specified for suspension of the registration.

Suspension, by contrast, covers a wider and lesser set of failures: contravening the Depositories Act, the Bye-Laws, agreements or the SEBI (D&P) Regulations, 2018; failing to furnish required information, or furnishing false or misleading information; failing to co-operate with a SEBI inspection, investigation or enquiry; failing to comply with a SEBI direction; or failing to pay the annual fee specified under the Regulations.

Cancellation is thus effectively an escalation: any of the grounds for suspension, if repeated, becomes a ground for cancellation, alongside the two standalone grounds of fraud and a moral-turpitude conviction. Separately, a DP may also lose its status through termination, either by giving the depository not less than 30 days notice itself, or under the depository's own Bye-Laws.

DP "Suvidha Securities" fails to pay its SEBI annual fee on time. SEBI can suspend its certificate for this single lapse under the Regulations.

Suppose instead Suvidha Securities is found to have repeatedly furnished false information to SEBI about its clients' holdings over several inspection cycles, each individually a ground for suspension. That repeated pattern crosses into cancellation territory. So would a single finding that Suvidha Securities' director had been convicted of cheating — an offence involving moral turpitude — which is grounds for cancellation even without any prior suspension history.

By contrast, if Suvidha Securities itself chooses to exit the business, it can simply give the depository 30 days notice to terminate its own participation; the depository must then notify the DP, other participants, the DP's clients and SEBI within seven days of that action. That is neither suspension nor cancellation — it is a voluntary exit.

Chapter 3, section 3.1.7 (Suspension and Cancellation of Certificate), lists both sets of grounds side by side, immediately followed by section 3.1.8 on voluntary termination. The paper regularly tests whether a candidate can sort a given scenario into suspension, cancellation or termination.

Expect a question naming a specific failure — a missed fee, a false statement, a fraud finding, a criminal conviction — and asking which of the three consequences applies.

• Cancellation needs fraud, a moral-turpitude conviction, or repeated suspension-grade defaults — a single ordinary lapse, like a late filing, is a suspension ground, not a cancellation ground.
• Suspension is temporary and covers a wide list of failures; cancellation is the far more serious, harder-to-reverse step.
• Termination by the DP itself is voluntary and distinct from both — it needs 30 days notice from the DP, followed by the depository notifying everyone else within 7 days, and carries none of the punitive character of suspension or cancellation.