The National Securities Depository Limited (NSDL) has settled a case involving several procedural and systemic lapses with the Securities and Exchange Board of India (Sebi) for ₹15.58 crore.
In an order released on Wednesday, the market regulator closed the case, in which the depository was accused of violating the Sebi Act, 1992 and the Depositaries Act, 1996 through delays in account freezing, defects in outsourcing agreements, lapses in basic services demat account (BSDA) compliance, and weaknesses in systems governing client securities.
Delays and lapses
Sebi alleged that NSDL had repeatedly delayed freezing and unfreezing promoter and client accounts after instructions from the stock exchanges or the regulator. In some instances, it said, NSDL froze accounts after unfreezing instructions had already been issued, while in others it took up to 77 days to implement Sebi’s directions. The regulator said these lapses bypassed safeguards designed to restrict trading by non-compliant promoters and protect the interests of investors.
Sebi’s inspection also found shortcomings in NSDL’s outsourcing arrangements, including backdated contracts with vendors and delays in formalizing agreements for core technology services. In one case, an outsourcing contract was signed a year after the relevant period had ended, raising concerns around oversight of critical IT functions at one of India’s key market utilities.
Sebi found NSDL had failed to ensure that depository participants effectively converted eligible demat accounts into BSDAs or obtained opt-out confirmations from beneficial owners. The inspection also pointed to systemic gaps in handling client unpaid securities accounts (CUSAs), in which securities were released or disposed of beyond timelines prescribed by Sebi, violating rules meant to prevent brokers from misusing client securities.
Right to reopen
Sebi’s internal committee (IC) examined the matter over several meetings between January and May, and recommended an indicative settlement amount of ₹15.58 crore and details of the action taken against “officers-in-default”. The proposal was subsequently cleared by Sebi’s high-powered advisory committee and approved by a panel of whole-time members.
NSDL informed Sebi in November that it had paid the settlement amount. The regulator, however, retained the right to reopen the case if it subsequently found incomplete disclosures or breaches of settlement terms.
