IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

The board of Sundaram Assurance Ltd approves a risky investment after receiving a detailed report from the chief investment officer, reading it, questioning the officer and recording its reasons. The investment later loses value. A shareholder alleges breach of the duty of care, skill and diligence. Which view is most consistent with Indian law principles?

The directors are likely to have met their duty, because the duty of care, skill and diligence judges the quality of the decision-making process and not the result. They were informed, questioned the officer and recorded reasons, so a later loss alone does not show breach.

1. ADirectors are strictly liable for any loss on decisions they approve
2. BThe directors are likely to have met the duty, as it concerns the care and diligence of the decision process and not the outcomeCorrect
3. CThe duty of care applies only to executive directors and not to the board as a whole
4. DThe directors are in breach because they relied on an officer's report
5. The directors are in breach because the investment was risky