- within Corporate/Commercial Law topic(s)
- in United States
- with readers working within the Law Firm industries
- within Corporate/Commercial Law, Environment and Intellectual Property topic(s)
The Securities and Exchange Board of India ("SEBI") by way of circular dated 05.02.2026 ("Pledge Circular")1, has introduced enhanced compliance requirements in the framework for creation and invocation of pledge of securities through the depository system as prescribed under Paragraph 4.13 of the SEBI Master Circular for Depositories dated 03.12.2024 ("Master Circular for Depositories").
The Pledge Circular introduces the following changes to ensure compliance with Sections 176 (Pawnee's right where Pawnor makes Default) and Section 177 (Defaulting pawner's right to redeem) of the Indian Contract Act, 1872 ("Contract Act"):
- Pledge Request Forms for the depositories shall make provision whereby: (a) the pledgee undertakes to provide reasonable notice to the pledger(s), and comply with Sections 176 and 177 of the Contract Act; and (b) both pledger and pledgee must undertake to abide by the Contract Act, Depositories Act, 1996, SEBI Regulations, circulars, and bye-laws;
- The depositories shall maintain a standardized format of Pledge Request Form; and iii. The depositories shall send intimation/notification to both pledger and pledgee at the time of invocation confirming the invocation and recording of the pledgee as "beneficial owner" in terms of Regulation 79(8) of SEBI (Depositories and Participants) Regulations, 2018 which provides that the pledgee shall invoke the pledge subject to the provisions of the pledge document.
The depositories are required to make necessary amendments to bye-laws and rules, carry out system changes (if required), and disseminate the provisions to participants and on their websites.
The provisions of this Pledge Circular shall be implemented by the depositories on or before 06.04.2026.
Footnote
1. Creation/Invocation of pledge of securities through depositories system
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
