AIBE III 2012 Question 92

In a meeting of the board of directors of ABC Private Limited, it was proposed that DEF Art Supplies Private Limited shall be its sole supplier of all art material. This resolution was passed by all directors unanimously. It was later revealed that G, a director of ABC Private Limited, had not revealed that G is also the majority shareholder and chief executive officer of DEF Art Supplies Private Limited. The resolution was sought to be set aside. Which of the following Statements most accurately applies the principle below?

1. A The resolution shall not be set aside as DEF Art Supplies is a separate legal entity from its shareholders and directors, and therefore it cannot be penalized for an act done by G.
2. B The resolution shall not be set aside, as G's failure to declare an interest in DEF Art Supplies Private Limited is not culpable.
3. C The resolution shall be set aside as G did not exhibit the duty of care and diligence as required by a director of the company.
4. D The resolution shall be set aside as G is the majority shareholder and chief executive officer of DEF Art Supplies Private Limited, and was required to declare the same to the board of ABC Private Limited prior to the resolution being put to vote, and refrain from voting on that particular resolution. Official answer
5. E The resolution shall not be set aside, as the resolution was passed unanimously and would have been passed so even if G had informed the board of G's interest in DEF Art Supplies Private Limited.