Laws - The NSDL Byelaws

NSDL -BYELAWS -2000 CH-10

10. RECONCILIATION, ACCOUNTS AND AUDIT

10.1. RECONCILIATION

10.1.1. The Participant shall intimate the Depository, all security balances held by the Participant with the Depository on a daily basis at the end of the day and the said balances will be reconciled with its balance held by the Depository.

10.1.2. *The Depository shall intimate the Issuer or its Registrar & Transfer Agent, all security balances of the Issuer held in dematerialised form with the Depository at the end of the day and the said balances will be reconciled by the Issuer or its Registrar & Transfer Agent. Provided however that, this clause shall not apply where the Issuer is a State or the Central Government and reconciliation shall be carried out as provided in clause 8.5.3 of the Bye Laws. *(Amended w.e.f. October 16, 1998. Prior to this amendment, Bye Law 10.1.2 read as follows :

10.1.2 The Depository shall intimate the Issuers or its Registrar and Transfer Agent all security balances of the Issuer held in dematerialised form with the Depository at the end of the day and the said balances will be reconciled by the Issuer or its Registrar and Transfer Agent)

10.1.3. If there is failure of the reconciliation as specified in Bye Law 10.1.1 and Bye Law 10.1.2 above, the Depository may initiate necessary action including suspension of a Participant or suspension of transactions in a particular security till the process of reconciliation has been completed.

10.2. ACCOUNTING, INTERNAL CONTROL, REPORTS AND RETURNS

10.2.1. Each Participant shall furnish to the Depository every year, a copy of its audited financial statement and such report shall be furnished not later than six months after the end of the Participant's financial year.

Provided that when the Depository is satisfied that circumstances warrant an extension of time to furnish such report, it may grant such extension to the Participant.

10.2.2. Every Participant shall keep accounts and records in respect of the operations of the Depository which shall be distinct and independent from the records and accounts maintained by it in respect of any other activities carried out by the Participant.

10.2.3. Proper accounts shall be maintained by the Depository as well as the Participants in respect of the operations of the Depository in accordance with the software provided by the Depository.

10.2.4. The books of accounts and records of the Participant relating to the operations of the Depository shall be open for inspection and audit to the officers of the Depository or their representatives. Such books of accounts and records shall be subjected to annual audit.

10.2.5. Every Participant shall allow persons authorised by the Depository to enter its premises during normal office hours and inspect its records relating to the operations of the Depository.

10.2.6. Every Participant shall submit periodic returns to the Depository in the format specified by the Executive Committee or the Bye Laws of the Depository, as the case may be.

10.2.7. Every Participant shall maintain the following records and documents, namely :-

i) records of all the transactions entered into with a Depository and with a Client;

ii) details of securities dematerialised, rematerialised on behalf of Clients with whom it has entered into an agreement;

iii) records of instructions received from Clients and statements of account provided to Clients; and,

iv) records of approval, notice, entry and cancellation of pledge or hypothecation, as the case may be.

10.2.8. Every Participant shall intimate the Depository, the place where the records and documents are maintained.

10.2.9. Subject to the provisions of any other law, the Participant shall preserve records and documents for a minimum period of five years.

10.3. AUDIT

10.3.1. *Every Participant shall ensure that an internal audit in respect of the operations of the Depository is conducted at intervals of not more than three months by a qualified Chartered Accountant or a Company Secretary holding a certificate of Practice and a copy of the internal audit report shall be furnished to the Depository. *(Amended w.e.f. March 23, 1999. Prior to this amendment, Bye Law 10.3.1. read as follows :

10.3.1 Every Participant shall ensure that an internal audit shall be conducted in respect of the operations of the Depository by a qualified Chartered Accountant in accordance with the provisions of the Chartered Accountants Act, 1949, at intervals of not more than three months and a copy of the internal audit report shall be furnished to the Depository)

10.3.2. The scope of such audit shall cover the existence, scope and efficiency of the internal control system, compliance with the provisions of the Act , Securities and Exchange Board of India (Depositories and Participants) Regulations,1996, Bye Laws, Business Rules, agreement and systems security in the office of the Participant in respect of the operations of the Depository.

10.3.3. In addition, the Depository may, if it feels it is in the interests of the investors to do so, direct that an audit of the records of the Participant shall be conducted by such auditor as may be appointed by the Depository in this regard so far the records relate to the operations of the Depository.

10.4. INSPECTION

10.4.1. INSPECTION AUTHORITY

i) Where the Executive Committee deems it necessary, it may appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, other records and documents of the Participants to the extent they pertain to the Depository operations for any of the purposes specified below :-

a) as to whether the books of accounts and other books are being maintained in the manner required;

b) as to whether the provisions of the Depositories Act, 1996, the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, made there under are being complied with;

c) as to whether the provisions of the Securities Contracts (Regulation) Act 1956, the Securities and Exchange Board of India Act, 1992 and the rules made there under are being complied with;

d) as to whether the provisions of the Bye Laws and Business Rules of the Depository and any instructions or directions issued there under are being complied with;

e) to investigate into the complaints received from the Clients, other Participants or any other person on any matter having a bearing on the activities of the Participant;

f) to investigate suo-moto, for any reason where circumstances so warrant an inspection into the affairs of the Participant in the interest of the investors in general;

g) to facilitate reconciliation of records in case the records of the Participant with the Depository remain unreconciled for a period exceeding three working days;

h) to comply with any of the directives issued in this behalf by any court or regulatory authority including the Government.

ii) The inspecting authority appointed by the Executive Committee under Bye Law 10.4.1 (i) above may either be its own officials or outside professionals.

iii) When the Executive Committee appoints outside professionals as an inspecting authority, it shall notify to the Participants the names and addresses of the professionals or firms so appointed as an inspecting authority at the time of inspection.

iv) When outside professionals are appointed as an inspecting authority in respect of a Participant and such professionals are already related in any other capacity with the Participant then such Participant shall forthwith inform the Depository of such relationship.

v) Where after the appointment of any outside professional as an inspecting authority in respect of any Participant, the Participant or any of its associates engages the inspecting authority for its services in any other capacity, the inspecting authority shall not engage itself in such other professional capacity with the Participant or any of its associates without the prior consent of the Depository.

10.4.2. NOTICE

i) Before undertaking any inspection under Bye Law 10.4.1 above, the Executive Committee shall give a reasonable notice to the Participant for that purpose;

ii) Notwithstanding anything contained in clause (i) above, where the Executive Committee is of the opinion that no such notice should be given, it may direct in writing that the inspection of the affairs of the Participant be taken up without such notice;

iii) The Depository officials or the inspecting authority who is directed by the Executive Committee to undertake the inspection, shall undertake the inspection and the Participant against whom an inspection is being carried out shall be bound to discharge his obligations as provided under Bye Law 10.4.3.

10.4.3. OBLIGATIONS OF A DEPOSITORY PARTICIPANT ON INSPECTION

i) It shall be the duty of every Participant, its director, partner, officer and employee who is being inspected, to produce to the inspecting authority such books, accounts and other documents in his custody or control or arrange to produce where such books, accounts and other documents when they are in any other person's custody or control and furnish him such statements and information within such time as the said inspection authority may require.

ii) The Participant shall allow the inspecting authority to have reasonable access to the premises occupied by him or by any other person on his behalf and also extend reasonable facilities for examining any books, records, documents and computerised data in his possession or any other person and also provide copies of documents or other materials which in the opinion of the inspecting authority are relevant.

iii) The inspecting authority, in the course of inspection may examine or record statements of any member, director, officer and employee of the Participant or of any associate of such Participant. iv) It shall be the duty of every such Participant, its director, partner, officer and employee or where an associate is examined, of such associate to give to the inspecting authority all assistance in connection with the inspection which the Participant may be reasonably expected to give.

v) Notwithstanding the provisions above, the inspecting authority shall not have the right to examine any person or inspect any records which do not pertain to the operations of the Depository.

10.4.4. SUBMISSION OF REPORT

i) The inspecting authority shall, as soon as possible, submit an inspection report to the Executive Committee.

ii) The inspecting authority shall maintain complete confidentiality and shall not disclose any information contained in the documents submitted to it or inspected by it to any person, firm, company or authority unless required by any law for the time being in force.

iii) The Executive Committee shall after consideration of the inspection report, communicate the findings to the Participant to give him an opportunity of being heard before any action is taken by the Executive Committee on the findings of the inspecting authority.

iv) On receipt of the explanation, if any, from the Participant the Executive Committee may call upon the Participant to take such measures as the Executive Committee may deem fit in the interest of the investors.

v) In case the report of the Inspection Authority indicates the existence of any grounds for taking disciplinary action against a Participant, the Executive Committee if so satisfied shall cause a copy of the inspection report to be handed over to the Disciplinary Action Committee for further action in this regard.