An Insight Into The Limited Liability Partnership (Amendment) Bill, 2021

CS K. Anupriya

12 Aug 2021 9:39 AM GMT

  • An Insight Into The Limited Liability Partnership (Amendment) Bill, 2021

    The Limited Liability Partnership Act, 2008 (Act) was enacted and notified in 2009 and since its inception, the Limited Liability Partnership (LLP) has been a popular type of business entity since it offers the best of both worlds, that is, partnerships and companies. It combines the flexibility of partnership firms that allow the LLP to form their own rules for their operation with the cost of compliance being comparatively less and the benefits of the Company that distinguishes the partners from the LLP making the LLP a separate legal entity.

    Since 2014, the Government of India has been proactively launching a wide array of initiatives as a part of its Ease of Doing Business (EoDB) initiative in India and the decriminalization of offences is one of the thrust areas in its initiatives. Following the decriminalization of many offences under the Companies Act, the Ministry of Corporate Affairs (MCA) initiated the process of decriminalization of offences under the Limited Liability Partnership Act, 2008 by constituting a Company Law Committee for this purpose which gave birth to the Limited Liability Partnership (Amendment) Bill, 2021. This Bill has now been approved by both the Houses of the Parliament, by the Rajya Sabha on 04th August, 2021 and by the Lok Sabha on 09th August, 2021. The major amendments that the Limited Liability Partnership (Amendment) Bill, 2021 (Bill) seeks to introduce in the Act is discussed in the following sections.

    Decriminalization of offences under the Act

    The need for such decriminalization stems from the fact that the imposition of huge punishments such as imprisonment, naming and shaming the individual Directors/ Partners and imposition of extraordinary fines & penalties act as an impediment to the growth of business in India and does not attract foreign investment. Further, it is viewed as an important reform to revive the economic growth post the COVID-19 situation in India. Hence, the Ministry of Corporate Affairs decided to initiate the process of decriminalizing offences under the Limited Liability Partnership Act, 2008.

    The Company Law Committee constituted for this purpose, has relied upon 3 basic principles for categorizing which are the offences to be decriminalized or omitted under the Limited Liability Partnership Act, 2008. Those principles are as follows:

    1. Principle 1: Offences that are less serious in nature and are minor non-compliance have been decided to be decriminalized and moved to a simple in-house adjudication mechanism instead of being treated as a criminal offence.
    2. Principle 2: Offences that are more appropriately dealt with other laws to be omitted.
    3. Principle 3: Offences that are serious in nature entailing an element of fraud and are non-compoundable to be maintained as is.

    Based on the above principles, 12 offences have been decriminalized and moved to a simple in-house adjudication mechanism and 1 offence has been omitted. The Limited Liability Partnership (Amendment) Bill, 2021 seeks to reduce the number of offences under the Act to 22, among which 7 being compoundable offences, 3 being non-compoundable offences and 12 being dealt with under the in-house adjudication mechanism.

    S. No.

    Category

    Nature of Offence

    1.

    Compoundable Offences

    Improper and deceptive use of the words 'LLP' or 'Limited Liability Partnership' to carry on any business without duly incorporating the business entity as a LLP.

    2.

    Failure to maintain proper books of accounts of the LLP.

    3.

    Failure to furnish information or details asked for by the Registrar of Companies within a reasonable period of time.

    4.

    Failure to preserve and produce documents and evidence in case of inspection and inquiry.

    5.

    Failure to indicate the fact of conversion of a firm to LLP in every communication made by the resultant LLP for a period of 12 months from the date of registration of the LLP.

    6.

    Failure to indicate the fact of conversion of a private company to LLP in every communication made by the resultant LLP for a period of 12 months from the date of registration of the LLP.

    7.

    Failure to indicate the fact of conversion of a unlisted public company to LLP in every communication made by the resultant LLP for a period of 12 months from the date of registration of the LLP.

    8.

    Non-Compoundable Offences

    Furnishing of a false statement (intentionally and knowingly) by a professional during incorporation of the LLP that all requirements of the Act has been satisfied

    9.

    Carrying out any act with the intent to defraud creditors of the LLP or any other person

    10.

    Furnishing a false material statement or omitting to furnish a material fact intentionally in any document or return to be furnished under the Act by the LLP.

    11.

    In-house Adjudication Mechanism

    Contravention with the requirement of ensuring that every LLP has 2 Designated Partners, out of which 1 should be a resident Designated Partner.

    12.

    Failure to file the appointment of a Designated Partner with the Registrar within 30 days of appointment.

    13.

    Failure to ensure that the Designated Partners appointed by the LLP satisfies the requirements prescribed under the Act.

    14.

    Failure to fill up the vacancy of the position of a Designated Partner within the required timelines.

    15.

    Non-maintenance of registered office for the purpose of receiving and acknowledging communications.

    16.

    Failure to publish the name, address and LLPIN of the LLP in all its official communications.

    17.

    Failure to furnish information to the Registrar regarding the change in partners or particulars of the partners within the prescribed timeline.

    18.

    Failure to file Statement of Account and Solvency within a period of 6 months from the end of the financial year.

    19.

    Failure to file Annual Return within a period of 60 days from the end of the financial year.

    20.

    Non-filing of the order of the Tribunal in case of compromise or arrangement scheme within 30 days of passing order.

    21.

    Non-filing of the order of the Tribunal in case of reconstruction or amalgamation of LLPs within 30 days of passing order.

    22.

    Contravention of the any provision of the Act or the relevant rules where no specific penalty has been indicated.

    Introduction of the concept of Small LLP

    The Bill seeks to introduce a new concept of a Small Limited Liability Partnership in the Act. This concept is similar to that of a 'Small Company' under the Companies Act, 2013. The purpose of this classification is that these LLPs will be subject to less compliance, less cost and smaller penalties in case of default, thereby reducing the compliance burden on such LLPs. The proposed threshold limited for classifying a LLP as a small LLP is that total contribution should not exceed 25 lakh rupees and turnover (during the immediately preceding financial year) should not exceed 40 lakh rupees. This classification is expected to improve the economic growth, boosting the entrepreneurial growth in India.

    Raising of funds by issue of Non-Convertible Debentures

    The question of whether a LLP can raise funds by issue of debt instruments was never answered in the Act prior to the introduction of the Bill. Debentures are most preferred instruments of investment for corporates due to less risk and an assured return. The Bill seeks to amend the Act to allow LLPs to issue fully secured Non-Convertible Debentures to body corporate or trusts that are regulated by the Securities and Exchange Board of India (SEBI) or Reserve Bank of India (RBI), thereby making LLPs a preferable destination for investments.

    Reduction in filing fees and additional fees

    The Bill seeks to amend Section 69 of the Act which deals with the imposition of additional fees in case of delayed filings of documents and returns that are required to be filed under the Act. At present, the additional fees payable for such delayed filings is INR 100 per day for every day of delay. Imposition of such huge penalties for such procedural technical defaults imposes a huge financial burden on the LLPs. Based on the recommendations received from various stakeholders, the Committee proposed to reduce the additional fees payable on such delayed filings. Further, it is proposed to recommend different filing fees for different classes of LLPs. This move is expected to enhance the liquidity position and the business operations of the LLP.

    Accounting Standards for certain classes for LLP

    The Central Government has been empowered to prescribe certain accounting standards and auditing standards be made applicable to certain classes of LLP, in consultation with the National Financial Reporting Authority. This move is expected to enhance the quality of financial reporting by certain LLPs, by introducing transparency and uniformity.

    Establishment of Special Courts

    The Bill seeks to empower the Central Government to establish special courts for the speedy trial of offences under the Act.

    Other Amendments

    The other amendments that the Bill seeks to introduce in the Act are as follows:

    1. Alignment of the provisions of the Act with the Companies Act, 2013 by substituting the provisions referring to the Companies Act, 1956 with the provisions of the Companies Act, 2013.
    2. Empowering the Central Government to appoint adjudication officers and other officers for carrying out the in-house adjudication mechanism.
    3. Delegation of the powers of compounding to the Regional Director.
    4. Amendment of definition of 'Business' under the Act to prohibit the LLPs from carrying on the NBFC Activity, based on the concern raised by RBI.
    5. Empowering the Central Government to direct certain LLPs to change their name if the name is considered undesirable or identical to an existing trademark.

    Conclusion

    It has been quoted by Martin Luther King Jr., that 'law and order exist for the purpose of establishing justice and that when they fail in this purpose they become the dangerously structured dams that block the flow of social of social progress'. History has always taught us that necessary reforms have to be implemented to allow the flow of social progress. We can expect that this plethora of changes that is being proposed to be brought about by the Bill in the Limited Liability Partnership Act, 2008 is one such reform that allows the flow of social progress, making India a corporate haven.

    The author, CS K. Anupriya is a Consultant - Corporate Compliance at Surana & Surana International Attorneys.Views are personal.

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