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

Lotus Infra Ltd. wishes to appoint Ms. Iyer as an independent director, selecting her from the notified data bank. The Board assumes that inclusion in the data bank means her eligibility has been verified, so no further checks are needed. Which view is correct under the Companies Act, 2013?

Selecting someone from the data bank does not shift responsibility. The company making the appointment must itself exercise due diligence before choosing the person as an independent director, and the general meeting notice's explanatory statement must justify the choice.

  1. AThe data bank maintainer bears the responsibility of due diligence, so the company has no further duty
  2. BThe responsibility of exercising due diligence before selecting a person from the data bank lies with the company making the appointmentCorrect
  3. CDue diligence is required only if the appointee is a former employee
  4. DThe Registrar of Companies must certify the due diligence before appointment

Explanation

Section 150(1) proviso places the responsibility of exercising due diligence before selecting a person from the data bank on the company making the appointment. The data bank only lists willing and eligible persons. The appointment is also approved in general meeting with an explanatory statement justifying the choice (section 150(2)).

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