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

Meridian Components Ltd, a public company, appoints Mr. Rao as a director. Mr. Rao, who has never attended a board meeting, signs a board resolution without reading the supporting papers, on the assurance of the managing director. Which duty of a director under the Companies Act, 2013 has he most directly failed to observe?

Mr. Rao failed the duty to exercise due and reasonable care, skill and diligence and independent judgment. Signing a resolution unread, relying only on the managing director's assurance, shows neither care nor independent judgment. The other duties, such as no assignment of office or no undue gain, are not engaged by these facts.

  1. AExercising duties with due and reasonable care, skill and diligence and independent judgmentCorrect
  2. BNot assigning his office to another person
  3. CActing in accordance with the articles of the company
  4. DNot achieving any undue gain for his relatives or associates

Explanation

Section 166(3) requires a director to exercise duties with due and reasonable care, skill and diligence and to exercise independent judgment. Signing without reading the papers and relying wholly on the managing director shows no independent judgment or care. No facts suggest an assignment of office, undue gain or breach of the articles.

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