The Depositories Act, 1996 is a deliberately skeletal statute. It lays down a policy — the dematerialisation and electronic holding of securities through depositories, participants and beneficial owners — and then hands the flesh-and-blood detail to the Securities and Exchange Board of India (SEBI). That hand-off is achieved through the power to make regulations, the provision that converts a thirty-odd-section enabling Act into the dense, working code that actually governs NSDL, CDSL and every depository participant. For the judiciary and CLAT-PG aspirant, this single head of power is a perfect laboratory of delegated-legislation doctrine: the difference between rules, regulations and bye-laws; the limits of ultra vires; the conditions of validity; and the parliamentary leash of the laying procedure. This chapter maps the bare provision against the governing case law so that you can answer both the “state the section” question and the “test the validity” problem with equal confidence.
Locating the Power in the Scheme of the Act
The Depositories Act, 1996 distributes its subordinate-legislative authority across three distinct instruments, made by three different bodies. The Central Government makes rules; SEBI (“the Board”) makes regulations; and a depository, with the Board's prior approval, makes bye-laws. The power to make regulations sits at the centre of this triad. In the originally enacted 1996 text it appeared as Section 30, with rules under Section 29 and the laying provision at Section 31. After the consolidation effected by the Securities Laws (Amendment) Act, 2014, the working text published by SEBI and on indiacode.nic.in carries the same power, re-titled “Power of Board to make regulations”, at Section 25, with rules at Section 24, bye-laws at Section 26 and the laying procedure at Section 27. Examiners use both numbering conventions, so you should be able to cite “Section 30 (now Section 25)” without hesitation.
To see why this power matters, read it alongside the object and scheme of the Act: the statute itself does not prescribe how securities are to be dematerialised, what a depository's net worth must be, or how a pledge is to be recorded. Those are precisely the matters Parliament left to SEBI's expert, adaptable regulation-making power. The Act is the architecture; the regulations are the building.
The Bare Provision: Section 25 (Old Section 30)
Sub-section (1) confers the power in the standard enabling formula: “Without prejudice to the provisions contained in section 30 of the Securities and Exchange Board of India Act, 1992, the Board may, by notification in the Official Gazette, make regulations consistent with the provisions of this Act and the rules made thereunder to carry out the purposes of this Act.” Three limbs deserve emphasis. First, the power is exercised by notification in the Official Gazette — publication is a condition of validity, not a formality. Second, the regulations must be consistent with the Act and the rules; a regulation cannot override either its parent statute or the Central Government's rules. Third, the saving clause links this power to Section 30 of the SEBI Act, 1992, so that SEBI's general regulation-making competence under its own charter remains intact and the two sources operate harmoniously.
Sub-section (2), introduced by the words “In particular, and without prejudice to the generality of the foregoing power”, enumerates specific subjects — an illustrative, not exhaustive, list. SEBI may make regulations providing for: (a) the form of the record of beneficial owners under section 2(1)(i); (b) the form in which the certificate of commencement of business is issued under section 3(2); (c) the manner in which a certificate of security is surrendered under section 6(1); (d) the manner of creating a pledge or hypothecation under section 12(1); (e) the conditions and fees for issuing a certificate of securities under section 14(3); (f) the rights and obligations of depositories, participants and issuers under section 17(1); and (g) the eligibility criteria for admission of securities under section 17(2). Clauses (h) and (i), inserted by the 2014 amendment, add the terms for settlement of proceedings under section 19-IA(2) and a residuary clause covering “any other matter” required to be specified by regulations.
Rules, Regulations and Bye-laws: A Tripartite Delegation
The single most examined point in this topic is the distinction between the three instruments, because each has a different author, scope and constitutional pedigree. The rules under Section 24 (old Section 29) are made by the Central Government and confine themselves largely to appellate and procedural machinery — the manner of inquiry under section 19H, the form, fee and procedure for appeals to the Securities Appellate Tribunal under sections 23 and 23A. The regulations under Section 25 are made by SEBI and carry the substantive market-conduct content. The bye-laws under Section 26 are made by each depository, but only “with the previous approval of the Board”, and govern the depository's internal operations — admission and removal of securities, dematerialisation procedure, dispute resolution, internal control standards and the like.
The conceptual character of regulations was authoritatively explained in St. Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education, (2003) 3 SCC 321. The Supreme Court held that rules and regulations made under a specific statutory power “establish the pattern of conduct to be followed” and are “in aid of enforcement of the provisions of the Statute”; if validly made, they have the force and effect of the Act itself. The Court located the justification for such delegation in expertise and adaptability — the regulator, operating after the Act comes into force, is better placed than the legislature to “adapt the Act to special circumstances” and to draw on consultation with affected interests. That reasoning is a precise fit for SEBI's depository regulations, which must track a fast-moving securities market that Parliament could not micro-manage.
A practical mnemonic helps fix the distinction. Think of authorship (who makes it), generality (how widely it applies) and approval (whose sanction it needs). Rules: Central Government, general, no external approval. Regulations: SEBI, general, no external approval but laid before Parliament. Bye-laws: the depository, local to that depository, requiring SEBI's prior approval. Once you can place an instrument on this grid, you can predict both its validity test and the forum in which it is challenged. A defect in a regulation is tested against the Act and the SEBI Act; a defect in a bye-law is tested additionally against the regulations standing above it.
The Doctrine of Delegated Legislation
SEBI's regulations are a species of delegated (or subordinate) legislation: law made by a body other than the legislature under authority conferred by the legislature. The constitutional premise is that Parliament may delegate ancillary law-making but cannot abdicate its essential legislative function — the laying down of policy. That line was drawn in the foundational excessive-delegation jurisprudence. In Hamdard Dawakhana v. Union of India, AIR 1960 SC 554, the Supreme Court struck down a portion of the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 on the ground that the power to expand a schedule of diseases was conferred without any guiding legislative policy, and so amounted to excessive delegation. The lesson for the Depositories Act is that Section 25 survives this test precisely because the parent Act supplies the policy: dematerialisation, investor protection and the regulated functioning of depositories. SEBI fills in detail within that declared policy; it does not choose the policy.
The companion principle — that a broadly worded delegation is saved where guidance can be gathered from the statutory scheme and from legislative control over the delegate — was applied in Avinder Singh v. State of Punjab, (1979) 1 SCC 137. Justice Krishna Iyer held that the vice of excessive delegation “stands negatived” where the legislature retains supervisory control over the delegate. For SEBI regulations, that control is concrete: every regulation must be laid before Parliament under Section 27, and SEBI itself remains accountable to the Central Government. The breadth of the phrase “to carry out the purposes of this Act” is therefore not fatal, provided the regulations stay tethered to those purposes.
The Outer Limit: Ultra Vires the Parent Act
The most litigable limit on Section 25 is the doctrine of ultra vires: a regulation that travels beyond the authority conferred by the Act, or contradicts it, is void. The leading modern statement is Kunj Behari Lal Butail v. State of Himachal Pradesh, (2000) 3 SCC 40, where the Supreme Court struck down a proviso inserted into the Himachal Pradesh Ceiling on Land Holdings Rules. The Court held that a general delegation to make rules “for carrying out the purposes of the Act” “cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself.” Translated to our setting: SEBI cannot use a depository regulation to create a liability, fee or disqualification that the Depositories Act does not contemplate, however desirable the regulator may think it.
The same restraint operates internally. Because Section 25(1) requires regulations to be “consistent with the provisions of this Act and the rules made thereunder”, a regulation that conflicts with a Central Government rule is invalid on the ground of repugnancy with a superior instrument in the same hierarchy. And because bye-laws under Section 26 must be consistent with both the Act and the regulations, the hierarchy is strict: Act, then rules and regulations, then bye-laws. A bye-law of NSDL or CDSL that contradicts a SEBI regulation is liable to be read down or struck. This mirrors the sequence you will study under the agreement between depository and participant, where the contractual terms must themselves conform to the bye-laws and regulations above them.
Grounds on Which a Regulation Can Be Struck Down
When can a SEBI regulation be set aside? The authoritative catalogue is State of Tamil Nadu v. P. Krishnamurthy, (2006) 4 SCC 517, which while upholding the rule before it, enumerated the recognised grounds for challenging subordinate legislation. Subordinate legislation may be assailed: (i) where it is ultra vires the Constitution or the parent statute, or beyond the delegated power; (ii) where it is repugnant to a statute, whether the parent Act or some other law; (iii) where it is manifestly arbitrary, unreasonable or made in bad faith; and (iv) where it offends a fundamental right or another constitutional guarantee. Critically, the Court also reaffirmed the presumption of validity that attaches to subordinate legislation — the burden lies on the challenger.
That arbitrariness ground rests on Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC 641, the case usually cited for the proposition that subordinate legislation is not immune from judicial review and may be tested, among other things, against the standard of Article 14. The Court there held that a piece of delegated legislation is open to challenge on grounds on which a plenary statute could not be — for example, that it is arbitrary, or that the rule-making authority has exceeded the power conferred, or that it is repugnant to the parent Act. For a depository regulation, the practical upshot is that a participant or issuer aggrieved by, say, an irrationally high net-worth requirement or a confiscatory fee can mount a writ challenge, but must clear the high threshold of manifest arbitrariness, not mere disagreement on the merits.
Statutory Force and SEBI's Plenary Authority
A validly made regulation is not a mere administrative instruction; it has the force of law. The Supreme Court's affirmation of SEBI's wide regulatory competence in Sahara India Real Estate Corporation Ltd. v. SEBI, (2012) 10 SCC 603, illustrates the point in the cognate field of securities regulation. The Court upheld SEBI's plenary jurisdiction to investigate, interdict and direct restitution in the public-capital-mobilisation context, reading the SEBI Act and the regulations made under it as a coherent, mandatory scheme. The same logic governs the Depositories Act: once SEBI's depository regulations are validly notified within the four corners of Section 25, they bind depositories, participants, issuers and beneficial owners with statutory effect, and breach attracts the Act's enforcement machinery.
This is why the regulation-making power is functionally more important than the bare Act. The substantive obligations that an exam problem will throw at you — the eligibility of a depository, the conduct of a participant, the mechanics of a pledge — live in the SEBI (Depositories and Participants) Regulations, not in the thirty sections of the parent statute. Understanding the services of a depository therefore means understanding the regulatory layer that Section 25 authorises.
The Parliamentary Leash: Laying Before Parliament
Delegated power is constitutionally tolerable only because it remains subject to legislative oversight. Section 27 (old Section 31) of the Act effects that oversight through the laying procedure. Every rule and every regulation made under the Act must be laid, as soon as may be after it is made, before each House of Parliament “while it is in session, for a total period of thirty days”, which may span one session or several successive sessions. If, before the expiry of the session immediately following, both Houses agree to modify the regulation or that it should not have been made, the regulation thereafter has effect only in the modified form or is of no effect — but any such modification or annulment is “without prejudice to the validity of anything previously done” under the regulation.
This is the classic “laying subject to negative resolution” model with a saving clause. Two examiner-favourite consequences follow. First, the regulation is operative the moment it is gazetted; laying is a continuing condition of its continuance, not a pre-condition of its coming into force. Second, even if Parliament later annuls a regulation, transactions already completed under it remain valid — a protection that mirrors the good-faith and indemnity scheme elsewhere in the Act. The laying requirement is the structural answer to the Avinder Singh demand for legislative control over the delegate.
Regulations Versus Bye-laws: Drawing the Line
Because both regulations and bye-laws can touch the same subject — say, the eligibility of securities for admission — candidates frequently confuse them. The dividing line is authorship and approval. Regulations under Section 25 are SEBI's own legislation, generally applicable across the market. Bye-laws under Section 26 are a depository's house rules, made by the depository but only with the previous approval of the Board, and binding chiefly within that depository's ecosystem. Section 26(2) enumerates the bye-law subjects — admission and removal of securities, dematerialisation procedure, distribution of dividends, creation of pledges, dispute resolution, internal control and audit standards — all operational matters.
Crucially, Section 26(3) and (4) give SEBI a power of direction and substitution: where the Board considers it expedient, it may by written order direct a depository to make, amend or revoke a bye-law within a specified period, and if the depository fails to comply, SEBI may itself make or amend the bye-law. This subordination confirms the hierarchy: bye-laws are valid only so long as they remain consistent with the Act and the regulations, and SEBI retains ultimate control over their content. The bye-law power is therefore best understood as a regulated, supervised sub-delegation operating beneath the regulation-making power.
Interaction With the SEBI Act, 1992
Section 25(1) opens with the saving words “without prejudice to the provisions contained in section 30 of the Securities and Exchange Board of India Act, 1992”. This is deliberate. SEBI already possesses a general regulation-making power under its own charter, and the Depositories Act does not displace it; rather, it grants an additional, subject-specific power. In practice SEBI's depository framework draws on both fountains of authority, which is why the regulations recite both the SEBI Act and the Depositories Act in their enabling clauses. The two powers are complementary, not competing.
This dual sourcing has a practical doctrinal payoff. Where a depository regulation is challenged as beyond Section 25 of the Depositories Act, it may yet be sustainable as a valid exercise of Section 30 of the SEBI Act, and vice versa, provided the subject matter falls within either enabling provision and the regulation is consistent with both statutes. The breadth recognised in Sahara reflects this layered competence. For a problem question, always check both charters before concluding that a regulation is ultra vires.
The relationship also explains why the Depositories Act could afford to be so brief. Parliament was not writing on a blank slate: SEBI was already an established expert regulator armed with a comprehensive charter and a track record of making securities regulations. By cross-referencing Section 30 of the SEBI Act, the Depositories Act effectively imported that entire apparatus — SEBI's procedures for consultation, notification and enforcement — rather than duplicating it. The depository regulation-making power is thus best read not as an isolated grant but as one channel within a single, integrated securities-regulation architecture that SEBI superintends.
Retrospectivity and Conditions of Valid Exercise
Can a SEBI regulation operate retrospectively? The settled rule is that delegated legislation is prospective unless the parent statute expressly or by necessary implication authorises retrospective operation. Section 25 contains no such authorisation; it speaks of making regulations “to carry out the purposes of this Act” without conferring retrospective competence. A regulation purporting to attach consequences to past transactions would therefore be vulnerable on the ultra vires ground recognised in Kunj Behari Lal Butail, unless it is merely clarificatory.
Beyond prospectivity, the validity checklist distilled from the cases is fourfold. A depository regulation must: (i) be made by the competent authority — SEBI, the Board; (ii) be published by notification in the Official Gazette, the mode prescribed by Section 25(1); (iii) be consistent with the Act and the rules, and not stray beyond the purposes of the Act; and (iv) not be manifestly arbitrary, unreasonable or violative of fundamental rights, per P. Krishnamurthy and Indian Express Newspapers. A regulation that satisfies all four enjoys the presumption of validity and operates with the force of statute.
Applying the Power in an Exam Problem
A typical question gives you a notified SEBI regulation — for instance, one imposing a new fee on participants for surrender of certificates, or fixing eligibility criteria for a class of securities — and asks whether it is valid. Structure your answer in four moves. One: identify the source of power. Is the subject matter within Section 25(2), or within the residuary clause, or referable to Section 30 of the SEBI Act? The surrender mechanics, for example, are expressly within clause (c) read with the surrender of certificate of security provisions. Two: test for ultra vires using Kunj Behari — does the regulation create a substantive right, obligation or disability not contemplated by the Act?
Three: run the P. Krishnamurthy grounds — is it repugnant to the Act or the rules, manifestly arbitrary, mala fide, or violative of a fundamental right, remembering the presumption of validity and the burden on the challenger? Four: check the formal conditions — was it notified in the Gazette, and is it subject to laying under Section 27? If the regulation clears all four, conclude that it is intra vires and binding with statutory force, citing St. Johns and Sahara for its legal effect. This template will see you through almost any validity problem on the regulation-making power, and connects naturally to the broader Depositories Act notes hub.
Frequently asked questions
Under which section of the Depositories Act, 1996 is the power to make regulations found?
In the originally enacted Act the power appeared as Section 30. In the consolidated text published after the Securities Laws (Amendment) Act, 2014 it is re-titled “Power of Board to make regulations” and renumbered as Section 25. Both citations refer to the same power, exercised by SEBI through notification in the Official Gazette.
What is the difference between rules, regulations and bye-laws under the Act?
Rules (Section 24/old 29) are made by the Central Government and deal mainly with appellate and procedural machinery. Regulations (Section 25/old 30) are made by SEBI and carry the substantive market-conduct content. Bye-laws (Section 26) are made by a depository with SEBI's prior approval and govern its internal operations. The hierarchy is Act, then rules and regulations, then bye-laws.
On what grounds can a SEBI depository regulation be struck down?
Per State of Tamil Nadu v. P. Krishnamurthy, (2006) 4 SCC 517, subordinate legislation can be challenged if it is ultra vires the Constitution or parent Act, repugnant to a statute, manifestly arbitrary or mala fide, or violative of a fundamental right. A regulation enjoys a presumption of validity, so the burden lies on the challenger. Indian Express Newspapers v. Union of India, (1985) 1 SCC 641, confirms it is not immune from review on Article 14 grounds.
Can SEBI use the regulation-making power to create new liabilities not found in the Act?
No. Following Kunj Behari Lal Butail v. State of H.P., (2000) 3 SCC 40, a general power to make regulations “to carry out the purposes of the Act” cannot be used to bring into existence substantive rights, obligations or disabilities not contemplated by the Act itself. A regulation that does so is ultra vires and void.
Do SEBI's depository regulations have the force of law?
Yes. As held in St. Johns Teachers Training Institute v. Regional Director, NCTE, (2003) 3 SCC 321, regulations validly made under a statutory power have the same force and effect as the Act itself. Sahara India Real Estate Corpn. v. SEBI, (2012) 10 SCC 603, affirms SEBI's plenary authority to enforce the regime built on such regulations.
What is the effect of the laying-before-Parliament requirement in Section 27?
Every regulation must be laid before both Houses for thirty days; Parliament may modify or annul it. However, the regulation is operative from the date of gazetting — laying is a condition of continuance, not of commencement — and any modification or annulment is “without prejudice to the validity of anything previously done” under it. This satisfies the requirement of legislative control over the delegate recognised in Avinder Singh v. State of Punjab, (1979) 1 SCC 137.