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

Vihaan Steels Ltd is appointing Mr. Rao as an independent director, selected from the data bank of independent directors. The CS prepares the file. Which statement is correct under the Companies Act, 2013?

The company, not the data bank, bears responsibility for due diligence before selecting a person from the data bank. The appointment must be approved in general meeting, and the explanatory statement annexed to the notice must indicate the justification for choosing the appointee as independent director.

  1. ABecause he is from the data bank, the data bank maintainer bears the responsibility of due diligence and the company need not verify him
  2. BThe appointment needs only a Board resolution and no general meeting approval
  3. CThe company is responsible for exercising due diligence before selecting him, and the explanatory statement to the general meeting notice must give the justification for choosing himCorrect
  4. DThe explanatory statement is needed only if he is not selected from the data bank

Explanation

Section 150(1) proviso places the due diligence responsibility on the company making the appointment. Section 150(2) requires approval in general meeting, with the explanatory statement indicating the justification for choosing the appointee. Hence the data bank does not shift the responsibility, and the justification is required.

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