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

Zenith Polymers Ltd wants to appoint an independent director and picks a name from the data bank of independent directors maintained by the body notified by the Central Government. The board assumes that, since the name comes from the data bank, it need not examine the person's suitability further. Under Section 150, what is the correct position?

The company making the appointment remains responsible for exercising due diligence before selecting a person from the data bank. The data bank merely lists persons who are eligible and willing, so the board cannot rely on it alone or transfer the duty to the maintaining body.

  1. AResponsibility for exercising due diligence before selecting the person lies with the company making the appointmentCorrect
  2. BResponsibility for due diligence lies with the body maintaining the data bank
  3. CDue diligence is needed only if the person is a first-time director
  4. DDue diligence lies with the Registrar of Companies once the name is picked

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 only lists eligible and willing persons, so the board cannot shift this duty to the maintaining body.

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