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

Orion Steels Ltd proposes to appoint Mr Rao as an independent director, selected from the notified data bank. The Board assumes that, because he was listed in the data bank, no further checks by the company are needed. Which statement is correct under the Companies Act, 2013?

The company bears the responsibility. The proviso to section 150(1) of the Companies Act, 2013 says that exercising due diligence before selecting a person from the data bank as an independent director lies with the company making the appointment, so data bank listing does not remove the need for checks.

  1. AResponsibility for due diligence lies with the data bank maintainer, not the company
  2. BResponsibility for 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 person is a former employee
  4. DDue diligence is the Registrar's responsibility

Explanation

The proviso to section 150(1) states that the responsibility of exercising due diligence before selecting a person from the data bank lies with the company making the appointment. Listing in the data bank therefore does not shift this duty. The company should document its verification.

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