The depository and its business partners — who does what

A depository cannot meet you

NSDL and CDSL between them hold the securities of crores of Indians. Neither has a branch you can walk into.

That is deliberate. Under the Depositories Act, 1996, a Depository Participant (DP) is described as an agent of the depository. The depository keeps the master record; the DP is the counter where the investor is served. Everything in this chapter follows from that one relationship.

Three business partners sit around a depository, and each gets a section:

1. Depository Participants — the retail-facing agents.
2. The Clearing Corporation / Clearing House — the settlement machinery.
3. Issuers and their Registrar & Transfer Agents — the companies whose shares are held.

Who may become a DP

A DP is an entity registered as such with SEBI under the SEBI (Depositories & Participants) Regulations, 2018. An entity can offer depository-related services only after obtaining a certificate of registration from SEBI as a depository participant.

The relationship between a DP and a depository is governed by an agreement made between the two under the Depositories Act, and the form of that agreement is specified in the Bye-Laws of the depository.

Ten categories of persons are eligible to become a DP:

1. A public financial institution as defined in section 2(72) of the Companies Act 2013.
2. A bank included for the time being in the Second Schedule to the Reserve Bank of India Act, 1934.
3. A foreign bank operating in India with approval of the Reserve Bank of India.
4. A State Financial Corporation established under section 3 of the State Financial Corporations Act, 1951.
5. An institution engaged in providing financial services, promoted jointly or severally by any of the institutions in the four categories above.
6. A custodian of securities who has been granted a certificate of registration by SEBI.
7. A clearing corporation or a clearing house of a stock exchange.
8. A stockbroker who has been granted a certificate of registration by SEBI.
9. A non-banking finance company.
10. An R&T Agent who has been granted a certificate of registration by SEBI.

Notice what is absent. There is no route for an individual, a partnership firm or an ordinary private company. Every category is an already-regulated financial entity.

Net worth — the numbers that get tested

The SEBI (Depositories & Participants) Regulations, 2018 prescribe a minimum net worth for different kinds of applicants, and the depositories layer their own requirements on top.

Two riders sit alongside the table:

• If a stockbroker seeks to act as a DP in more than one depository, he must comply with the specified net worth criterion separately for each such depository. Being worth ₹5 crore once does not buy admission to both.
• Depositories can fix a higher net worth criterion for their DPs than SEBI has prescribed — which is exactly what CDSL has done for stock brokers.

How net worth is proved: the applicant submits a net worth certificate certified by a chartered accountant, which includes the computation of net worth. The certificate must be based on the audited books of account and in the format specified by the depository in its Bye-Laws/Business Rules.

Applying — the route runs through the depository

This is the single most-asked process point in the chapter, and it catches people because the regulator is SEBI but the postbox is not.

An entity desirous of becoming a DP should make an application to SEBI through the Depository. The complete application goes to the depository whose membership is sought. The depository evaluates the application, and if it finds the applicant has the potential to be admitted as a DP, it forwards that application to SEBI within 30 days from the date of receipt of the application, along with its own recommendations regarding the applicant.

The applicant pays SEBI application fees at this stage.

Either gatekeeper can stop it. The depository may reject the application if it is found to be incomplete or not as per the given instructions. SEBI may require the applicant or the depository to furnish additional information or clarification, and may reject an incomplete application after giving the applicant an opportunity to address the objections.

What SEBI looks at before registering

On being satisfied that the applicant is eligible and has complied with the SEBI (D&P) Regulations, SEBI grants a registration certificate. Before doing so it considers, among other things:

• Whether the applicant has adequate infrastructure and systems.
• Whether it has the safeguards and trained staff to carry on activity as a DP.
• Whether the applicant is a fit and proper person.
• Whether the grant of a certificate to such a person is in the interests of investors in the securities market.

And one condition rides on the certificate itself: the Participant shall redress the grievance of beneficial owners within thirty days of the date of receipt of the complaint, and keep the depository informed about the number and nature of redress.

The depository's seven additional conditions

The Bye-Laws add conditions of their own for admission to the depository's system:

1. Furnish information and details of its business history.
2. Not have been convicted in any of the five years immediately preceding the filing of the application in any matter involving misappropriation of funds and securities, theft, embezzlement of funds, fraudulent conversion or forgery.
3. Not have been expelled, barred or suspended by SEBI, a self-regulatory organisation or any recognised stock exchange. But note the softener — if three years or more have elapsed since the punishment, the depository may, at its discretion, consider such an application.
4. Furnish details of its Board of Directors / authorised officials who would be responsible for conducting the business as a participant.
5. The depository may conduct training programs and/or interviews to examine the knowledge of the DP and its staff on operational, functional and technical aspects. The applicant shall be mandated to appoint a Compliance Officer, who interacts with the depository on the DP's behalf for compliance with the Bye-Laws and Business Rules and for resolving investors'/clients' grievances.
6. Adequate office space exclusively for depository operations, with details of the main office including address, fax and phone numbers. The depository has the sole discretion to decide whether the applicant has adequate infrastructure, and may carry out an inspection of the office and facilities to satisfy itself.
7. Adequate arrangements for conducting effective and safe depository operations — security measures, risk containment and insurance requirements as specified by the depository.

How long the registration lasts

A certificate of registration is valid unless it is suspended or cancelled by the Board. There is no expiry date on the certificate itself.

But there is a fee cycle. To keep the registration in force, the DP shall pay a registration fee as specified in the SEBI (Depositories and Participants) Regulations, for every five years from the sixth year of the date of grant of the certificate of registration or of the date of grant of the certificate of initial registration. The specified fee shall be paid one month prior to the expiry of the block for which the fee has been paid.

So: registration is permanent in principle, fees run in five-year blocks starting from the sixth year, and each block is paid for one month in advance.

Getting from registered to operating

A certificate is not a licence to switch on. A DP can commence its operations only after complying with the prescribed procedures of the depository for commencing business operations. Seven pre-requisites, in order:

1. Make an application to the depository through the prescribed form, furnishing all clarifications and additional documents required. The depository intimates the DP about the application status.
2. On receiving the approval, apply for connectivity with the depository. Primary connectivity can be by way of V-sat, leased line or internet. Full-scale connectivity by way of PSTN line or dial-up lines also has to be arranged as a fall back if the primary connectivity fails.
3. At least one officer of the applicant has to successfully complete the in-depth training conducted by the depository.
4. Procure the prescribed hardware and communicate the details of the hardware installed. The depository then conducts a pilot test to train the staff on depository functions and check the systems, and the DP also has to participate in the pilot test.
5. Enter into an agreement with the depository, in the format prescribed by the Bye-Laws.
6. The application system of the depository is activated in the live environment in the office of the DP, and a DP-ID is issued to the DP.
7. The DP can start functioning.

The obligations a DP carries

Rights and Obligations document

The DP must provide a copy of the Rights and Obligations document to the client and keep an acknowledgement of the same on record before acting as a Participant on his behalf. The document must be in the form and manner specified by SEBI and the DP Operating Instructions.

And the liability rule that gives the whole chapter its shape: a DP, while conducting any business with a client, acts as an agent of the depository and is liable to the clients for all the acts and deeds performed by it.

Two exemptions — no Rights and Obligations document is required for:

• A Foreign Portfolio Investor (FPI) registered with SEBI which has entered into an agreement with the DP either directly or through its power of attorney, giving the DP authority to act on its behalf for availing depository services, where such agreement has already been filed with SEBI.
• An International Multilateral Agency which has entered into an agreement with the DP under Regulation 17 of the SEBI (Custodian of Securities) Regulations 1996, where such agreement states that the Custodian will also act as a DP and all DP provisions shall apply.

Separate accounts and client instructions

The DP should open a separate account in the name of each beneficial owner. The securities of each BO should be segregated from the securities of other beneficial owners and from the DP's own securities. For the DP's own securities, he should open a separate account in the depository system.

Securities should be transferred to or from a BO's account only on receipt of instructions from the beneficial owner. No entry in the beneficial owner's account should be made unless it is supported by instructions received from the beneficial owner as per the agreement made with him.

Statements to clients

SEBI Circular No. CIR/MRD/DP/31/2014 dated November 12, 2014 introduced the Consolidated Account Statement (CAS), giving an investor a single consolidated view of all his investments in mutual funds and securities held in demat form with the depositories.

The depository may directly send the statement of account — including transaction statement and holdings statement — to clients, and in such cases Participants are not required to send such statements. But there is a saving clause: whenever the client requests such a statement, the Participant shall be duty bound to provide the same.

One carve-out: statements in respect of Clearing Member (CM) accounts will not be sent by NSDL, and the Participant may continue sending such statements to CMs.

Frequency of the CAS:

The half-yearly rule for dormant accounts came in partial modification of clauses 5(b) and 6(c) of SEBI circular CIR/MRD/DP/22/2012 dated August 27, 2012.

CDSL has introduced a Multilingual Consolidated Account Statement, available in multiple Indian languages, especially beneficial for retail investors in rural and semi-urban areas.

SEBI permits DPs to provide transaction statements and other documents to BOs under Digital Signature, as governed under the Information Technology Act, 2000, subject to entering into a legally enforceable arrangement with the BOs. Doing so is deemed to be in compliance with the SEBI (Depositories & Participants) Regulations, 2018.

Connectivity, website, audit, surveillance, reconciliation

Every depository shall maintain continuous electronic means of communication with all its participants, issuers or issuers' agents, clearing corporations of the stock exchanges, and with other depositories.

All DPs are mandatorily required to maintain a designated website — SEBI circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/30 dated February 15, 2023 — which brings transparency and helps investors stay informed about the DP's activities.

A DP has to get an internal audit of depository operations done on a half-yearly basis by a practising chartered accountant or a company secretary or a cost accountant. All three professions qualify.

NSDL has advised its DPs to put in place a Surveillance Policy based on the nature of their depository business, type of clients and number of transactions, to generate appropriate surveillance alerts at their end.

The DP should reconcile its records with its depository on a daily basis. The depository system is designed to do this reconciliation automatically every day at the end of the day (EOD).

Periodic returns

The DP should submit periodic returns to SEBI and to every depository in which it is a Participant, in the format specified by SEBI or the Bye-Laws.

NSDL deadlines:

CDSL deadlines cover the same ground with some differences worth noticing:

That last row is the pattern to remember: anything that changes who the DP is, or where it is, or who runs it, must be reported immediately.

Indemnity, assignment, insurance

A DP has to indemnify the depository, its officers and employees for all costs, fees, expenses, liabilities, taxes, actual losses and damages suffered on account of:

1. The DP's failure to comply with the Bye-Laws, the DP agreement, or any directions or procedures of the depository.
2. Acts by the depository or its officers placing reliance upon instructions or communications by the DP — including giving effect to them, or the DP's failure to give instructions as contemplated in the Bye-Laws.
3. The depository's acceptance of eligible securities deposited by the DP, effecting transactions per the Bye-Laws, and withdrawal of eligible securities by the DP.
4. The DP's failure to deliver eligible securities or to perform other duties set out in the Bye-Laws.

No DP can assign or delegate its functions as a depository participant to any other person without prior approval of the depository in which it is a participant.

All DPs must provide details of every place from which they offer depository services to clients — whether described as the depository system set-up, head office, main office, branch, franchisee, service centre, collection centre, drop box centre or by any other name — and any further updates (addition, deletion or modification) must reach the depository within seven days of the change.

On insurance: DPs should take appropriate cover against losses arising from possible business risk and system failure. But note who actually buys it — the depository takes insurance for itself and on behalf of all DPs, covering business risk and system failure risk. DPs may additionally take insurance for themselves to cover risks like theft, fire, etc.

Records — the eight-year rule

The DP should maintain and preserve the following records and documents for a minimum period of 8 years as per the SEBI (Depositories and Participants) Regulations, 2018, and make them available for inspection by the depository whenever required:

1. Records of all transactions entered into with a depository and with a beneficial owner.
2. Details of securities dematerialised and rematerialised on behalf of beneficial owners.
3. Records of instructions received from beneficial owners and statements of account provided to them.
4. Records of approval, notice, entry and cancellation of pledge or hypothecation.
5. Records of all actions taken on the exception reports generated by the system.
6. Details of grievances / arbitration proceedings received from clients, action taken and status.

If a DP has entered into an agreement with more than one depository, these records should be maintained separately for each such depository.

Being a company, a DP must also comply with the Companies Act, 2013 on preservation, and as a listed entity with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR). Broadly, constitutional and registerial records are preserved permanently — Memorandum and Articles, Certificate of Incorporation, minutes of Board, Committee and shareholders' meetings, the Register and Index of Members, the listing agreement, registers of transfers, transmissions, directors and their shareholdings, forms filed with the ROC, and annual audited financial statements. Working papers run for 8 financial years — resolutions passed by circulation, attendance registers, notices and agendas, annual returns, correspondence with shareholders, SEBI takeover and insider-trading disclosures, postal ballot forms, books of accounts, ledgers and vouchers, and tax returns. Investment records run for 8 financial years from the date of redemption.

Data integrity and back-up

DPs who maintain electronic records should ensure the integrity of the data processing systems and take all necessary precautions so that records are not lost, destroyed or tampered with. The depositories' prescribed back-up policy:

1. Back-ups have to be taken every day without fail.
2. Two copies must be taken — one preserved at a remote site away from the operations and another on the site itself.
3. Back-up on external memory devices should be preserved safely, well protected against fire, theft and manipulation.
4. DPs with large business volumes may install an additional back-up machine, so business can continue even if the main machine fails.

The depositories may impose a monetary or non-monetary penalty on a Participant for non-compliance with SEBI regulations and/or NSDL/CDSL instructions and bye-laws.

Anti-money-laundering duties

The Prevention of Money Laundering Act 2002 (PMLA) came into effect from 1st July, 2005. Every banking company, financial institution and intermediary registered under section 12 of the SEBI Act, 1992 must maintain a record of prescribed transactions:

• All cash transactions of value more than ₹10 lakhs or its equivalent in foreign currency.
• All series of cash transactions integrally connected to each other which have been valued below ₹10 lakhs, or its equivalent in foreign currency, where such series of transactions take place within one calendar month.
• All suspicious transactions, whether or not made in cash.

The AML guidelines require:

• Participants to evolve their own guidelines to comply with the PMLA and the rules and guidelines issued by the Government of India and SEBI.
• A proper policy framework on AML measures.
• Three specific parameters relating to the overall Client Due Diligence Process: (a) a policy for acceptance of clients, (b) a procedure for identifying the clients, and (c) transaction monitoring and reporting, especially Suspicious Transactions Reporting (STR).
• A senior management executive designated as the Principal Officer, located at the head/corporate office, responsible for monitoring and reporting all transactions and sharing information as required under law, and for maintaining liaison with other departments, other Participants, enforcement agencies and similar institutions.
• A Designated Director, in addition to the Principal Officer. Under Rule 2(ba) of the PML Rules, a Designated Director is the person designated by the reporting entity to ensure overall compliance with chapter IV obligations. Who that is depends on the kind of entity.

Under Section 13(2) of the PML Act, as amended by the Prevention of Money-laundering (Amendment) Act, 2012, the Director of FIU-IND can take appropriate action, including levying a monetary penalty, on the Designated Director for failure of the intermediary to comply with any of its AML/CFT obligations. The details of the Designated Director — name, designation and address — must be communicated to the Office of the Director, FIU-IND.

Two reporting clocks:

• Suspicious transactions must be reported in the prescribed format within seven working days of the establishment of suspicion, to the Director, Financial Intelligence Unit-India (FIU-IND).
• Participants must report to the depository the number of suspicious transaction reports filed directly with FIU-IND during a given month, by the 7th of the following month.

On records under the AML framework: records and information must be maintained in a manner allowing easy and quick retrieval by competent authorities, and preserved for a period of eight years from the date of cessation of the transactions between the Client and the Participant. The same eight-year rule applies to records of the identity of clients.

Participants should obtain a certification from their internal auditors that they have drawn up an AML policy in compliance with the relevant laws, and in every quarterly report the internal auditor must check and certify whether the Participant has complied with the policy so drawn up, specifically pointing out any deficiencies. The Compliance Officer must submit a Compliance Certificate in the prescribed format at half-yearly intervals, either separately or through the Internal Audit Report. And Participants should educate clients about the objectives of the KYC programme, with front desk staff specially trained to handle such conversations.

When it goes wrong — suspension, cancellation, termination

SEBI may suspend a DP's certificate of registration if the DP has:

• Contravened any provision of the Depositories Act, the Bye-Laws, Agreements or the SEBI (D&P) Regulations, 2018.
• Failed to furnish any information relating to its activity as a DP required under the regulations.
• Not furnished information called for by SEBI, or furnished information which is false or misleading.
• Not co-operated in any inspection, investigation or enquiry conducted by SEBI.
• Failed to comply with any direction of SEBI.
• Failed to pay the annual fee.

SEBI may cancel the certificate if the DP:

• Is guilty of fraud, or has been convicted of an offence involving moral turpitude.
• Has been guilty of repeated defaults of the kind specified for suspension.

The pattern is worth internalising: suspension is for procedural and compliance failures; cancellation is for fraud, moral turpitude and repeated defaults.

A DP may also choose to terminate its participation by giving a notice of not less than 30 days. On receipt of such notice the depository may cease to provide any service or act for the DP, and must notify the DP, other participants, the clients of the surrendering DP and SEBI within seven days of this action.

Business partner two: the Clearing Corporation

A Clearing Corporation is an entity responsible for clearing and settlement of trades done by clearing members on a recognised stock exchange. Clearing corporations of stock exchanges are admitted to the depository system for clearing and settlement of securities traded on their respective stock exchanges, and for electronic settlement of securities in demat form the concerned CC/CH needs electronic connectivity with the depository.

A Clearing Corporation may be admitted as a user on the depository after entering into an agreement with the depository as per the Bye-Laws. Which agreement depends on the structure:

• The standard agreement, where the CC is the legal counterparty.
• A different agreement where a clearing house of a stock exchange is not a legal counterparty to the trades on the exchange and the trade/settlement guarantee fund is held and managed by the exchange.
• A third type of agreement where the members/dealers of the exchange are not the clearing members of the Clearing House.

A stock exchange itself may be admitted as a user on the depository if it conducts the activity of clearing and settlement of trades, is not a legal counterparty to those trades, and holds and manages the trade/settlement guarantee fund.

Four admission criteria for a CC/CH:

1. Adequate hardware and software systems to interact with the depository as specified in the Business Rules.
2. The depository must be satisfied that it operates in such a manner that it ensures payment against delivery or guarantees settlement.
3. It undertakes to co-operate at all times to redress the grievances of clients and DPs in respect of its operation in relation to the depository.
4. The depository must be of the opinion that it has the operational capability to provide clearing and settlement services for securities admitted to the depository in dematerialised form.

And the restriction the workbook asks about directly: a Clearing Corporation of a stock exchange shall not be permitted to open beneficiary accounts for clients, except where it has been permitted by RBI to offer the Constituent SGL account facility to investors.

Business partner three: Issuers and R&T Agents

The Depositories Act, 1996 gives the investor the option to hold securities either in physical form or in book entry form with the depository. An issuer may offer the demat facility by entering into an agreement with the depository, and must first establish connectivity with the depository either directly or through a Registrar & Transfer Agent which in turn has connectivity.

Securities eligible for dematerialisation under the SEBI (Depositories & Participants) Regulations, 1996:

• Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.
• Units of mutual funds, units of InvITs, rights under collective investment schemes (CISs) and venture capital funds (VCFs), commercial paper (CP), certificates of deposit (CD), securitised debt, money market instruments and government securities.
• Unlisted securities.

The Executive Committee / Securities Committee of the depository determines which securities are eligible for dematerialisation. Before dematerialisation commences, the Issuer or its R&T Agent must:

• Undertake to co-operate at all times to redress the grievances of the client and the DP.
• Have adequate hardware and software systems to interact with the depository as specified in the Business Rules.
• Have signed the tripartite agreement as per the Bye-Laws.

These conditions are not applicable to securities issued by the Central or State Government.

A depository may refuse admission or remove a security from the list of eligible securities if the Issuer or its R&T Agent does not have or has ceased to have the operational capability, commits any breach of the terms of the agreement, or where the Board of Directors of the depository — or the Securities Committee in the case of CDSL — in its absolute discretion is satisfied that circumstances exist rendering it necessary in the interest of investors.

What Issuers and R&T Agents must do

• Represent and warrant in favour of the depository that the securities exist at the time of transfer into the depository and thereafter, that they are validly issued, and that the issuer is entitled or has full authority to transfer them.
• Provide timely information about corporate actions — book closure, record dates, dates for payment of interest or dividend, dates for the annual general meeting, dates of redemption, dates of conversion, dates of exercising warrants.
• Reconcile with the records of the depository the balances of eligible securities with clients, and confirm to all the depositories the total security balances in both physical and electronic holdings. Where a State or the Central Government is the issuer, the depository reconciles the records of dematerialised securities with the statement provided by the RBI on a daily basis.
• Issue the certificate of securities against receipt of the Rematerialisation Request Form (RRF) from the client through the DP and on receipt of confirmed instructions from the depository.
• Furnish allotment details of all clients (allottees) who have opted for securities to be credited in electronic form — a clause that does not apply to government securities.

And on accuracy, responsibility is split cleanly: the depository is responsible for the accuracy and correctness of information related to eligible securities that it intimates to the Issuer/R&T Agent; the Issuer/R&T Agent is responsible for the accuracy and correctness of all information it furnishes to the depository.

The Tripartite Agreement

When the issuer or the investor opts to hold securities in demat form, the issuer enters into an agreement with the depository. This agreement is not necessary where the depository is itself the issuer of securities, or where the State or Central government is the issuer (government securities).

Where the issuer appoints a registrar to the issue or a share transfer agent, the depository enters into a tripartite agreement with the Issuer and the R&T Agent for the securities declared eligible for dematerialisation. This agreement has to be signed before the Issuer/R&T Agent can be admitted to the depository system.

Its main terms, with the numbers that matter:

• A list of authorised officials must be furnished within 15 days of execution of the agreement, and any additions or deletions communicated within 15 days of such change.
• The depository allocates unique identity codes to the securities issued by an issuer — the ISIN (International Securities Identification Number).
• Continuous electronic means of communication must be established; the depository provides manuals and procedural guidelines.
• The latest back-up of the database and subsequent incremental back-ups must be maintained at a designated remote site.
• Access must be allowed to an Audit Team designated by the depository for periodic assessment of compliance.
• The depository is not liable for any loss arising from the Issuer's or R&T Agent's failure to keep full and up-to-date back-ups.
• The Issuer shall inform the depository on the next day on which the information is sent to the stock exchanges about the dates from which new shares arising out of conversions, further issues and final call payments become pari passu with existing shares.
• Information on further issues — rights, bonus, public offerings — with opening and closing dates, issue size, issue price, record date, book closure and proportion, along with a copy of the offer document.
• Information about book closures, record dates, interest and dividend dates, AGM and other meeting dates, debenture redemption and conversion dates, call money dates, amalgamation, merger, reduction of capital, reconstruction, sub-division, consolidation and conversion of debentures/loans — on the next day it is communicated to the relevant stock exchanges.
• Dematerialisation requests are processed within 15 days and rematerialisation requests within 30 days. The period may be relaxed by the depositories in the case of bulk dematerialisation requests.
• No dematerialisation request shall be accepted when there is any prohibitory order, stop transfer, attachment order, or disputed title on the day of such request. Where a court order exists and the request is nonetheless entertained, the Issuer/R&T Agent is entirely responsible. They are also fully responsible for destruction, mutilation and cancellation of certificates received and accepted for dematerialisation.
• The Issuer/R&T Agent continues to be responsible for corporate actions. The depository provides the list of beneficial owners as of the record date, and indemnifies the Issuer/R&T Agent for losses caused by incorrect client information furnished by the depository or its Participant.
• The Issuer/R&T Agent indemnifies the depository for loss or liability arising from incorrect information it furnishes.
• Claims or disputes on rematerialised securities are settled between the Issuer/R&T Agent and the owner of such securities.
• Claims from a third party on dematerialised securities pertaining to any fake or forged securities are settled between the Issuer/R&T Agent and such third party.
• The depository may authorise persons to enter the premises of the Issuer/R&T Agent during regular business hours on any working day, inspect the records and take copies. It shall also provide reports updating details of BOs on a fortnightly basis.
• Where the list of beneficial owners is required as on a particular date, it is provided within a stipulated period — NSDL has specified the period as 15 days.
• Any proposed change in the address of the Registered Office, Corporate Office or the location of the communication equipment must be notified not less than thirty days before the date of change — and the depository owes the same thirty days' notice for changes in its own addresses.
• The Issuer shall not change, discontinue or substitute its R&T Agent unless the alternative arrangement has been agreed to by the depository.
• Neither the Issuer nor its R&T Agent shall assign their functions and obligations relating to depository transactions without the approval of the depository.
• All parties shall resolve the grievances of BOs within 21 days for NSDL and 30 days as per the CDSL agreement, from the date of receipt of the complaint.

The R&T Agent in dematerialisation

The depository electronically intimates, on a daily basis, all dematerialisation requests to the respective Issuer or its R&T Agent. The Issuer or R&T Agent must verify the validity of the security certificates as well as the fact that the demat request has been made by the person recorded as a member in its Register of Members.

After such verification, the Issuer or its R&T Agent intimates the depository and authorises an electronic credit for that security in favour of the client. Only then does the depository make the credit entries. No credit of any securities to the account of any client can be made unless the depository has received intimation from the Issuer or its R&T Agent.

Where a dematerialisation request is rejected, the Issuer or R&T Agent must electronically intimate the depository of the rejection within a period of 15 days. It must then return the DRF along with the rejection reason and the relevant security certificates — unless the reason for rejection is one of four:

• The security certificates are stolen.
• The security certificates are fake.
• There is an order from a court or a competent statutory authority prohibiting the transfer of such securities.
• Duplicate certificates have been issued in respect of the securities with the same distinctive numbers.

In those four cases the certificates are not sent back — they are evidence, and returning them would put them back in circulation.

The R&T Agent in rematerialisation

A client may withdraw its security balances with the depository at any point of time by applying for rematerialisation through its DP. The steps:

• The depository intimates electronically the details of all accepted rematerialisation applications to the Issuer or its R&T Agent on a daily basis.
• The DP forwards the RRF to the Issuer or its R&T Agent within 7 days of accepting the request from the client.
• The Issuer/R&T Agent validates the RRF and confirms to the depository electronically that it has been accepted.
• The Issuer/R&T Agent despatches the security certificates within a period of 30 days from receipt of the RRF, directly to the client.
• On receipt of the acceptance, the depository debits the balances from the client's account held with the DP.

Note the order carefully: the certificates go out before the depository debits the account, and they go directly to the client, not through the DP.

The R&T Agent in corporate benefits

It is the function of the Issuer/R&T Agent to inform the depository about corporate actions — book closures, record dates, dates for redemption or maturity, dates of conversion of debentures and warrants, call money dates — and to submit the necessary approval documents.

On receiving such intimation, the depository provides the details of the holdings of the clients electronically to the Issuer/R&T Agent, as of the relevant cut-off date, for the purpose of corporate actions and distribution of corporate benefits.

The Issuer/R&T Agent distributes dividend, interest or other monetary benefits directly to the eligible beneficial owners on the basis of the list provided by the depository. The corporate benefits can be distributed through the depository also, with its concurrence.

Where the benefits are in the form of securities, the Issuer/R&T Agent may distribute them through the depositories in two cases:

• The newly created security is an eligible security.
• The concerned client has consented to receive the benefits through the depository.

In such a case the Issuer/R&T Agent provides allotment details of all clients to the depository, which makes the credit entries.

In certain cases — split of shares, consolidation of shares, mergers, demergers, bonus shares — the corporate action is executed automatically as per the fixed ratio defined by the Issuer/R&T Agent, through the depository system. This feature is called "Auto Corporate Action".