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Section 102 of the Companies Act, 2013 l Violation l ROC Orders

                                                                 Case Study

Case: Omissions in the explanatory statement annexed to the notice of the Extra-Ordinary General Meeting of the Company

Governing Section: Section 102 of the Companies Act, 2013

In terms of the provisions of Section 102, 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 item 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.

Further, in terms of sub-section 3 of Section 102, in case 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.

Penal Section: Section 102(5) of the Companies Act, 2013

Penalty Imposed by the Adjudicating Officer: INR 150,000/- (Rupees One Lakh and Fifty Thousand Only)

Abstract of the matter: It was observed from the notices of the Extra-Ordinary General Meetings enclosed in e-forms MGT-14 filed by the Company on various occasions for issuance of shares on Preferential Basis that the provisions of Section 102 of the Companies Act, 2013, read with Companies (Share Capital and Debentures), Rules, 2014, have not been complied with.

Upon hearing of the case, it was contended that the omission was inadvertent and the aforesaid provisions were not applicable to the Company pursuant to the notification dated 05.06.2015 and pursuant to the provisions of the Articles of Association of the Company.

However, as the Company had admitted the default in one of its earlier responses, a penalty of INR 50,000/- (Rupees Fifty Thousand Only) was imposed on each of the Directors of the Company.

The above case law highlights the importance of the Explanatory Statement which is required to be annexed to the notice of the EGM. Various sections and their respective rules provide for varied forms of disclosures which are required to be made in the Explanatory Statement, hence the same should be taken into consideration while drafting the notices of the meetings.

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