Law of the Land: September 2011

Thursday, September 29, 2011

Gowri Ammal And Anr. vs Thulasi Ammal (Minor) And Anr. on 5 July, 1962
Equivalent citations: AIR 1962 Mad 510
Bench: Ramakrishnan

JUDGMENT

(1) This Second Appeal raises the question of the interpretation of the provision for legitimacy of the children of void and voidable marriages contained in Section 16 of the Hindu Marriage Act 1955 (hereinafter called the Act). The prior facts necessary for a consideration of this, Second appeal are briefly the following.

(2) One Periaswami died in 1956 possessed of Some properties. He had a wife Gowri Ammal, the 1st defendant, and Anandam, a minor son aged 5 years by the 1st defendant, who is the 2nd defendant. it is alleged that Periaswami married a second wife, Kannu Ammal, the 1st plaintiff. This marriage took place after the Hindu Marriage Act of 1955 (Central Act XXV of 1955) came into force. The 2nd plaintiff is the daughter of the 1st plaintiff, aged four months at the time when the suit was filed. The 1st and the 2nd plaintiffs claimed in the suit, out of which this Second appeal has arisen, partition and separate pos. session of one half share in the properties of the deceased Pariaswami. The defendants denied the factum of the marriage of the 1st plaintiff, and asserted that, in any event if the process of a marriage ceremony had taken place, it would be void under the provisions of Sec. 5 of the Hindu Marriage Act 1955.

Both the trial court as well as the lower appellate court found that the 1st plaintiff was married to Periaswami in accordance with the rites prescribed under Hindu Law, but the marriage was void under Sec. 5(i) of the Hindu Marriage Act 1955. However, the trial court was of the opinion that even though the marriage of the 1st plaintiff might be null and void, the issue of that marriage, the 2nd plaintiff, would be legitimate, and therefore, the second plaintiff would be entitled to 1/6th shape in the properties of Periaswami. The learned Subordinate Judge of Mayuram, to whom the first and the second Defendants appealed, confirmed the finding of the trial court about the factum of the marriage having taken place. On the question of the legitimacy of the second plaintiff, the lower appellate court held that on a proper construction of the principle enunciated in Sec. 16 of the Act, the Second plain. tiff should be deemed to be a legitimate child, and there. fore the decision of the trial court was confirmed, and the appeal dismissed. The present Second appeal is filed by the 1st and the 2nd defendants.

(3) learned Counsel for the appellants drew my attention to the terms of Sec. 16 of the Act which reads:

"Where a decree of nullity is granted in respect of any marriage under section 11 or Section 12, any child begotten or conceived before the decree is made who would have been the legitimate child of, the parties to the marriage if it had been dissolved instead of having been declared null and void or annulled by a decree of nullity shall be deemed to be their legitimate child notwithstanding the decree of nullity.

Provided that nothing contained in this section shall be construed as conferring upon any child of a marriage which is declared null and void or annulled by a decree of nullity any rights in or to the property of any person other than the parents in any case where, but for the passing of this Act, such child would have been incapable of possessing or acquiring any such rights by reason of his not being the legitimate child of his parents".

Section 11 refers to void marriages, and states that any marriage solemnized after the commencement of the Act shall be null and void, and may, on a petition presented by either party thereto, be so declared by a decree of nullity, if it contravened any one of the conditions specified in cls. (i), (iv) and (v) of Sec. 5. Section 5, clause (i) states that a marriage may be solemnized between any two, Hindus, if neither party has a spouse living at the time of the marriage. Clause (iv) of Section 5 states that the parties should not be within the degrees of prohibited relationship unless custom or usage governing each of them permits of a marriage between the two. Clause (v) refers to parties not being sapindas unless there is a custom or usage governing each of them which permits of a marriage, between the sapindas. Sec. 11 has two parts, one a declaratory part which declares what are void marriages under the Act; while the 2nd part prescribes that a petition has to be filed under the provisions of the Act for getting the nullity of such marriages declared. Sec. 12 refers to voidable marriages, and gives the grounds on which a marriage-can he declared voidable, and a decree of nullity thereafter passed in regard to it.

(4) Obviously, the marriage of the 1st plaintiff, in this case, when another wife was alive came within the mischief of Sec. 5 clause (i) of the Act, and it is therefore a marriage void ipso jure, and not a voidable marriage, Section 16 of the Act provides that where a decree of nullity is granted in respect of any marriage under section 11 or Section 12 any child begotten or conceived before the decree is made....... shall be deemed to be their legitimate child notwithstanding the decree of nullity. The, question now for consideration is whether if one of the spouses is dead without a decree of nullity of marriage being obtained, and when in a subsequent dispute about succession to property, the marriage is found to be void under Sec. 11, the principle of legitimacy of the children laid down in Sec. 16 of the Act can be applied.

Now, Sec. 16 of the Hindu Marriage Act, 1955 Is an adaptation but with a variation, of Section 9 of the English Matrimonial Causes Act, 1950 which is in the following terms:

"Where a decree of nullity is granted in respect of a voidable marriage, any child....... of the parties to the marriage........ at the date of the decree shall be deemed to be their legitimate child notwithstanding the annulment."

This section 9 of the English Act purported to be a substitution for section 7(2) of the earlier English Act of 1947 which read:

"Any child born of a marriage avoided pursuant to, paragraph (h) or (c) of the last foregoing sub-section shall he legitimate child of the parties thereto notwithstanding that the marriage is so avoided."

Both the two sections of the English Act, confine the relief of legitimacy to children born of voidable marriages, and section 9 of the English Act made it a further requisite that a decree of nullity should be granted in regard to such a voidable marriage, before legitimacy can 13& statutorily conferred on the children. To complete the reference to the English enactments, on this question of legitimacy, there is also an enactment, Legitimacy Act, 1959, section 2 of which provides that the child of a void marriage, whether born before or after the commencement of the Act, shall be treated as the legitimate child of his parents If at the time of the act of intercourse resulting in the birth, both or either of the parties reasonably believed that the marriage was valid.

(5) The Indian legislature, however, seems to have decided to extend' the benefit of statutory legitimacy, to children born also of void marriages, but retained the prerequisite recognised in section 9 of the English Act, viz., the passing of a decree of nullity, before this statutory benefit can be conferred on the children. No doubt, this will lead to, a certain anomaly. It is well known that a decree for nullity of marriage is a special provision found in legislation relating to Matrimonial Causes. The Hindu Marriage Act provides for such a decree being obtained by a proceeding under the Act. Thus for a decree of nullity under section 11, A petition has to he presented by either party to the marriage before the court having jurisdiction under the Act. For obtaining a decree of nullity under section 12 of the Act, similarly a petition has to be presented by one of the spouses.

It would, therefore, follow that after the death of one of the spouses, a decree of nullity cannot be obtained. it will also, not be possible to get a decree of nullity in respect of a voidable marriage after the death of one or both the spouses because the right to avoid a marriage is given only to the parties to the marriage. On the other hand, in the case of a marriage which is ipso jure void under section 11 of the Act, in a collateral dispute relating to this succession to the property between the heirs of the parties to the marriages, an ordinary civil court other than a matrimonial court, can give a decision that the marriage was a void one but without passing a decree of nullity of the marriage. In such a case, section 16 of the Act can-not he applied; the children will not get the benefit of legitimacy, and will also lose the right to share in the property of their parents.

(6) The lower appellate court considered that the intention of the Legislature to be inferred from the words of section 16, would appear to be that any child begotten or conceived of a union between parties to even a void marriage, must be deemed to be legitimate, if the child is begotten or conceived before a decree declaring the marriage as null and void is granted. In other words, it was prepared to go beyond the plain language of section 16, and grant legitimacy to children born of a void marriage, even where a decree of nullity has not been obtained in the lifetime of the parents.

(7) A study of the sections of the English Acts which have undergone amendment from time to time, shows that where it was considered necessary to protect the interests of children by granting them legitimacy the Statute has been amended from time to time defining the limits for the purpose of the grant of such benefit. Where the statute defines the limits for that purpose in a particular way, the courts are bound to give effect to such limitation without travelling outside those limits on a presumed intention of the legislature, however great the hardship might be to the parties, it any (sic) other course is followed. it is obvious that the obtaining of a decree of nullity as a prerequisite to the grant of legitimacy to children, under section 16 of our Act is anomalous, and can work a great deal of hardship in some cases. Void Marriages Under section 5 of the Act cover polygamous marriages, marriages within prohibited degrees and sapinda marriages. many couples who have married in contravention of these provisions Would not have cared to go to the court in their life time to get their marriages annulled. The result is that their children being illegitimate will be deprived of succession to property, in a suit after the lifetime of the parents, at the instance of a third party.

But, if for any reason, the couples in their life time decide to place the interest of their children above their own, and take the trouble of going to the matrimonial court and obtain a decree of nullity in regard to their marriages, the children are benefited. As observed already. in many cases, the concerned couples would not have gone to the court in their lifetime with the result that the benefit conferred under section 16 on their children would be-come illusory if the Indian legislature had followed S. 29 of the English Act, an anomaly of the present kind would not have arisen; but the Indian legislature having decided to proceed a step beyond the English Act so as to protect the children born also of void marriages in the same way as children born of voidable marriages, it would have been worth while to have anticipated the above anomaly and provide suitable safeguards therefor. Again, if polygamy is to be considered a greater, evil than sapinda marriages or marriages within the prohibited degree, it would be worth while to make a distinction between children born of polygamous marriages on the one hand, and the children born of parents who are sapindas or who are within the prohibited degree of relationship on the other. But the precise manner in which the anomaly should be rectified will be for the legislature to consider, in response to public opinion and sentiment among the Hindus. But what has been said above is sufficient to indicate the necessity for a suitable amendment to section 16 of the Act.

(8) The learned counsel who appeared for the respondent argued that D. 1 was the person who brought about the 1st plaintiff's marriage, and this would estop her from denying the validity of the marriage. But what renders the marriage invalid is a statutory bar, and there can be no estoppel against it. In any event such an estoppel can-not operate against D. 2.

(9) In the result, the second appeal is allowed, and the decrees of both the courts are set aside and the plain. tiffs' suit is dismissed. In the circumstances, however, there will be no order as to costs either in this court or in the two courts below. Leave granted.

(10) Appeal allowed.

Illegitimate children entitled to ancestral property: Bench

Illegitimate children entitled to ancestral property: Bench

J. Venkatesan

Refers matter to CJI for posting it before larger Bench

The concept of legitimacy stems from social consensus

Bench differs with verdicts in interpreting Section 16 (3) of Hindu Marriage Act

New Delhi: The Supreme Court has held that under the Hindu Marriage Act (HMA), illegitimate children are entitled to all rights in the property of their parents, both self-acquired and ancestral.

A Bench of Justices G.S. Singhvi and A.K. Ganguly, hearing an appeal by Revanasiddappa, differed with earlier judgments in interpreting Section 16 (3) of the HMA that “such children are only entitled to the property of their parents and not of any other relation.”

Stating that it was constrained to take a different view, the Bench referred the matter to Chief Justice S.H. Kapadia for posting it before a larger Bench. The Bench said, “The relationship between the parents may not be sanctioned by law but the birth of a child in such relationship has to be viewed independently of the relationship of the parents. A child born in such relationship is innocent and is entitled to all the rights, which are given to other children born in valid marriage. This is the crux of Section 16 (3).”

Writing the judgment, Justice Ganguly said that under Section 16 (1) and 16 (2), it was expressly declared that children born in a void or voidable marriage, (viz. second marriage) should be legitimate.

“If they were declared legitimate, then they cannot be discriminated against and they will be on a par with other legitimate children and be entitled to all the rights in the property of their parents, both self-acquired and ancestral.”

The Bench said: “the prohibition contained in Section 16 (3) will apply to such children with respect to property of any person other than their parents. We find it interesting to note that the legislature has advisedly used the word ‘property' and has not qualified it with either self-acquired property or ancestral property. It has been kept broad and general.”

Underlining the need for a liberal interpretation of Section 16 (3), the Bench said: “with changing social norms of legitimacy in every society, including ours, what was illegitimate in the past may be legitimate today. The concept of legitimacy stems from social consensus, in the shaping of which various social groups play a vital role.”

Quoting an earlier judgment, the Bench said: “the HMA intends to bring about social reforms and conferment of social status of legitimacy on innocent children is the obvious purpose of Section 16. This is a law to advance the socially beneficial purpose of removing the stigma of illegitimacy on such children who are as innocent as any other children.”

“However, one thing must be made clear that the benefit given under the amended Section 16 is available only in cases where there is a marriage but such marriage is void or voidable. In the case of joint family property, such children will be entitled only to a share in their parents' property but they cannot claim it on their own right. Logically, on the partition of an ancestral property, the property falling in the share of the parents of such children is regarded as their self-acquired and absolute property.”

Right to property

The Bench quoted Article 39 (f) of the Constitution which says “that children are given opportunities and facilities to develop in a healthy manner and in conditions of freedom and dignity and that childhood and youth are protected against exploitation and against moral and material abandonment. Right to property is no longer fundamental but it is a constitutional right and Article 300A contains a guarantee against deprivation of property right by authority of law.”

Since there was no restriction imposed in Section 16 (3), such children would have a right to whatever “becomes the property of their parents whether self-acquired or ancestral,” the Bench said

Wednesday, September 28, 2011

depository and participants

There are two Depositories and approximately 390 Depository Participants (DP) are registered with SEBI at present. The two Depositories are:
National Securities Depository Limited
Central Depository Services (I) Limited
The benefits of availing Depository Services are as follows:
A safe, convenient way to hold securities;
Instant transfer of securities;
Stamp duty is not required on transfer of securities;
Elimination of risks associated with physical certificates such as bad delivery , fake securities, Delays, thefts etc.;
Reduction in paperwork involved in transfer of securities;
Reduction in the cost of transaction,
No odd lot problem, even one share can be sold;
Facility of nomination;
Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;
Transmission of securities is done by DP eliminating correspondence with companies;
Credited automatically into demat account of shares, arising out-of bonus or split or consolidation or merger etc.
Opening of an account with any of the depository Participant of any depository is required to avail the services.

Opening of an account

The investor has to approach a Depository Participant and fill up an account opening form with the support proof of identity and address.

Proof of Identity : Photograph and Signature of investor must be authenticated by investor's bank or by an existing demat account holder. Alternatively, one can submit a copy of a valid Passport, Voters Id Card, Driving License or PAN card with photograph.

Proof of Address : A copy of ration card or passport or voter ID or PAN card or driving license or bank passbook as proof of address.

The investor has to sign an agreement with DP in a depository prescribed standard format, which holds a detail of investor's and DPs rights and duties. DP provides investor with a copy of the agreement and schedule of charges for future reference. The DP opens the account for the investor in the system and give an account number, which is also called BO ID (Beneficiary owner Identification number).

Kindly note that there is no balance of securities required in the account and more than one account in the same name can be opened either with the same DP or with other irrespective of the brokers account.

FAQs on Depositories And Custodians

What is to be done if the investors address changes?
Can an investor open a single account for securities owned in different ownership patterns ?
What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with 'A' as first holder and 'B' as second holder and other set of certificates with 'B' as first holder and 'A' as the second holder?
Whether investors can freeze or lock their accounts?

What is to be done if the investors address changes?
If the Investors address changes it should be immediately informed to his/her DP, who in turn updates the records.

Can an investor open a single account for securities owned in different ownership patterns ?
No. The demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in your individual name and another certificate is jointly with some other, two different accounts would have to be opened.

What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with 'A' as first holder and 'B' as second holder and other set of certificates with 'B' as first holder and 'A' as the second holder?
In such case one may open only one account with 'A' & 'B' as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. One has to fill-up an additional form called "Transposition cum Demat" form. This would help you to effect change in the order of names as well as dematerialise the securities.

Whether investors can freeze or lock their accounts?
Yes, investors can freeze or lock their accounts for any given period of time. Accounts can be frozen for debits/credits or for both.

DEPOSITORIES AND PARTICIPANTS) (SECOND AMENDMENT) REGULATIONS, 2003

SECURITIES AND EXCHANGE BOARD OF INDIA

NOTIFICATION

Mumbai, the 2nd September, 2003

SECURITIES AND EXCHANGE BOARD OF INDIA

(DEPOSITORIES AND PARTICIPANTS) (SECOND AMENDMENT) REGULATIONS, 2003

S.O. No. 1006(E).--- In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to amend the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, namely:-
These regulations may be called the Securities and Exchange Board of India (Depositories and Participants) (Second Amendment) Regulations, 2003.
They shall come into force on the date of their publication in the Official Gazette.
In Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 (hereinafter referred to as the ‘regulations’), -

(a) After regulation 53, the following new regulations shall be inserted, namely -

“53A. Manner of handling share registry work - All matters relating to transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the depositories shall be handled and maintained at a single point i.e. either in-house by the issuer or by a Share Transfer Agent registered with the Board.

53B. Redressal of investor grievances - Every issuer or its agent or any person who is registered as an intermediary under this Act, shall redress the grievances 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 grievances redressed by it and the number of grievances pending before it.”

(b) In regulation 54, sub-regulation (4) shall be substituted by the following sub-regulation, namely-

“54(4). The participant shall, within seven days of the receipt of certificate of security referred to in sub-regulation (1) furnish to the issuer details specified in sub-regulation (2) alongwith the certificate of security.”

(c) In regulation 54, sub-regulation (5) shall be substituted by the following sub-regulation, namely-

“54 (5). Within 15 days of receipt of the certificate of security from the participant the issuer shall confirm to the depository that securities comprised in the said certificate have been listed on the stock exchange or exchanges where the earlier issued securities are listed and shall also after due verification immediately mutilate and cancel the certificate of security and substitute in its record the name of the depository as the registered owner and shall send a certificate to this effect to the depository and to every stock exchange where the security is listed.

Provided that in case of unlisted companies the condition of listing on all the stock exchanges where earlier issued shares are listed, shall not be applicable.”

(d) After regulation 55, the following new regulation shall be inserted, namely -

“55A. Audit - (1) Every issuer shall submit audit report on a quarterly basis, starting from September 30, 2003, to the concerned stock exchanges audited by a qualified Chartered Accountant or a practicing Company Secretary, for the purposes of reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form, the details of changes in share capital during the quarter and the in-principle approval obtained by the issuer from all the stock exchanges where it is listed in respect of such further issued capital.

(2) The audit report under sub-regulation (1) shall also give the updated status of the register of members of the issuer and confirm that securities have been dematerialized as per requests within 21 days from the date of receipt of requests by the issuer and where the dematerialization has not been effected within the said stipulated period, the report shall disclose the reasons for such delay.

(3) The issuer shall immediately bring to the notice of the depositories and the stock exchanges, any difference observed in its issued, listed, and the capital held by depositories in dematerialised form.”

[F. No. SEBI/LE/16451/2003]

G.N. BAJPAI

CHAIRMAN

SECURITIES AND EXCHANGE BOARD OF INDIA

________________________________________________________________

Foot note:

1. Securities and Exchange Board of India (Depositories and Participants Regulations, 1996, the principal regulations was published in the Gazette of India on May 16, 1996, vide No. S.O. 345(E).

2. SEBI (Depositories and Participants) Regulations, 1996 was subsequently amended –

(a) On February 7, 1997 by SEBI (Depositories and Participants) (Amendment) Regulations, 1997 vide No. S.O. 91(E).

(b) On September 5, 1997 by SEBI (Depositories and Participants) (Second Amendment) Regulations, 1997 vide No. S.O. 640 (E).

(c) On January 5, 1998 by SEBI (Depositories and Participants) (Amendment) Regulations, 1998 vide No. S.O. 18(E).

(d) On January 21, 1998 by SEBI (Depositories and Participants) (Second Amendment) Regulations 1998 vide No. S.O. 76 (E).

(e) On May 20, 1999 by SEBI (Depositories and Participants) (Amendment) Regulations, 1999 vide S.O. 357 (E).

(f) On July 7, 1999 by SEBI (Depositories and Participants) (Second Amendment) Regulations, 1999 vide No. S.O. 546 (E).

(g) On September 21, 1999 by SEBI (Depositories and Participants) (Third Amendment) Regulations, 1999 vide No. S.O. 775 (E).

(h) On December 26, 2000 by SEBI (Depositories and Participants) (Amendment) Regulations, 2000 vide No. S.O. 1160 (E).

(i) On May 29, 2001 by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2001, vide No. S.O. 476(E).

(j) On June 16, 2003 by SEBI (Depositories and Participants) (Amendment) Regulations, 2003, Vide S. O. 696(E).

DEMATERIALISATION

FREQUENTLY ASKED QUESTIONS

ON

DEMATERIALISATION

Disclaimer: These FAQs are not the interpretation of law but provide only a simplistic explanation of terms / concepts related to the depository system. All information has been updated till September 30, 2008. For full particulars of laws governing the depository system, please refer to the Acts/Regulations/Guidelines/Circulars appearing under the Legal Framework Section.

Understanding Depository System

1. What is a Depository?

A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.

2. How is a depository similar to a bank?

It can be compared with a bank, which holds the funds for depositors. A Bank – Depository analogy is given in the following table:

BANK-DEPOSITORY – AN ANALOGY
BANK
DEPOSITORY

Holds funds in an account
Holds securities in an account

Transfers funds between accounts on the instruction of the account holder
Transfers securities between accounts on the instruction of the BO account holder

Facilitates transfer without having to handle money
Facilitates transfer of ownership without having to handle securities

Facilitates safekeeping of money
Facilitates safekeeping of securities

3. How many Depositories are registered with SEBI?

At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.

4. Who is a Depository Participant?

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and provides depository services. Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services can be availed through a branch whereas depository services can be availed through a DP.

5. What is the minimum networth required for a depository?

The minimum networth stipulated by SEBI for a depository is Rs.100 crore.

6. How many Depository Participants are registered with SEBI?

As on September 30, 2008, a total of 711 DPs (266 NSDL, 445 CDSL) are registered with SEBI.

7. Is it compulsory for every investor to open a beneficial owner (BO) account to trade in the capital market?

As per the available statistics at BSE and NSE, 99.9% transactions take place in dematerialised mode only. Therefore, in view of the convenience of trading in dematerialised mode, it is advisable to have a beneficial owner (BO) account for trading at the exchanges.

However to facilitate trading by small investors (Maximum 500 shares, irrespective of their value) in physical mode the stock exchanges provide an additional trading window, which gives one time facility for small investors to sell physical shares which are in compulsory demat list. The buyer of these shares has to demat such shares before further selling.

8. What are the benefits of availing depository services?

The benefits are enumerated below:-

 A safe and convenient way to hold securities;

 Immediate transfer of securities;

 No stamp duty on transfer of securities;

 Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.

 Reduction in paperwork involved in transfer of securities;

 Reduction in transaction cost;

 No odd lot problem, even one share can be traded;

 Nomination facility;

 Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately;

 Transmission of securities is done by DP eliminating correspondence with companies;

 Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc.

 Holding investments in equity and debt instruments in a single account.

Account Opening

9. How can services of a depository be availed?

To avail the services of a depository an investor is required to open a Beneficial Owner (BO) account with a Depository Participant (DP) of any depository.

10. How can one open an account?

First an investor has to approach a DP and fill up an account opening form. The account opening form must be supported by copies of any one of the approved documents which serve as proof of identity (POI) and proof of address (POA) as specified by SEBI. Apart from these PAN card has to be shown in original at the time of account opening from April 01, 2006.

All applicants should carry original documents for verification by an authorized official of the DP, under his signature.

Investor has to sign an agreement with DP in a depository prescribed standard format, which gives details of rights and duties of investor and DP. DP should provide the investor with a copy of the agreement and schedule of charges for their future reference. The DP will open the account in the system and give a unique account number, which is also called BO ID (Beneficial Owner Identification number) and used for all future transactions.

11. What are all charges an investor has to pay for opening and maintenance of a BO account?

SEBI has rationalised the cost structure for dematerialisation by removing account opening charges, transaction charges (for credit or buy transactions of securities), custody charges and account closing charges. Custody charges are now paid by the issuer companies. Broadly, investors are required to pay the charges towards:-

Dematerialisation and Rematerialisation of their securities
Annual account maintenance charges
Transactions fees (only for sell transactions)

The DP may revise the charges by giving 30 days notice in advance.

Further, SEBI has also advised the DPs to submit to their Depository their tariff/charge structure every year latest by 30th April and changes made therein, along with the date of effect to enable the investors to have a comparative analysis of the tariff/charge structure of various DP’s. The information received by the depositories is put up on their websites.

12. Why should an investor give his bank account details at the time of BO account opening?

Bank account details are necessary for the protection of interest of investors. When any cash or non cash corporate benefits such as rights or bonus or dividend is announced for a particular scrip, depositories provide to the concerned issuer /it’s RTA, the details of the investors, their electronic holdings as on record / book closure date for reckoning the entitlement of corporate benefit.

The disbursement of cash benefits such as dividend is credited directly by the Issuer/it’s RTA to the beneficiary owner through the ECS (Electronic Clearing Service wherever available) facility or by issuing warrants on which bank account details are printed for places where ECS facility is not available. The bank account number is mentioned on the dividend and warrant to avoid any fraudulent misuse. The bank account details will be those which are mentioned in account opening form or modified details that had been intimated subsequently by the investor to the DP.

13. Can an investor change the details of his bank account?

Yes. However, the investor must inform the DP regarding change in the bank account and corresponding change in MICR / IFSC code while updating their bank account details with DP. In the depository system monetary benefits on the security balances are paid as per the bank account details provided by the investor at the time of account opening. The investor must ensure that any subsequent changes in bank account details are informed to the DP.

15.14. What should be done if the address of the investor changes?

Investor should immediately inform his DP along with necessary documents, who in turn will update the records. This will obviate the need of informing different companies.

14.15. What would be the charges for account closure and securities transfer due to account closing?

SEBI has advised that from January 09, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a BO, when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account/s at transferee DP and at transferor DP are identical in all respects. In case the BO Account at transferor DP is a joint account, the BO account at transferee DP should also be a joint account in the same sequence of ownership.

All other transfer of securities consequent to closure of account, not fulfilling the above-stated criteria, would be treated like any other transaction and charged as per the schedule of charges agreed upon between the BO and the DP.

16. Can multiple accounts be opened?

Yes. An investor can open more than one account in the same name with the same DP and also with different DPs. For all the accounts, investor has to strictly comply with KYC norms including Proof of Identity, Proof of Address requirements as stipulated by SEBI and also provide PAN number. The investor has to show the original PAN card at the time of opening of demat account.

17. Does the investor have to keep any minimum balance of securities in his account?

No.

18. Is it necessary to have account with the same DP as broker has?

No. Depository / DP can be chosen by investor as per convenience irrespective of the DP of the broker.

19. Can an investor open a single account for securities owned in different ownership patterns such as securities owned individually and securities owned jointly with others?

No. The Demat account must be opened in the same ownership pattern in which the securities are held in the physical form. e. g. if one share certificate is in the individual name and another certificate is jointly with somebody, two different accounts would have to be opened.

20. What is required to be done if one has physical certificates with the same combination of names, but the sequence of names is different i.e. some certificates with ‘A’ as first holder and ‘B’ as second holder and other set of certificates with ‘B’ as first holder and ‘A’ as the second holder?

In this case the investor may open only one account with ‘A’ & ‘B’ as the account holders and lodge the security certificates with different order of names for dematerialisation in the same account. An additional form called "Transposition cum Demat" form will have to be filled in. This would help you to effect change in the order of names as well as dematerialise the securities.

21. Can an investor operate a joint account on "either or survivor" basis just like a bank account?

No. The demat account cannot be operated on "either or survivor" basis like the bank account.

22. Can someone else operate the account on behalf of the BO on the basis of a power of attorney?

Yes. If the BO authorises any person to operate the account by executing a power of attorney and submit it to the DP, that person can operate the account on behalf of the BO.

23. Can addition or deletion of names of accountholders is permitted after opening the account?

No. The names of the account holders of a BO account cannot be changed. If any change has to be effected by addition or deletion, a new account has to be opened in the desired holding pattern (names) and then transfer the securities to the newly opened account. The old account may be closed.

24. Can an investor close his demat account with one DP and transfer all securities to another account with another DP?

Yes. The investor can submit account closure request to his DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the demat account.

25. What if there are any discrepancies in the statement of holdings?

In case of any discrepancy in the statement of holdings, investor can contact his DP and in case of discrepancies in corporate benefits, one can approach the company / its Registrar and Transfer Agent. If the discrepancy is not resolved, the investor may approach concerned Depository (NSDL or CDSL).

26. Whether investor can freeze his account(s)?

Investor can freeze his account and/or ISIN and/or specific number of securities under an ISIN for any given period of time as per applicable Regulations of SEBI and Bye Laws of the respective depository.

Dematerialisation

27. What is dematerialisation?

Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the BO’s account with his DP.

28. How can one convert physical holding into electronic holding i.e. how can one dematerialise securities?

In order to dematerialise physical securities one has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical certificates that are to be dematerialised. Separate DRF has to be filled for each ISIN. The complete process of dematerialisation is outlined below:

· Surrender certificates for dematerialisation to your DP.

· DP intimates to the Depository regarding the request through the system.

· DP submits the certificates to the registrar of the Issuer Company.

· Registrar confirms the dematerialisation request from depository.

· After dematerialising the certificates, Registrar updates accounts and informs depository regarding completion of dematerialisation.

· Depository updates its accounts and informs the DP.

· DP updates the demat account of the investor.

29. What is an ISIN?

ISIN (International Securities Identification Number) is a unique 12 digit alpha-numeric identification number allotted for a security (E.g.- INE383C01018). Equity-fully paid up, equity-partly paid up, equity with differential voting /dividend rights issued by the same issuer will have different ISINs.

30. Can odd lot shares be dematerialised?

Yes, odd lot share certificates can also be dematerialised.

31. Do dematerialised shares have distinctive numbers?

Dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable.

32. Can electronic holdings be converted back into physical certificates?

Yes. The process is called rematerialisation. If one wishes to get back his securities in the physical form he has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account. The process of rematerialisation is outlined below:

• Make a request for rematerialisation.

• Depository participant intimates depository regarding the request through the system.

• Depository confirms rematerialisation request to the registrar.

• Registrar updates accounts and prints certificates.

• Depository updates accounts and downloads details to depository participant.

• Registrar dispatches certificates to investor.

Trading / Settlement

33. What is the procedure for selling dematerialised securities?

The procedure for buying and selling dematerialised securities is similar to the procedure for buying and selling physical securities. The difference lies in the process of delivery (in case of sale) and receipt (in case of purchase) of securities.

In case of purchase:-

 The broker will receive the securities in his account on the payout day.

 The broker will give instruction to its DP to debit his account and credit BO's account.

 BO will give ‘Receipt Instruction’ to DP for receiving credit by filling appropriate form. However BO can give standing instruction for credit to his account that will obviate the need of giving Receipt Instruction every time.

In case of sale:-

BO will give delivery instruction through Delivery Instruction Slip (DIS) to DP to debit his account and credit the broker’s account. Such instruction should reach the DP’s office at least 24 hours before the pay-in, failing which, DP will accept the instruction only at the BO’s risk.

34. What 'Standing Instruction' is given in the account opening form?

In a bank account, credit to the account is given only when a 'pay in' slip is submitted together with cash/cheque. Similarly, in a depository account 'Receipt in' form has to be submitted to receive securities in the account. However, for the convenience of BOs, facility of 'standing instruction' is given. If you say 'Yes' for standing instruction, you need not submit 'Receipt in' slip everytime you buy securities. If you are particular that securities can be credited to your account only with your consent, then do not say 'yes' [or tick ] to standing instruction in the application form.

35. What is delivery instruction slip (DIS)? What precautions do one need to observe with respect to Delivery Instruction Slips?

To give the delivery one has to fill a form called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS:-

 Ensure and insist with DP to issue DIS book.

 Ensure that DIS numbers are pre-printed and DP takes acknowledgment for the DIS booklet issued to investor.

 Ensure that your account number [client id] is pre-stamped.

 If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed.

 Avoid using loose slips.

 Do not leave signed blank DIS with anyone viz., broker/sub-broker, DPs or any other person/entity.

 Keep the DIS book under lock and key when not in use.

 If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one.

 BO should personally fill in target account-id and all details in the DIS.

 If the DIS booklet is lost / stolen / not traceable, the same must be intimated to the DP immediately in writing. On receipt of such intimation, the DP will cancel the unused DIS of the said booklet.

36. Is it possible to give delivery instructions to the DP over Internet and if yes, how?

Yes. Both NSDL and CDSL have launched this facility for delivering instructions to your DP over Internet, called SPEED-e and EASI respectively. The facility can be used by all registered BOs after paying the applicable charges.

37. Is it possible to get securities allotted in public offering directly in the electronic form?

Yes, it is possible to get securities allotted to in Public Offerings directly in the electronic form. In the public issue application form, there is a provision to indicate the manner in which an investor wants the securities to be allotted. He has to mention the BO ID, name and DP ID on the application form. Any allotment made will be credited into the BO account.

Pledging

38. Can one pledge the dematerialised securities?

Yes. Pledging dematerialised securities is easier and more advantageous as compared to pledging physical securities.

39. What should one do to pledge electronic securities?

The procedure to pledge electronic securities is as follows:

ú Both BOs, investor (pledgor) and the lender (pledgee) must have BO account with the same depository;

ú Pledgor will have to instruct DP to create pledge in prescribed standard form (Pledge Request Form) with the details of the securities;

ú The lender (pledgee) has to confirm the request through his/her DP;

ú Once this is done, securities are pledged.

ú All financial transactions between the pledgor and the pledgee are handled as per usual practice outside the depository system.

40. What is the procedure for closure of pledge after repayment of loan?

After the repayment of loan, pledgor can request for a closure of pledge by instructing the DP in a prescribed format. The pledgee on receiving the repayment will instruct his DP accordingly for the closure of the pledge.

41. Can pledgor (investor) change the securities offered in a pledge?

Yes, if the pledge (lender) agrees, pledgor (investor) may change the securities offered in a pledge.

42. Who will receive the corporate benefits on the pledged securities?

The securities pledged are only blocked in the account of pledgor (investor) in favour of the pledge (lender). The pledgor would continue to receive all the corporate benefits.

Transaction Statement

43. How does one know that the DP has updated the account after each transaction?

The DP provides a Transaction Statement periodically, which gives details of current balances and various transactions made through the depository account. If desired, DP may provide the Transaction Statement at intervals shorter than the stipulated ones, probably at a cost.

Depositories also provide SMS Alert facility for demat account holders whereby investors can receive alerts for debits (transfers) to their demat accounts and for credits in respect of corporate actions for IPO and offer for sale. Under this facility, investors can receive alerts, a day after such debits (transfers)/credits take place. These alerts are sent to those account holders who have provided their mobile numbers to their Depository Participants (DPs).

44. At what frequency will the investor receive his Transaction Statement from his DP?

DPs have to provide transaction statements to their clients once in a month, if there is any transaction and if there is no transaction, then once in a quarter.

DPs also provide transaction statement in electronic form under digital signature subject to their entering into a legally enforceable arrangement with the BOs to this effect.

45. What is to be done if there are any discrepancies in transaction statement?

In case of any discrepancy in the transaction statement, BO can contact his DP. If the discrepancy cannot be resolved at the DP level, BO should approach the Depository.

46. Whom should BO contact in case of any investor complaint / problem / query?

In case of any investor complaint / problem / query one may first contact his DP. If DP is unable to solve the complaint / problem / query one should approach concerned depository. If one is not satisfied one may approach SEBI. One may also approach SEBI directly.

Nomination

47. Who can nominate?

Nomination can be made only by individuals holding beneficial accounts either singly or jointly. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate.

48. Who can be a nominee?

Only an individual can be a nominee. A nominee shall not be a society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder.

49. Why is it important to nominate?

Nomination is helpful in smooth transmission of shares upon the death of the BO/s. The nomination once made can be changed at a later date as desired by the BO/s.

Transmission of dematerialised securities

50. What is transmission of dematerialised securities?

Transmission is the process by which securities of a deceased account holder are transferred to the account of his legal heirs / nominee. Process of transmission in case of dematerialised holdings is more convenient as the transmission formalities for all securities held in a demat account can be completed by submitting documents to the DP, whereas in case of physical securities the legal heirs/nominee/surviving joint holder has to independently correspond with each company in which securities are held.

51. In the event of death of the sole holder, how the successors should claim the securities lying in the demat account?

The claimant should submit to the concerned DP an application Transmission Request Form (TRF) along with the following supporting documents

1. In case of death of sole holder; where the sole holder has appointed a nominee

· Notarised copy of the death certificate

2. In case of death of the sole holder; where the sole holder has not appointed a nominee

· Notarised copy of the death certificate

And anyone of the below mentioned documents -

· Succession certificate

· Copy of probated will

· Letter of Administration

The DP, after ensuring that the application is genuine, will transfer securities to the account of the claimant.

The major advantage in case of dematerialised holdings is that the transmission formalities for all securities held with a DP can be completed by interaction with the DP alone, unlike in the case of physical share certificates, where the claimant will have to interact with each Issuing company or its Registrar separately.

Inter Depository Transfers

52. If a BO holds an account with NSDL/CDSL, can he receive securities from an account in CDSL/NSDL?

Yes. Inter depository transfers are possible without any additional costs.

DEMATERIALISATION

PORTFOLIO MANAGERS

SECURITIES AND EXCHANGE BOARD OF INDIA

SEBI INVESTOR EDUCATION PROGRAMME

(PORTFOLIO MANAGERS)

1. Who is a Portfolio Manager?

A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise), the management or administration of a portfolio of securities or the funds of the client.

2. What is the difference between a discretionary portfolio manager and a non- discretionary portfolio manager?

The discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client.

The non-discretionary portfolio manager manages the funds in accordance with the directions of the client.

3. What is the procedure of obtaining registration as a portfolio manager from SEBI?

For registration as a portfolio manager, an applicant is required to pay a non-refundable application fee of Rs.1,00,000/- by way of demand draft drawn in favour of ‘Securities and Exchange Board of India’, payable at Mumbai.

The application in Form A along with additional information (Form A and additional information available on SEBI Website : www.sebi.gov.in.) submitted to the at the below mentioned address

Investment Management Department - Division of Funds- 1

Securities and Exchange Board of India

SEBI Bhavan, 3rd Floor A Wing,

Plot No. C4-A, ‘G’ Block,

Bandra-Kurla Complex,

Bandra (E), Mumbai - 400 051.

4. What is the capital adequacy requirement of a portfolio manager?

The portfolio manager is required to have a minimum networth of Rs. 2 crore.

5. Is there any registration fee to be paid by the portfolio managers?

Yes. Every portfolio manager is required to pay Rs. 10 lakhs as registration fees at the time of grant of certificate of registration by SEBI.

6. How long does the certificate of registration remain valid?

The certificate of registration remains valid for three years. The portfolio manager has to apply for renewal of its registration certificate to SEBI, 3 months before the expiry of the validity of the certificate, if it wishes to continue as a registered portfolio manager.

7. How much is the renewal fee to be paid by the portfolio manager?

The portfolio manager is required to pay Rs. 5 lakh as renewal fees to SEBI.

8. Is there any contract between the portfolio manager and its client?

Yes. The portfolio manager, before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enters into an agreement in writing with the client, clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities, containing the details as specified in Schedule IV of the SEBI (Portfolio Managers) Regulations, 1993.

9. What fees can a portfolio manager charge from its clients for the services rendered by him?

SEBI Portfolio Manager Regulations have not prescribed any scale of fee to be charged by the portfolio manager to its clients.

However, the regulations provide that the portfolio manager shall charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount or a return based fee or a combination of both. The portfolio manager shall take specific prior permission from the client for charging such fees for each activity for which service is rendered by the portfolio manager directly or indirectly (where such service is outsourced).

10. Is there any specified value of funds or securities below which a portfolio manager can’t accept from the client while opening the account for the purpose of rendering portfolio management service to the client?

The portfolio manager is required to accept minimum Rs. 5 lakhs or securities having a minimum worth of Rs. 5 lakhs from the client while opening the account for the purpose of rendering portfolio management service to the client.

Portfolio manager can only invest and not borrow on behalf of his clients.

11. Are investors required to open demat accounts for PMS services?

Yes. For investment in listed securities, an investor is required to open a demat account in his/her own name.

12. What kind of reports can the client expect from the portfolio manager?

The portfolio manager shall furnish periodically a report to the client, as agreed in the contract, but not exceeding a period of six months and as and when required by the client and such report shall contain the following details, namely:-

(a) the composition and the value of the portfolio, description of security, number of securities, value of each security held in the portfolio, cash balance and aggregate value of the portfolio as on the date of report;

(b) transactions undertaken during the period of report including date of transaction and details of purchases and sales;

(c) beneficial interest received during that period in respect of interest, dividend, bonus shares, rights shares and debentures;

(d) expenses incurred in managing the portfolio of the client;

(e) details of risk foreseen by the portfolio manager and the risk relating to the securities recommended by the portfolio manager for investment or disinvestment.

This report may also be available on the website with restricted access to each client. The portfolio manager shall, in terms of the agreement with the client, also furnish to the client documents and information relating only to the management of a portfolio. The client has right to obtain details of his portfolio from the portfolio managers.

13. What is the disclosure mechanism of the portfolio managers to their clients?

The portfolio manager provides to the client the Disclosure Document at least two days prior to entering into an agreement with the client.

The Disclosure Document contains the quantum and manner of payment of fees payable by the client for each activity, portfolio risks, complete disclosures in respect of transactions with related parties, the performance of the portfolio manager and the audited financial statements of the portfolio manager for the immediately preceding three years.

Please note that the disclosure document is neither approved nor disapproved by SEBI nor does SEBI certify the accuracy or adequacy of the contents of the Documents.

14. Does SEBI approve any of the services offered by portfolio managers?

No. SEBI does not approve any of the services offered by the Portfolio Manager. An investor has to invest in the services based on the terms and conditions laid out in the disclosure document and the agreement between the portfolio manager and the investor.

15. Does SEBI approve the disclosure document of the portfolio manager?

The Disclosure Document is neither approved nor disapproved by SEBI. SEBI does not certify the accuracy or adequacy of the contents of the Disclosure Document.

16. What are the rules governing services of a Portfolio Manager?

The services of a Portfolio Manager are governed by the agreement between the portfolio manager and the investor. The agreement should cover the minimum details as specified in the SEBI Portfolio Manager Regulations. However, additional requirements can be specified by the Portfolio Manager in the agreement with the client. Hence, an investor is advised to read the agreement carefully before signing it.

17. Is premature withdrawal of Funds/securities by an investor allowed?

The funds or securities can be withdrawn or taken back by the client before the maturity of the contract. However, the terms of the premature withdrawal would be as per the agreement between the client and the portfolio manager.

18. Can a Portfolio Manager impose a lock-in on the investor?

Portfolio managers cannot impose a lock-in on the investment of their clients. However, a portfolio manager can charge exit fees from the client for early exit, as laid down in the agreement.

19. Can a Portfolio Manager offer indicative or guaranteed returns?

Portfolio manager cannot offer/ promise indicative or guaranteed returns to clients.

20. On what basis is the performance of the portfolio manager calculated?

The performance of a discretionary portfolio manager is calculated using weighted average method taking each individual category of investments for the immediately preceding three years and in such cases performance indicator is also disclosed.

21. Where can an investor look out for information on portfolio managers?

Investors can log on to the website of SEBI www.sebi.gov.in for information on SEBI regulations and circulars pertaining to portfolio managers. Addresses of the registered portfolio managers are also available on the website.

22. How can the investors redress their complaints?

Investors would find in the Disclosure Document the name, address and telephone number of the investor relation officer of the portfolio manager who attends to the investor queries and complaints. The grievance redressal and dispute mechanism is also mentioned in the Disclosure Document. Investors can approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned portfolio manager and follows up with them.

Investors may send their complaints to:

Office of Investor Assistance and Education,

Securities and Exchange Board of India,

SEBI Bhavan

Plot No. C4-A, ‘G’ Block,

Bandra-Kurla Complex, Bandra (E),

Mumbai - 400 051

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Wednesday, September 28, 2011

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DEPOSITORIES AND PARTICIPANTS) (SECOND AMENDMENT) REGULATIONS, 2003

DEMATERIALISATION

DEMATERIALISATION

PORTFOLIO MANAGERS

PORTFOLIO MANAGERS

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