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CS Professional · Compliance Management, Audit and Due Diligence · Documentation and Maintenance of Records

Meridian Textiles Ltd wishes to appoint an independent director and picks a candidate whose name appears in the data bank maintained by the body notified by the Central Government. The CFO says that, because the candidate is listed, the company need not verify his credentials. Under Section 150, which view is correct?

The company must still exercise due diligence. Under Section 150(1) proviso, responsibility for due diligence before selecting a person from the data bank lies with the appointing company, not with the body maintaining the data bank, whatever the company's type or the candidate's residence.

  1. AThe company must still exercise due diligence before selecting the person from the data bankCorrect
  2. BThe notified body bears the whole responsibility for due diligence, so the company is relieved
  3. CDue diligence is needed only if the candidate is a non-resident
  4. DDue diligence is needed only if the company is listed

Explanation

The proviso to Section 150(1) places the responsibility of exercising due diligence before selecting a person from the data bank on the company making the appointment. Listing in the data bank does not shift this duty to the notified body, so the CFO's view is wrong.

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