Pledgee
The lender in a pledge or hypothecation — the party who confirms the pledgor's request through its own DP, and who is recorded as beneficial owner of the securities only on invocation.
In plain language
The lender in a demat pledge or hypothecation is the pledgee. Nothing is created until the pledgee acts: the pledgor can submit a request, but the transaction exists only once the pledgee confirms it through its own DP.
Until that confirmation, and again until any eventual invocation, the pledgee holds a claim, not ownership. The securities stay legally and beneficially with the pledgor throughout the life of a performing loan.
How it works
From Chapter 9, section 9.2.3: once the pledgor's request is entered and verified, the pledgor submits the duly stamped and signed PRF to the pledgee along with a confirmation letter, and the details are also communicated electronically to the pledgee's DP for confirmation. The pledgee's DP compares the form against the system details and either accepts or rejects the request; on rejection, the reason is recorded in the system.
A pledgee can give a standing instruction at account opening (or later) to auto-accept pledge requests in its favour — NSDL calls this a "Standing Instruction Indicator for Auto Pledge Confirmation." On confirmation, the pledgor's holding shows as pledged balance, and the Pledge Request Form must itself contain the pledgee's undertaking to give reasonable notice to the pledgor and comply with Sections 176 and 177 of the Indian Contract Act, 1872, per a SEBI circular of 5 February 2026.
On invocation, once verified, the pledgee is recorded as beneficial owner of the securities under Regulation 79(8) of the SEBI (Depositories and Participants) Regulations, and the depository notifies both pledgor and pledgee of this. For a pledge (not a hypothecation), no confirmation is required from the pledgor's DP at invocation — the pledgee acts unilaterally on default.
A worked example
A bank, as pledgee, is offered 6,000 shares worth Rs 36,00,000 as collateral by a borrower. The pledge request reaches the bank's DP electronically; the bank's DP compares it against the recorded details and, satisfied, confirms the pledge. The shares now show as pledged balance in the borrower's account.
Because the bank has a standing instruction with its DP to auto-accept pledges in its favour, future pledge requests from the same category of borrower would confirm automatically, with no separate signed PRF needed each time.
If the borrower later defaults, the bank files an Invocation Request Form. On verification, the bank is recorded as the beneficial owner of the shares under Regulation 79(8) — with no confirmation needed from the borrower's DP at all, because this is a pledge, not a hypothecation.
Why NISM asks about it
Chapter 9 makes the pledgee's confirmation the hinge of the entire pledge procedure — the workbook's own review question asks precisely when a pledge is "complete" (on the pledgee's confirmation advice being entered, not on the pledgor's request). Expect that, plus the Regulation 79(8) beneficial-owner-on-invocation point.
Common exam traps
- A pledge is not created until the pledgee confirms — the pledgor's request alone only produces "pledge setup balance," a pending status.
- A pledgee can pre-authorise auto-confirmation through a standing instruction — it need not act on every request manually.
- On invocation of a pledge, the pledgor's DP need not confirm anything — that extra confirmation step exists only for hypothecation.
- The pledgee becomes recorded beneficial owner only on invocation, under Regulation 79(8) — not at the point of confirming the original pledge.
Check yourself
1.A pledgor submits an unpledge request after repaying his loan, and the pledgee rejects it. What happens to the securities?
- a)They are automatically credited to the pledgor's free balance after seven days
- b)They continue to remain as pledged balances in the pledgor's account
- c)They are transferred to the pledgee's account
- d)The depository releases them on the pledgor's written representation
Show the answer
Answer: (b) They continue to remain as pledged balances in the pledgor's account
In case of rejection by the pledgee, the securities continue to remain as pledged balances in the pledgor's account.
This is the point of the whole confirmation architecture: the pledgor can request un-pledging or closure after the performance of the underlying agreement — request, not effect. Repaying the loan does not release anything by itself. There is no automatic timer, so option A is wrong.
Option C confuses closure with invocation. Securities move to the pledgee only on invocation, where they are transferred from the "pledged balance" of the pledgor's beneficial owner account to the "free balance" of the pledgee's beneficial owner account.
The pledgor is not left in the dark: the reasons for rejection are displayed in the DP system of the pledgor's DP, from a defined list including "agreement number differs from that on the agreement", "market value of pledged ISINs insufficient" and "POA not received from all holders". In CDSL those coded reasons are absent and the pledgee DP enters the reason in a remark field.
2.A pledge has been created over securities that are subject to a lock-in. The pledgor defaults while the lock-in is still running. What can the pledgee do?
- a)Invoke the pledge immediately, as default overrides the lock-in
- b)Invoke the pledge, but the securities are credited to him only after the lock-in ends
- c)The invocation request cannot be set up until the lock-in period is over
- d)The pledge itself was invalid, since locked-in securities cannot be pledged
Show the answer
Answer: (c) The invocation request cannot be set up until the lock-in period is over
If the pledge is for lock-in securities, then the invocation request cannot be setup till the lock-in period is over, and locked-in securities cannot be invoked before the lock-in release date. The request cannot even be entered — so option B, which imagines the request going through with delayed delivery, is wrong.
Option D fails at the first step. Securities — free balances or lock-in balances — held in a depository account can be pledged or hypothecated, and the creation step confirms it: securities are debited from the free or locked-in balances and credited as pledge setup balance. Lock-in is no obstacle to creating a pledge; it is an obstacle to invoking one.
That asymmetry is the whole point of the question, and it is a genuine trap for a lender: collateral that cannot be realised when you need it is not much use, which is why lenders check the lock-in status before accepting shares.
3.The pledgee has confirmed creation of a pledge. The pledgor now asks his own DP to cancel the pledge order because he has found another lender. What is the position?
- a)The pledgor's DP can cancel it at any time before the closure date
- b)The pledgor's DP can cancel it only if both parties hold their accounts with the same DP
- c)The pledgor's DP cannot cancel the pledge order after the pledgee has confirmed its creation
- d)The pledgor's DP can cancel it unilaterally, as with a unilateral closure
Show the answer
Answer: (c) The pledgor's DP cannot cancel the pledge order after the pledgee has confirmed its creation
The workbook: "The pledgor's DP cannot cancel the pledge/hypothecation order after confirmation of creation of the pledge/hypothecation by the pledgee." Once confirmed, the pledge can end only through closure (unpledge) on repayment or invocation on default.
- A invents a cancellation window.
- B is wrong because having the same DP changes nothing: "It remains the same irrespective of whether or not they have accounts with different DPs. Even if both have their accounts with the same DP, the procedure of receiving the pledge confirmation from the lender has to be followed."
- D gets unilateral closure backwards. It is initiated by the pledgee, and then no action is required by the pledgor or the pledgor's DP. The pledgor has no unilateral route.
Where this is taught
Free preparation for NISM Series VIRelated terms
- PledgeA charge created over demat securities in favour of a lender who may appropriate them unilaterally on default — created by book entry under section 12 of the Depositories Act, not by handing over anything.
- HypothecationA charge over demat securities where the lender needs the borrower's concurrence to appropriate them — the same book entries as a pledge, with one extra confirmation, and a term used only in NSDL.
- Pledge Request FormThe standardised form on which a pledgor initiates a pledge, carrying mandatory undertakings from both pledgor and pledgee to comply with the Indian Contract Act and give reasonable notice before invocation.
- Pledged balanceThe status a pledgor's securities show once the pledgee has confirmed the pledge — distinct from the pledgor's free balance, but still legally owned by the pledgor until invocation.
- PledgorThe borrower in a pledge or hypothecation — the beneficial owner who offers demat securities as collateral, initiates the transaction through its own DP, and keeps ownership and corporate benefits until default.
- Consideration AmountThe value of an off-market transfer or pledge invocation captured in the depository system from the transferor's DIS, on which stamp duty is calculated and collected before the transfer executes.
- Pledge sequence numberThe unique number the DP system generates for each pledge or hypothecation request, identifying that transaction for confirmation, closure and invocation even when many pledges exist between the same parties.
- Invocation Request FormThe form a pledgee submits to its DP to invoke a pledge after the pledgor defaults, moving the securities from the pledgor's pledged balance to the pledgee's free balance without the pledgor's confirmation.
- Non Disposal UndertakingAn undertaking, typically by a promoter to a lender, not to transfer or alienate specified shares - a negative lien that can be recorded in the depository system as an encumbrance.
- Pledge setup balanceThe transient balance a pledgor's securities are shown under, in the depository system, between the pledgor submitting a Pledge Request Form and the pledgee confirming it.
- Re-pledgeA further pledge of securities already pledged to a Trading or Clearing Member, moving the same margin pledge down the TM-to-CM-to-CC chain without the shares ever leaving the original client's demat account.
- Rights of the pledgorThe rule that a pledgor keeps every corporate benefit on pledged securities until invocation, provided the pledge still covers at least one share on the corporate action's execution date.
- Unilateral closureThe facility letting a pledgee alone close a pledge, with no confirmation or rejection needed from the pledgor or the pledgor's DP.