Explanatory Statement to the Notice – section 102 of the Companies Act, 2013


Section 102 of the Companies Act, 2013 replaces the section 173 of the Companies Act, 1956 is identical in all respects except the nature of concern or interest in the particular item of business shall be given not only of directors and managers, but also of every other key managerial personnel and also relatives of these directors, managers and key managerial personnel. 

Where the item of business to be transacted at a general meeting relates to or concerns a company, then the shareholding interest in that other company of every promoter, director, manager or every other key managerial personnel shall, if the extent of shareholding interest is not less than 2% of the paid-up share capital of that other company shall also be set out in the explanatory statement. Hitherto, it was only the shareholding interest of the directors and the managers, if any, and also if the shareholding interest was not less than 20% of the paid up share capital of the second company. 

Section 102(4) is a new clause whereby as a result of non disclosure or insufficient disclosure being made in the explanatory statement, any benefit accrues to the promoter, director, manager, key managerial personnel or relatives thereof, either directly or indirectly, then the promoter, director, manager, key managerial personnel or relatives thereof shall hold such benefit in trust for the company and shall be liable to compensate the company to the extent of such benefit received by him. 

The earlier section 173 did not have any penalty clause. The new section 102 of the Companies Act, 2013 has a penalty clause (5) which says that on any default in complying with this section, the promoter, director, manager, or other key managerial personnel shall be punishable with fine which shall extend to Rs.50,000 or five times the benefit accruing to the promoter, director, manager, key managerial personnel or any of his relatives, whichever is more. So the penalty has been specified in the section itself and the penalty covers not only default in compliance but also the instance where the promoter, manager, director or other key managerial personnel gains any undue benefit due to such non disclosure or insufficient disclosure than he has to disgorge the benefits received to the extent of 5 times the benefits received by him. 

Previously section 170 of the Companies Act, 1956 gave exemption from the provisions of sections 171 to 186 of the Companies Act, 1956 to purely private companies if their articles provided for it. For eg. many private companies provided in their articles of association that there is no need to attach explanatory statement to the notice convening a general meeting in case of an item of special business.

There is no such provisions in the Companies Act, 2013. Which means that explanatory statements is mandatory for each item of special business in a private company. The moot question arises however is that whether the private companies need to now delete the relevant clauses in their articles of association or suitably modify to reflect the provisions as are applicable in the Companies Act, 2013.

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3 Comments

Filed under company law

3 responses to “Explanatory Statement to the Notice – section 102 of the Companies Act, 2013

  1. Dipika

    Where in the companies act 2013, it is mentioned that no such provisions in the Companies Act, 2013 means that explanatory statements is mandatory for each item of special business in a private company.

    Please confirm.

  2. Susmita

    Is expanatory statement for change of name of company is now under section 102???

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