Skip to content

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

The board of Gange Steels Ltd approves a deal in which director Mr. Hari Prasad holds a significant stake in the counterparty, and he takes part without any step to avoid the clash. Which duty in section 166 is most directly breached?

The duty against conflict of interest is breached. Section 166(4) bars a director from involving himself in a situation where his direct or indirect interest conflicts or possibly may conflict with the company's interest, which fits his stake in the counterparty.

  1. ADuty not to involve in a situation of direct or indirect interest that conflicts or possibly may conflict with the company's interestCorrect
  2. BDuty to act in accordance with the articles
  3. CDuty not to assign his office
  4. DDuty to exercise due care, skill and diligence only

Explanation

Section 166(4) states that a director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the company's interest. His stake in the counterparty creates exactly such a situation. Care and diligence under 166(3) is a different duty and is not the closest fit.

Did you get it right without looking?

One question tells you little. A timed set on Due Diligence shows your real accuracy, how long you take and where you lose marks.

Practise Due DiligenceFree diagnostic mock

More Due Diligence questions