THE LIMITED LIABILITY PARTNERSHIP (AMENDMENT) BILL, 2021

LLP is a substitute corporate body form to traditional partnership firms. Limited liability partnership (LLP) is a separate legal entity form with a limited liability burden on the partners. Under LLP, the liabilities of partners are limited to their investment. Recently,

The Limited Liability Partnership (Amendment) Act 2021 ("Amendment Act") was introduced to amend the Limited Liability Partnership Act, 2008 (The Act). The Amendment Bill was first introduced in the Rajya Sabha on July 30, 2021, and was passed by Lok Sabha on August 9, 2021. The Amendment seeks to promote greater ease for corporations and to decriminalize certain offenses under the Act.

The essential amendments proposed in the Bill are set forth below:

Decriminalization of offenses

The Amendment Act decriminalizes certain provisions under the Act. For instance, prior to the Amendment, failure of an LLP to intimate, in case of change in partners, change in registered office address, annual returns or filing statement for accounts would attract criminal liability. However, the Amendment Act has decriminalized these provisions and imposed penalties in its place, such as:

1. Changes in partners; 

2. Change of Registered Office;

3. Filing of Statement of account;  

4. Arrangement between LLP and its creditors;

5. Reconstruction of an LLP.

The 2008 Act provides 24 penal provisions with 21 compoundable and 3 non-compoundable offenses. The Amendment Act has decriminalized 12 such offenses. 

Change of name of LLP:

The Act allows the central government to direct an LLP to change its name within a period of 3 months on the ground that the name is undesirable or identical to a trademark pending registration or is identical to an existing LLP. Failure to comply with the said directions is punishable with a fine of Rs 10,000 to five lakh rupees. The Amendment Act authorizes the central government to allot a new name to an LLP in the prescribed manner instead of levying a fine.

Concept of Small LLP

The Amendment Act provides for the formation of 'Small LLPs' in line with the concept of small companies under the Companies Act, 2013. These would be Limited Liability Partnerships where: 

1. the contribution of the partners does not exceed Rs. 25 Lakhs (or up to Rs. 5 crores ) and;

2. the turnover of the immediately preceding financial year, does not exceed Rs. 40 Lakhs (up to Rs 50 crore).

The Central Government has the power to notify certain LLPs. Under the Amendment Act, small LLPs would be subject to lesser compliances, lower fees and lesser penalties in the event of defaults.

Punishment for fraud:     

Under the Act, if an LLP or its partners indulge in any activity with their creditors for any fraudulent purpose, every party to the Act is punishable with imprisonment of up to 2 years in addition to a fine. The Amendment Act increased the maximum term of imprisonment from 2 years to 5 years for any fraudulent activity and a fine between Rs. 50,000 to Rs. 5 lakh.

Inclusion of Accounting Standards for classes of LLP

Section 34 of the Amendment Act provides the Central Government to prescribe the Standards of Accounting and Auditing, as recommended by the Institute of Chartered Accountants of India and deliberation with the National Financial Reporting Authority.

Compounding of Offences

As per the Act, the central government may compound any offence under the Act which is punishable only with a fine. The amount imposed may be up to the maximum fine designated for the offence. The Amendment Act amends the provision relating to compounding of offences u/s 39 of the Act and allows the Regional Director or any other officer not below the rank of Regional Director authorised by the Central Government, to compound such offences. 

If an offence by an LLP was compounded, then a similar offence cannot be compounded within a 3-year period. 

Special courts

The Amendment Act empowers the Central Government to establish Special Courts for the purpose of providing speedy trial of offences under the LLP Act. The Courts shall consist of a single Judge as Sessions Judge or Additional Sessions Judge for offences punishable with imprisonment of three years or more. And a Metropolitan Magistrate or a Judicial Magistrate of the first class (JMFC) for other offences. 

The mentioned Judges will be appointed with the agreement with the Chief Justice of the High Court. 

Appeals to Appellate Tribunal: 

Under the 2008 Act, appeals against the orders of the National Company Law Tribunal would lie with the National Company Law Appellate Tribunal (NCLAT). The Amendment Act provides that no appeal shall be made before the NCLAT if the order has been passed with the consent of the parties to the dispute. It further provides that an appeal shall be made within 60 days from the date of order. 

Non-compliance of orders of Tribunal: 

The Amendment Act removes the offence of non-compliance with an order of the National Company Law Tribunal (NCLT), which is punishable with imprisonment up to 6months and a fine up to Rs 50,000. 

Adjudicating Officers

The Amendment Act empowers the Central Government to appoint adjudicating officers (not below the rank of Registrar) to award penalties in matters of defaults under the LLP Act. Appeals against orders of the Adjudicating Officers will be made to the Regional Director.

Conclusion

The Amendment Act will encourage small partnerships to register as small LLPs under the Act. The step of decriminalization of offence is another major step to encourage start-ups and small companies to register as Limited Liability Partnership. However, the formation of Special courts for LLP disputes is questionable as there is an existing tribunal to handle LLP disputes. 

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Author: Papiha Ghoshal