Write notes on the following: (i) Hypothecation of dematerialised shares

A beneficial owner may, with the prior approval of the depository, pledge or hypothecate his shares held in a depository. Upon receipt of intimation from the beneficial owner about the hypothecation of his shares, the depository shall accordingly make entries in its records. Such an entry in the records of a depository shall be evidence of hypothecation (Section 12) of Depositories Act, 1996. Both the pledger and the pledgee must have a depository account. The procedure for pledge or hypothecations of shares held in demat form is as under: Investor shall submit the details of shares to be pledged to the DP in the prescribed form. DP shall verify the records and on being satisfied that the shares are available for pledge, make a note in the records and forward the application to the Depository for approval. Depository shall obtain confirmation from the pledge and the records the pledge within 15 days of application. Depository shall send information to the DP of both pledger and pledgee who will inform the pledger and pledge respectively. The pledge may invoke the pledge in accordance with the terms of pledge and on such invocation the name of pledge is entered in the Register of Beneficial Owners by the Depository. During the pledge is in force, the DP shall not give effect to transfer of any security without the concurrence of the pledge. On closure of the loan, the pledger shall request the DP to close the pledge. The pledge, on getting payment, shall make a request for closure of pledge to his DP. For making hypothecation of shares held in demat form the above procedure is to be followed. However, before registering the hypothecate as a beneficial owner, the Depository should obtain the consent from the hypothecator.