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          " Query No.1 :
What was the  manner  in  which  the transactions relating to transfer of shares relating to HFCL and Infosys, belonging to complainant and pledged with the Federal Bank got transferred showing the balance in the D-Mat account of the complainant as Zero (Page 21)?.
          Comments :
Section 12 of the Depositories Act, 1996 and Reg. 58 of SEBI (Depositories and Participants) Regulations, 1996 (hereinafter referred to as 'SEBI Regulations) deal with recording of Pledge, etc., in respect of securities which are held in depository in demat/electronic form.  Further, the bye-laws and business rules of Depositors also deal with the same. As per Reg. 58(8) of the SEBI Regulations, the Pledgee may invoke the pledge subject to the provisions of the pledge document. Thus, the invocation of the pledge would have to be in terms of the pledge document and the Contract Act.  The Depository merely registers the pledgee as Beneficiary Owner (BO) after the invocation. In the given statement (i.e., page No.21), it appears that pledgee has invoked the pledge and Depository would have transferred the shares from pledger's account to pledgee's account. Further, it is also to be noted that obligation is cast on the depository participant (DP)  by regulation 58(9) to inform the pledger about the invocation. Further, DP has the obligation to send the transaction statements to the BOs every month (before the year 2003, it was fortnightly requirement), in case of any transactions in respect of securities.  In case there are no transactions, DP has to send a quarterly statement to the BO.
          The complainant has stated that he became aware of the invocation of the pledge only on receipt of the de-mat statement dated 25.06.2001 from his DP.  This seems to be unlikely in the normal course since the DP is specifically required to inform the pledger-complainant about invocation of the pledge and since the DP was also required to send many periodical statements between 21.09.2000 to 25.06.2001, to Sh. Rakesh Mohan Sharma, the complainant as specified above.
          Query No.4:
          If in the statement (Page 21), the balance is shown as Zero, then what does the word transfer mean: does it mean 'sale' or mere 'transfer' in favour of the Bank, as alleged in the case. If they were not sold and only transfer in favour of the Opposite party, Federal Bank, then, what are the guidelines of SEBI with regard to the wording to be used in such cases?.   Whether it will be deemed to be the 'sale' or 'transfer'.
          Comments :
          In the Depositor's books, Pledgee becomes the BO after the invocation of Pledge.  It is opined that for all practical purposes, pledgee gets title to the shares in question (subject to the terms of the pledge agreement)/ provisions of Contract Act.

25.    Moreover, clause 8 of the regulation 58 of SEBI (Depository & Participants) Regulations, 1996 reads, as follows :-

"Subject to the provisions of the pledged document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly".
 

26.    Vide these provisions  of  law, read in conjunction with clause 18, quoted  above, the Bank was fully empowered to invoke the shares as per the SEBI Regulations. Again, the Bank, on its own, exercised the right of invocation vide invocation slip No.5910 dated 20.09.2000 and  transferred  all  the pledged shares  in its own name. Thus, it  had  become  the  beneficial owner of  the invoked shares and was  entitled  to be registered  as  such, qua,  the such security, by the Depository, by virtue of Regulation 58(8) of SEBI Regulations as well as the Agreement.