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

Orchid Pharma Ltd's board selected Mr Vikas Nair from the notified data bank and, relying on the listing, recorded no inquiry into his background. The board then passed a resolution appointing him and informed members by a circular, without placing the matter before a general meeting. An auditor reviewing the records applies Section 150. Which observation is correct?

There are two lapses. The company failed to exercise due diligence, which Section 150(1) proviso places on it even for data bank candidates, and it skipped approval in general meeting with an explanatory statement justifying the choice, required by Section 150(2).

  1. ATwo lapses: no due diligence by the company, and the appointment was not approved in general meeting with a justification in the explanatory statementCorrect
  2. BOnly one lapse: the missing due diligence, since board approval suffices for appointment
  3. CNo lapse, because selection from the data bank dispenses with due diligence and meeting approval
  4. DOnly one lapse: the missing general meeting, since due diligence is the duty of the data bank body

Explanation

Section 150(1) proviso puts due diligence on the appointing company. Section 150(2) requires approval by the company in general meeting, with an explanatory statement giving the justification for choosing the appointee. Both requirements were missed, so the observation of two lapses is right.

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