All India Bar Examination (AIBE) 2-II Previous Year Question Papers with Answers

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98.

ABC Limited has three directors. Director X is also a legal consultant who advises on all the affairs of ABC Limited. Director Y is also the Chief Executive Officer of ABC Limited in any other way apart from her directorship except that she is also the Chief Executive Officer of the largest customer of ABC Limited. Which of the directors may be termed an independent director ?


Principal :

Independent directors bare directors who, apart from receiving director's remuneration, do not have any material pecuniary relationship or transaction with the company, its management or its subsidiaries, which may affect their independence of judgment.
A: Director X, Director Y, and Director Z are al independent.
B: Director X and Director Y are independent directors.
C: Director and Director Z are independent directors.
D: Only Director Z is an independent director.
E: None of them are independent director.

The answer is: D

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Explanation

The correct option is D: Only Director Z is an independent director

Here is the explanation:

  • Director X is not an independent director because he is a legal consultant who advises on all the affairs of ABC Limited. This means he has a material pecuniary relationship with the company, which may affect his independence of judgment.
  • Director Y is not an independent director because she is also the Chief Executive Officer of ABC Limited and the Chief Executive Officer of the largest customer of ABC Limited. This means she has a material pecuniary relationship and transaction with the company and its subsidiaries, which may affect her independence of judgment
  • Director Z is an independent director because he does not have any material pecuniary relationship or transaction with the company, its management or its subsidiaries, which may affect his independence of judgment. He only receives director's remuneration, which does not compromise his independence.