Section 102: Statement To Be Annexed To Notice.

STATEMENT TO BE ANNEXED TO NOTICE – EXPLANATORY STATEMENT (SECTION 102)
Section 102 requires that a statement detailing the material facts of the businesses to be transacted as special business be annexed to the notice of the general meeting.

as per ss-2

Notice shall clearly specify the nature of the Meeting and the business to be transacted thereat. In respect of items of Special Business, each such item shall be in the form of a Resolution and shall be accompanied by an explanatory statement which shall set out all such facts as would enable a Member to understand the meaning, scope and implications of the item of business and to take a decision thereon. In respect of items of Ordinary Business, Resolutions are not required to be stated in the Notice.

Contents of an Explanatory Statement

Contents of Explanatory Statement:
In case of special business items to be transacted at a general meeting, a statement setting out the following:-
material facts, shall be annexed to the notice calling the meeting:
(i) (a) the nature of concern or interest, financial or otherwise, if any, in respect of each item of:
(i) every director and the manager, if any;

(ii) every other key managerial personnel and relatives of every director, manager and key
managerial person.
(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.

(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.

Where any item of special business to be transacted at a meeting of the company relates to or affects
any other company, the extent of shareholding interest in that other company of every promoter, director,
manager, if any, and of every other key managerial personnel of the first mentioned company shall, if
the extent of such shareholding is not less than 2% of the paid- up share capital of that company, also
be set out in the statement.

(ii) 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 explanatory statement.

What are the Effect of non-disclosure?

Where as a result of the non-disclosure or insufficient disclosure in any statement referred as above, being made by a promoter, director, manager, if any, or other key managerial personnel, any benefit which accrues to such promoter, director, manager or other key managerial personnel or their relatives, either directly or indirectly, the promoter, director, manager or other key managerial personnel, as the case may be, 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.

What are the Penalty if company fail to comply section 102 of Companies Act 2013 ?

If any default is made in complying with the provisions of section 102 of the Companies Act, 2013,
every promoter, director, manager or other key managerial personnel of the company 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.

As Per SEBI LODR Regulation:-

As per Regulation 17(11) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, if a general meeting includes any special business to be discussed, the notice for the meeting (as required under Section 102(1) of the Companies Act, 2013) must clearly mention the Board of Directors‘ recommendation for each such special business item. This helps shareholders make informed decisions.

Exceptions to Section 102 of the Companies Act, 2013:

1. For Private Companies:
   Section 102 applies to private companies unless:
   • A specific provision in another section of the Act states otherwise, or
   • The Articles of Association of the company provide a different rule.
     (Notification dated 5th June 2015)
2. For Specified IFSC Public Companies:
   Section 102 applies to public companies operating in an International Financial Services Centre (IFSC), unless:
   • The Articles of Association of the company specify otherwise.
     (Notification dated 4th January 2017)

Relevant Case Law’s:-

1. Centron Industrial Alliance Limited vs. Pravin Kantilal Vakil and Another

• Citation: [1984] 55 Comp Cas 731 (Bom)
• Court: Bombay High Court
• Date: July 9, 1982
• Facts: Centron Industrial Alliance Limited proposed a scheme of amalgamation with Brooke Bond India Ltd. under Section 391 of the Companies Act, 1956. The scheme was approved by an overwhelming majority of shareholders and creditors. Subsequently, some shareholders requisitioned an extraordinary general meeting (EGM) to pass a resolution directing the company to withdraw the petition for sanctioning the scheme and to renegotiate or examine alternative schemes.
• Judgment: The Bombay High Court held that once a scheme of amalgamation is approved by the requisite majority of shareholders and creditors as per Section 391, it is not open to the shareholders to requisition a meeting to compel the company to withdraw the petition for sanctioning the scheme. The court observed that the proper course for dissenting shareholders is to raise their objections during the hearing of the petition for sanctioning the scheme, not through a separate EGM. SooperKanoon

2. Yatin Chandulal Davda vs. Iberchem India Ltd.

• Case No.: C.P. No. 172/241-242/NCLT/AHM/2017
• Court: National Company Law Tribunal (NCLT), Ahmedabad Bench
• Date: October 5, 2017
• Facts: Yatin Chandulal Davda, a shareholder of Iberchem India Ltd., filed a petition alleging oppression and mismanagement under Sections 241 and 242 of the Companies Act, 2013. He contended that the notice for an extraordinary general meeting (EGM) scheduled on October 7, 2017, was not in compliance with Section 102 of the Companies Act, 2013, as it lacked necessary disclosures regarding the interests of key managerial personnel and did not provide details about the inspection of documents.
• Judgment: The NCLT, Ahmedabad Bench, observed that the notice for the EGM did not comply with the requirements of Section 102 of the Companies Act, 2013, as it failed to disclose material facts and interests of key managerial personnel. The Tribunal restrained the company from holding the EGM as scheduled and directed adherence to statutory requirements in issuing notices for meetings. LexTech Suite

3. M. S. Madhusoodhanan & Anr. vs. Kerala Kaumudi Pvt. Ltd. & Ors.

• Citation: [2003] 117 Comp Cas 19 (SC)
• Court: Supreme Court of India
• Date: April 29, 2003
• Facts: In this case, the appellants challenged the validity of certain resolutions passed during an Extraordinary General Meeting (EGM) of Kerala Kaumudi Pvt. Ltd., alleging that the notices issued lacked a proper explanatory statement as mandated by Section 173 of the Companies Act, 1956 (analogous to Section 102 of the Companies Act, 2013).
• Judgment: The Supreme Court held that the absence of a proper explanatory statement accompanying the notice for the EGM vitiated the resolutions passed therein. The Court emphasized that the requirement of an explanatory statement is mandatory and aims to ensure that members are well-informed about the matters to be discussed, enabling them to make informed decisions.

4. S. Varadarajan vs. Venkateshwara Solvent Extraction (P) Ltd.

• Citation: [2010] 154 Comp Cas 318 (Mad)
• Court: Madras High Court
• Date: February 24, 2010
• Facts: The petitioner, a shareholder, contended that the company conducted an Annual General Meeting (AGM) where certain special business items were passed without providing an adequate explanatory statement as required under Section 173 of the Companies Act, 1956.
• Judgment: The Madras High Court observed that the provision of an explanatory statement is a statutory requirement intended to furnish shareholders with sufficient information to understand the implications of the proposed resolutions. The Court held that non-compliance with this requirement renders the resolutions invalid, as shareholders would be deprived of the opportunity to make an informed judgment.

5. M. S. Dhanuka vs. Bharat Paper Mills Ltd.

• Citation: [2004] 121 Comp Cas 574 (Bom)
• Court: Bombay High Court
• Date: September 15, 2004
• Facts: The petitioner challenged the validity of certain resolutions passed in a general meeting, arguing that the notices were defective due to the absence of a comprehensive explanatory statement as mandated by Section 173 of the Companies Act, 1956.
• Judgment: The Bombay High Court held that the requirement of an explanatory statement is mandatory and serves the purpose of informing shareholders about the material facts concerning each item of special business. The Court stated that failure to comply with this requirement amounts to a procedural irregularity that can invalidate the resolutions passed in the meeting.

These cases underscore the critical importance of providing a detailed explanatory statement with notices for general meetings, as stipulated under Section 102 of the Companies Act, 2013. Non-compliance with this provision can lead to the invalidation of resolutions and potential legal consequences for the company and its officers.

Disclaimer: This content is written by Chiman Soni, a CS Executive student and founder of Corporate Laws Hub. The information provided herein is for educational and informational purposes only and should not be construed as legal advice or financial advice. While every effort has been made to ensure the accuracy and reliability of the information, readers are advised to consult a qualified legal professional, financial advisor, or refer to authoritative sources for specific legal or financial queries or concerns.