2021 (8) TMI 1135 - HC - Companies Law

Requirement to deposit Stamp Duty and Registration Fee - conversion of the petitioner from Partnership Firm to Limited Liability Partnership - permission to reflect such change of name in the revenue record granted - HELD THAT - In view of provisions of Section 58(4)(b) of the Limited Liability Partnership Act, consequent upon conversion of firm to limited liability partnership, there is automatic vesting/transfer of all assets of firm to the LLP - Sub-section (4) of Section 58 of LLP Act starts with non- obstante clause notwithstanding anything contained in any other law for the time being in force . Therefore, principles of statutory vesting of properties will apply to the instant case as well. Necessity of execution of an instrument upon conversion of a partnership firm to limited liability partnership - HELD THAT - Section 3 of the Indian Stamp Act talks about the instruments, which are chargeable with duties.Once there is no instrument of transfer of assets of erstwhile partnership firm to LLP, then question of payment of stamp duty and registration charges on it does not arise. The registration fee is payable on an instrument compulsorily registerable under Section 17 of the Registration Act. Once there is no transfer of immovable property under an instrument, then the question of compulsory registration of that non-existent instrument and payment of stamp duty on it is not warranted. Neither the stamp duty nor the registration fee, therefore, is payable in such circumstances. Whether conversion of firm to LLP involves change in constitution? - HELD THAT - Conversion of petitioner-firm to LLP is admittedly without any consideration. Neither any sale deed nor any conveyance deed has been executed. Transfer of assets of erstwhile partnership firm to LLP is by operation of law. Conversion to LLP is normally undertaken for restructuring exercises. One of the object of Limited Liability Partnership Act is to view it as an alternative corporate business vehicle providing the benefits of limited liability, while allowing its members the flexibility of organizing their internal structure as a partnership, based on a mutually arrived agreement. Petition allowed.

Issues Involved:
1. Levy of Stamp Duty and Registration Fee upon conversion of a Partnership Firm to a Limited Liability Partnership (LLP).
2. Necessity of executing an instrument upon such conversion.
3. Change in the constitution of the firm upon conversion to LLP.
4. Applicability of the Indian Stamp Act and Registration Act in the context of conversion.

Issue-wise Detailed Analysis:

1. Levy of Stamp Duty and Registration Fee upon Conversion:
The petitioner, initially a Partnership Firm, converted into a Limited Liability Partnership (LLP) and sought to change its name in the revenue records. The respondents imposed a condition to deposit Stamp Duty and Registration Fee for this change. The petitioner challenged this imposition, arguing that under the Limited Liability Partnership Act, the conversion did not change the legal entity or constitution of the firm, and hence, Stamp Duty and Registration Fee should not be applicable.

2. Necessity of Executing an Instrument upon Conversion:
The court examined the nature of conversion under Section 58 of the LLP Act. It was observed that upon conversion, all tangible and intangible assets of the partnership firm automatically vest in the LLP by statutory operation, without the need for a separate conveyance or instrument of transfer. This statutory vesting negates the necessity for any additional instrument, as the transfer is automatic and does not involve an actual transaction requiring registration.

3. Change in the Constitution of the Firm upon Conversion to LLP:
The court noted that the conversion of the firm to an LLP does not alter the legal entity of the firm but changes its identity. The LLP Act ensures continuity, and the firm is deemed dissolved and removed from the records of the Registrar of Firms. This change does not constitute a change in the constitution of the firm, as the legal entity remains the same, only its form changes.

4. Applicability of the Indian Stamp Act and Registration Act in the Context of Conversion:
The court analyzed Section 3 of the Indian Stamp Act, which pertains to charging stamp duty on certain instruments. Since there is no instrument of transfer upon conversion, the question of stamp duty does not arise. Similarly, the Registration Act requires registration of instruments transferring immovable property. As there is no such instrument in this case, registration and the associated fee are not applicable.

Conclusion:
The court concluded that:
- Upon conversion, all assets of the partnership firm automatically vest in the LLP by statutory operation, without the need for a separate conveyance.
- No instrument of transfer exists, and hence, no stamp duty or registration fee is chargeable.
- The conversion does not change the legal entity of the firm, only its identity.
- The imposition of stamp duty and registration fee for the conversion is not warranted.

The court allowed the writ petition, quashing the orders directing the petitioner to deposit stamp duty and registration fee, and directed the respondents to update the revenue records to reflect the new name of the LLP.

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