Explanatory Statement Annexed to Notice (Section 102)
# Explanatory Statement to be Annexed to Notice [Section 102]
## When is it required?
An explanatory statement must be annexed to the notice of every general meeting at which any special business is to be transacted.
> Not required for ordinary business.
## What must the Explanatory Statement contain?
It must set out all material facts, including:
### (a) Nature of concern or interest, financial or otherwise, of:
Every director and every manager, and their relatives;
Every other Key Managerial Personnel (KMP), and their relatives.
### (b) Any other information enabling members to understand:
The meaning, scope and implications of the items of business; and
To make a properly informed decision.
## Additional Disclosures
1. If the special business relates to or affects any other company, and any promoter/director/manager/KMP holds ≥ 2% of paid-up share capital of that other company, their shareholding must be disclosed.
2. If any document is to be considered at the meeting, the time and place for inspection must be specified.
## Consequences of Non-Disclosure or Insufficient Disclosure
### (a) Constructive Trust
If any benefit accrues to a promoter/director/manager/KMP or relative due to non-disclosure or insufficient disclosure, such person holds the benefit in trust for the company and must compensate the company.
### (b) Penalty
The promoter/director/manager/other KMP in default is liable to a penalty of the higher of:
₹50,000, OR
5 times the amount of benefit accruing to such person or their relative.
## Purpose
The explanatory statement enforces informed shareholder consent — members should know what is at stake, who benefits, and what conflicts exist.
Worked example
### Example 1
Example: At the AGM of L Ltd., a resolution proposes a related-party transaction with M Ltd. Mr. P (director of L Ltd.) holds 3% of M Ltd. The notice does not disclose Mr. P's shareholding. The deal benefits Mr. P by ₹2,00,000.
Solution: Mr. P holds ₹2,00,000 in trust for L Ltd. and must refund it. Additionally, he is liable to a penalty of higher of ₹50,000 or 5 × ₹2,00,000 = ₹10,00,000.
⚠️ Common exam mistakes
Annexing an explanatory statement for ordinary business — not required.
Disclosing only the director's interest and forgetting relatives, manager, KMP.
Forgetting the 2% threshold for shareholdings in other affected companies.
Quoting penalty as flat ₹50,000 — it is the higher of ₹50,000 OR 5× the benefit.
Bare-Act text Section 102 · Companies Act, 2013 · click to expand
Section 102 — Statement to be annexed to notice. (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. (3) Where any item of business refers to any document, which is to be considered at the meeting, the time and place where such document can be inspected shall be specified in the statement. (4) Where any benefit accrues, such person shall hold such benefit in trust for the company and shall be liable to compensate the company to the extent of the benefit received. (5) Every promoter, director, manager or other KMP who is in default shall be liable to a penalty of fifty thousand rupees or five times the amount of benefit accruing, whichever is higher.