Section 12: Pledge of book‑entry securities

12. Pledge of book‑entry securities.— (1) Book‑entry securities shall be pledged only in favour of an eligible pledgee to secure the payment of a debt or liability or performance of any obligation by any account‑holder directly or by any sub‑account holder through instructions given to a participant when the book­entry securities are blocked in the manner set out in sub­section (2). (2) The book‑entry securities to be pledged shall be blocked when an account‑holder or a participant gives instructions to the central depository system in a manner that the pledgor or the relevant participant when the pledgor is sub­holder ceases to handle the pledged book‑entry securities and notice of the blocking is available through the central depository system to the eligible pledgee. (3) A pledge of the pledged book‑entry securities shall, in addition to the powers available to him under the Contract Act, 1872, (IX of 1872), have the following powers:— (a) a power, upon the default of the pledgor, to transfer the pledged book‑entry securities or any part thereof; and (b) any other power which may be granted to him in writing by the pledgor in relation to the pledged book‑entry securities provided that the central depository shall not be concerned with or affected by the exercise of any such power. (4) The central depository system shall only allow the pledgee to remove the block from the pledged book­entry securities in such manner that they are available to the pledgor for the purpose of handling them. (5) The central depository system shall not allow the pledgor to handle the pledged book­entry securities save upon the removal by the pledgee of the block from such pledged book­entry securities. (6) A participant shall not create a pledge over any book­entry securities entered in any sub­ accounts maintained under his account with the central depository without the authorisation of the sub­account holder concerned. (7) No pledge of any book­entry securities may be made except as provided in this section. (8) Except as otherwise provided in this section, the provisions of the Contract Act, 1872, shall be applicable to pledging of book­entry securities. Explanation.—For the purpose of this section, the account­holder or sub­account holder, as the case may be, pledging any book­entry securities shall be called the “pledgor”, the eligible pledgee in whose favour a pledge of book­entry securities is made shall be called the “pledgee” and the book­ entry securities when blocked be called the “pledged book­entry securities”.

Effective date: 1997-01-01

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