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

Sunrise Textiles Ltd of Surat selects Mr. Kiran Mehta from the notified data bank of independent directors and appoints him without checking his background, reasoning that the data bank operator has already verified him. Under the Companies Act, 2013, on whom does the responsibility of exercising due diligence before selecting a person from the data bank lie?

The responsibility lies with the company making the appointment. Section 150(1) proviso says that due diligence before selecting an independent director from the data bank rests on the appointing company, not on the data bank operator, the Central Government or the candidate.

  1. AThe body maintaining the data bank
  2. BThe company making the appointmentCorrect
  3. CThe Central Government
  4. DThe person being selected

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. The data bank operator only maintains names, addresses and qualifications, so the company cannot shift the duty to it.

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