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CS Professional · Compliance Management, Audit and Due Diligence · Due Diligence

Arjun Metals Ltd is selecting an independent director from the notified data bank. The board relies on the data bank operator having vetted the candidate and skips its own checks. Under the Companies Act, 2013, where does responsibility for due diligence lie?

Responsibility lies with the company making the appointment. The proviso to section 150(1) of the Companies Act, 2013 places the duty of exercising due diligence before selecting an independent director from the data bank on the appointing company, not on the data bank body.

  1. AWith the company making the appointmentCorrect
  2. BWith the body maintaining the data bank
  3. CWith the Registrar of Companies
  4. DWith the outgoing independent director

Explanation

The proviso to section 150(1) states that the responsibility of exercising due diligence before selecting a person from the data bank lies with the company making the appointment. Reliance on the data bank does not shift this duty, so the board's approach is flawed.

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