The National Securities Depository Limited (NSDL) has concluded a significant settlement with the Securities and Exchange Board of India (SEBI), agreeing to pay ₹15.58 crore to resolve allegations of multiple procedural and systemic failures. The market regulator officially closed the case through an order released on Wednesday, bringing an end to proceedings that scrutinized the depository's operations under the Sebi Act, 1992, and the Depositaries Act, 1996.
Core Violations and Procedural Delays
SEBI's investigation revealed a series of critical lapses at NSDL. A primary concern was the repeated delay in freezing and unfreezing accounts of promoters and clients following instructions from stock exchanges or the regulator itself. In some instances, NSDL froze accounts even after unfreezing orders had been issued. In others, it took an alarming 77 days to implement SEBI's directions. These failures effectively bypassed crucial safeguards designed to restrict trading by non-compliant promoters and protect investor interests.
Systemic Weaknesses in Outsourcing and Compliance
The regulator's inspection uncovered further shortcomings in NSDL's internal systems. Significant issues were found in its outsourcing arrangements. SEBI noted the existence of backdated contracts with vendors and unacceptable delays in formalizing agreements for core technology services. In one glaring case, a contract for outsourced services was signed a full year after the relevant service period had concluded, raising serious questions about oversight of critical IT functions at this key market infrastructure institution.
Furthermore, NSDL was found deficient in ensuring compliance with Basic Services Demat Account (BSDA) norms. It failed to guarantee that depository participants effectively converted eligible accounts into BSDAs or obtained necessary opt-out confirmations from beneficial owners. The inspection also pointed to systemic gaps in handling Client Unpaid Securities Accounts (CUSAs), where securities were released or disposed of beyond SEBI-prescribed timelines, violating rules intended to prevent misuse of client securities by brokers.
Settlement Process and Conditional Closure
SEBI's Internal Committee (IC) examined the matter over several meetings held between January and May. The committee recommended the indicative settlement amount of ₹15.58 crore and sought details of actions taken against the responsible "officers-in-default." This proposal was later cleared by SEBI's high-powered advisory committee and received final approval from a panel of whole-time members.
NSDL informed the regulator in November that it had paid the full settlement amount. However, SEBI's order includes a crucial caveat: the regulator retains the right to reopen the case if it subsequently discovers that NSDL made incomplete disclosures or breached any of the settlement terms. This conditional closure keeps the depository accountable for full transparency.
