When a general meeting will transact special business, the notice must be accompanied by an explanatory statement that empowers members to vote with full knowledge.
## 1. When Required
For every item of Special Business in a general meeting.
Not required for Ordinary Business (only at AGMs).
### Ordinary Business (AGM only)
1. Approval of Financial Statements + Board's & Auditors' Reports
2. Declaration of dividend
3. Appointment of directors in place of those retiring
4. Appointment of auditors + fixation of remuneration
### Special Business
Any other business at an AGM, and
All business at an EGM.
## 2. Mandatory Contents
The statement must disclose:
Nature of concern or interest, financial or otherwise, of —
Every Director, Manager, KMP, and
Relatives of the above.
Any other material facts to help members understand the meaning, scope, and implications of the item, and to take a decision.
## 3. Additional Disclosure for Item Affecting Another Company
If the special business item involves another company, disclose the shareholding (≥ 2% of PUSC) held in that other company by promoters, directors, manager, or KMPs.
Also state the time and place where related documents may be inspected.
## 4. Effect of Non-disclosure — Sec 102(4)
If, due to non-disclosure or inadequate disclosure, a promoter / director / manager / KMP / relative gains any benefit:
They must hold the benefit in trust for the company.
They must compensate the company — without prejudice to other actions.
## 5. Penalty — Sec 102(5)
Defaulting promoter / director / manager / KMP shall pay a penalty of:
₹50,000, OR
5 × the benefit received,
whichever is higher.
## 6. Specified IFSC Public Company
Section 102 applies unless the company's articles specify otherwise.
Worked example
### Example 1
Example 1 — Director's interest:
ABC Ltd's notice proposes a contract with XYZ Pvt Ltd, where Director D's spouse is a 30% shareholder. The explanatory statement must disclose D's interest (via relative) for the resolution to be valid.
### Example 2
Example 2 — Penalty:
Director P fails to disclose his interest, gains a benefit of ₹4,00,000. Penalty = higher of (a) ₹50,000, or (b) 5 × ₹4,00,000 = ₹20,00,000. He pays ₹20,00,000, plus holds the benefit in trust for the company.
### Example 3
Example 3 — Special vs Ordinary business:
At an AGM, declaration of dividend is ordinary business (no explanatory statement). Adoption of new AoA at the same AGM is special business and requires a statement under Sec 102.
⚠️ Common exam mistakes
Treating all AGM items as ordinary business — only the four listed are ordinary; everything else at an AGM is special.
Disclosing only director's direct shareholding while ignoring relatives — relatives' interest is equally required.
Calculating the penalty as a flat ₹50,000 even when 5 × benefit is much higher.
Forgetting that at an EGM, every item is special business — explanatory statements are mandatory for all.
Bare-Act text Section 102 · 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.
Section 102(2): For the purposes of sub-section (1),— (a) in the case of an annual general meeting, all business to be transacted thereat shall be deemed special, other than— (i) the consideration of financial statements and the reports of the Board of Directors and auditors; (ii) the declaration of any dividend; (iii) the appointment of directors in place of those retiring; (iv) the appointment of, and the fixing of the remuneration of, the auditors; and (b) in the case of any other meeting, all business shall be deemed to be special.
Section 102(4): Where any benefit accrues to such promoter, director, manager or other key managerial personnel or their relatives, either directly or indirectly, as a result of non-disclosure or insufficient disclosure in any statement referred to in sub-section (1), such person shall hold such benefit in trust for the company, and shall, without prejudice to any other action being taken against him under this Act or under any other law for the time being in force, be liable to compensate the company to the extent of the benefit received by him.
Section 102(5): If any default is made in complying with the provisions of this section, every promoter, director, manager or other key managerial personnel who is in default shall be liable to a penalty of fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is higher.