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CA Intermediate · Corporate and Other Laws · Preliminary

Under the Companies Act, 2013, Nila Ltd's board has directors who are accustomed to act on the directions of Mr Rao, who is not himself a director and gives advice only in a professional capacity as the company's lawyer. Which statement is correct about the 'shadow director' position?

Mr Rao is not a shadow director. The Companies Act includes a person whose directions the board is accustomed to follow within the term director, but expressly excludes advice given in a professional capacity. As the company's lawyer giving professional advice, he falls within that exclusion.

  1. AMr Rao is a shadow director because the board follows his advice
  2. BMr Rao is not treated as a director because advice given in a professional capacity is excluded from the shadow director conceptCorrect
  3. CMr Rao becomes a whole-time director by conduct
  4. DMr Rao is a key managerial personnel since the board follows him

Explanation

The Act's definition of director includes a person in accordance with whose directions or instructions the board is accustomed to act, but excludes advice given in a professional capacity. Mr Rao advises only as a lawyer, so he is not a shadow director. Being followed does not make one a whole-time director or KMP, as those are defined by appointment and specified positions.

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