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

Meridian Textiles Ltd plans to appoint Ms. Kavita Rao, whose name appears in the notified data bank of independent directors, as an independent director. The HR head says that because the data bank is maintained by a government-notified body, the company need not verify her credentials further. Under the Companies Act, 2013, where does responsibility for exercising due diligence before selecting a person from the data bank lie?

The responsibility lies with the company making the appointment. Under section 150, the data bank merely lists persons who are eligible and willing to act as independent directors, so the appointing company must itself carry out due diligence before selecting anyone from it.

  1. AWith the body maintaining the data bank
  2. BWith the company making the appointmentCorrect
  3. CWith the Central Government
  4. DWith the proposed appointee herself

Explanation

Section 150(1) proviso states that the responsibility of exercising due diligence before selecting a person from the data bank lies with the company making the appointment. The data bank only lists eligible and willing persons. Option A is wrong because the maintaining body only creates and maintains the data.

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