# Explanatory Statement to be Annexed to Notice (Section 102)

## 1. When is an Explanatory Statement Required?

Where any special business is to be transacted at a general meeting, an Explanatory Statement shall be annexed to the notice calling such meeting.

## 2. Ordinary Business vs Special Business [Section 102(2)]

### Ordinary Business (at AGM ONLY)

Includes only 4 items:

1. Consideration of financial statements and reports of the Board and auditors

2. Declaration of any dividend

3. Appointment of directors in place of those retiring

4. Appointment of auditors and fixing their remuneration

### Special Business

At AGM: All business OTHER than the 4 ordinary items above
At EGM: Every business transacted is special business

Note: Explanatory statement is NOT required for Ordinary Business.

## 3. Contents of the Explanatory Statement

Must specify:

### (a) Nature of Concern/Interest

Financial or otherwise, of:

(i) Every director and the manager, if any
(ii) Every other Key Managerial Personnel (KMP)
(iii) Relatives of persons in (i) and (ii)

### (b) Other Information & Facts

Any information enabling members to understand:

Meaning of the items of business
Scope and implications
Helping them take an informed decision

## 4. Special Disclosure — Shareholding in Other Companies [Proviso to S.102(2)]

If any special business relates to or affects another company:

Disclose the extent of shareholding in that other company of every promoter, director, manager, and every KMP
Only if shareholding is 2% or more of the paid-up share capital of that other company

## 5. Reference to Documents

If any item refers to a document to be considered at the meeting, the time and place where such document can be inspected must be specified in the explanatory statement.

## 6. Effect of Non-disclosure/Insufficient Disclosure [Section 102(4)]

If any benefit accrues to a promoter, director, manager, KMP, or their relatives due to non-disclosure/insufficient disclosure:

Such person shall hold the benefit in trust for the company
Shall be liable to compensate the company to the extent of the benefit received
Without prejudice to any other action under this Act or any other law

## 7. Penalty for Contravention [Section 102(5)]

Without prejudice to S.102(4), every promoter, director, manager, or other KMP in default is liable to a penalty of:

Higher of:

₹50,000, OR
5 times the amount of benefit accruing to the promoter/director/manager/KMP/relatives

## Key Takeaways

Only 4 items qualify as ordinary business — and only at AGMs.
ALL EGM business is special business.
Disclose interests, financial impact, related-company shareholding (2%+ threshold).
Non-disclosure → benefits held in trust + compensation + penalty up to 5× benefit (min ₹50,000).

Worked example

### Example 1

Example 1: Identify Special Business

At the AGM of ABC Ltd., the following items are proposed:

(a) Adoption of financial statements

(b) Appointment of Mr. X as Managing Director

(d) Alteration of Articles of Association

Which items require an explanatory statement?

Solution:

(a) and (c) are ordinary business — no explanatory statement.
(b) and (d) are special business — explanatory statement REQUIRED.

### Example 2

Example 2: Disclosure of Related Company Shareholding

At the EGM of XYZ Ltd., a resolution is proposed to enter into a contract with ABC Ltd. Mr. P, a director of XYZ Ltd., holds 3% of paid-up capital of ABC Ltd. Is disclosure required?

Solution: Yes. Since shareholding (3%) ≥ 2%, the extent of Mr. P's shareholding in ABC Ltd. must be disclosed in the explanatory statement.

### Example 3

Example 3: Penalty Calculation

A director did not disclose his financial interest in an explanatory statement and gained ₹15,000 from the transaction. What is the penalty under S.102(5)?

Solution:

₹50,000 (fixed), OR
5 × ₹15,000 = ₹75,000
Higher = ₹75,000

Plus, he must hold the ₹15,000 benefit in trust and compensate the company.

⚠️ Common exam mistakes

Including items like alteration of AoA or capital increase as ordinary business — these are SPECIAL business.
Forgetting that at EGM, ALL business is special — even routine-looking items.
Missing the 2% threshold for related-company shareholding disclosure.
Forgetting to include relatives of directors/KMPs while disclosing interest.
Calculating penalty as ₹50,000 only — it is HIGHER of ₹50,000 or 5× benefit.
Confusing the duty under S.102(4) (compensation/trust) with S.102(5) (penalty) — both apply simultaneously.
Forgetting to mention time and place of inspection when referencing documents.

Bare-Act text Section 102 · The Companies Act, 2013 · click to expand

Section 102(1): A statement setting out the following material facts concerning each item of special business to be transacted at a general meeting, shall be annexed to the notice calling such meeting, namely:—(a) the nature of concern or interest, financial or otherwise, if any, in respect of each items of—(i) every director and the manager, if any; (ii) every other key managerial personnel; and (iii) relatives of the persons mentioned in sub-clauses (i) and (ii); (b) any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →