PENAL PROVISIONS UNDER LIMITED LIABILITY PARTNERSHIP BILL, 2008

[Mr. M. GOVINDARAJAN]

The Limited Liability Partnership ('LLP' for short) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility or organizing their internal structure as a partnership based on a mutually arrived agreement.  The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.  The various aspects of LLP have been discussed in my earlier articles published in TMI. In this article the penal provisions provided in the Limited Liability Partnership Bill, 2008 are discussed.  Compounding of offences is also provided in the bill.

1. Sec. 7(1) requires that every LLP shall have at least two designated partners who are individuals and at least one of them shall be a resident of India. Sec. 10(1) provides that contravention of Sec. 7(1) the LLP and  its every partner shall be punishable with fine which shall not be less than ten thousand rupees but which may extent to five lakh rupees;

2. Sec. 7(4) provides that every LLP shall file with the Registrar the particulars of every individual who has given his consent to act as designated partner in such form and manner as may be prescribed within thirty days of his appointment.

Sec. 7(5) provides that an individual eligible to be a designated partner shall satisfy such conditions and requirements as may be prescribed.

Sec. 8 requires that a designated partner shall be responsible for the doing of acts, matters and things as are required to be done by the LLP in respect of the compliance of the provisions of the Act including filing of any document, return, statement and the like reports pursuant to the provisions of the Act and as may be specified in LLP agreement.

Sec. 9 requires a LLP may appoint a designated partner within 30 days of vacancy arising for any reason.

Sec. 10(2) provides that contravention of Sec.7(4), 7(5), 8, 9, the LLP and its every partner shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

3. Sec.20 provides that if any person or persons carry on business under any name or title of which the words 'limited liability partnership' or 'LLP' or any contraction or imitation thereof is or are the last word or words that person or each of those person shall, unless duly incorporated as limited liability partnership, be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

4. Sec. 21 provides that every limited liability partnership shall ensure that its invoices, official correspondence and publications bear the following, namely-

§ The name, address of the registered office and registration number of the limited liability partnership; and

§ A statement that it is registered with limited liability

Any LLP which contravenes the above said provisions shall be punishable with fine which not be less than two thousand rupees but which may extend to twenty five thousand rupees.

5. Sec. 25(1) provides that every partner shall inform the LLP of any change in his name or address within a period of fifteen days of such change. Sec. 25(5) provides that if any partner contravenes the provisions of Sec. 25(1) such partner shall be punishable with fine which shall not less than two thousand rupees but which may extend to twenty five thousand rupees.

6. Sec. 25(2) provides that a LLP shall-

§ Where a person becomes or ceases to be a partner, file a notice with the Registrar within thirty days from the date he becomes or ceases to be a partner; and

§ Where there is any change in the name or address of a partner, file a notice with the Registrar within thirty days of such change.

Sec. 25(4) provides that if the LLP contravenes the provisions of Sec. 25(2) the LLP and every designated partner of the LLP shall be punishable with fine which shall not less than two thousand rupees but which may extend to twenty five thousand rupees.

7. Sec. 34 (1) to Sec. 34(4) provides with the maintenance of books of account, other records and audit etc., as detailed below:

Sec. 34(1) - the LLP shall maintain such proper account relating to the affairs for each year on cash basis or accrual basis and according to double entry system of accounting and shall maintain the same at the registered office for such period as may be prescribed;

Sec. 34(2) - Every LLP shall, within a period of six months from the end of the financial year, prepare a statement of Account and solvency for the said financial year at the last day of the said financial year in such form as may be prescribed and such statement shall be signed by the designated partners of the LLP;

Sec. 34(3) - Every LLP shall file within the prescribed period the Statement of Account and Solvency prepared with the Registrar every year in such form and in such manner and accompanied by such fees as may be prescribed;

Sec. 34(4) - The accounts of LLP shall be audited in accordance with such rules as may be prescribed.

Sec. 34(5) provides that any LLP which fails to comply with the above provisions shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees and every designated partner of such LLP shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

8. Sec. 35(1) provides that every LLP shall file an annual return duly authenticated with the Registrar within sixty days of closure of its financial year in such form and manner and accompanied by such fee as may be prescribed. Sec.35(2) provides that any LLP which fails to comply with the provisions of Sec. 35(1) shall be punishable with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees. Sec. 35(3) provides that if the LLP contravenes the designated partner of such LLP shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

9. Sec. 37 provides that if any return, statement or other document required by or for the purposes of the provisions of this Act, any person makes a statement-

§ which is false in any material particular, knowing it to be false; or

§ which omits any material fact knowing it to be material,

he shall, save as otherwise expressly provided in this Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine which may extend to five lakh rupees but which shall not be less than one lakh rupees.

10. Sec. 38(3) provides that any person who, without lawful excuse, fails to comply with any summons or requisition of the Registrar shall be punishable with fine which shall not be less than two thousand rupees but which may extend to twenty five thousand rupees.

11. Sec. 47(5) provides that if any person fails without reasonable cause or refuses-

§ to produce before an Inspector or any person authorized by him in this behalf with the previous approval of the Central Government any book or paper which it is his duty to produce; or

§ to furnish any information which it is his duty to furnish; or

§ to appear before the Inspector personally when required to do so or to answer any question which is put to him by the Inspector; or

§ to sign the notes of any examination

be shall be punishable with fine which shall not less than two thousand rupees but which may extend to twenty five thousand rupees and with a further fine which shall not be less than fifty rupees but which may extend to five hundred rupees for every day after the first day after which the default continues.

12. Sec. 50 provides that if, from the report of the Inspector, it appears to the Central Government that any person in relation to the LLP or in relation to any other entity whose affairs have been investigated, has been guilty of any offence for which he is liable, the Central Government may prosecute such person for the offence.

13. Sec. 62(3) provides that within thirty days after making of an order by the tribunal in reconstruction or amalgamation of the LLP, every LLP in relation to which the order is made, shall cause a certified copy thereof to be filed with Registrar for registration. Sec. 62(4) provides that if default is made in complying with the provisions of Sec. 62(3) shall be punishable with fine which may extend to fifty thousand rupees.

14. Sec.70 deals with the enhanced punishment.   It provides that in case a LLP or any partner or designated partner of such LLP or any partner or designated partner shall, for the second or subsequent offence, be punishable with imprisonment as provided, but in case of offences for which fine is prescribed either along with or exclusive of imprisonment, with fine which shall be twice the amount of fine for such offence.

15. Sec. 73 provides that whoever fails to comply with any order made by the Tribunal under any provisions of this Act shall be punishable with imprisonment which may extend to six months and shall also be liable to a fine which shall not be less than fifty thousand rupees.

16. Sec. 74 provides that any person guilty of an offence under this Act, for which no punishment is expressly provided shall be liable to a fine which may extend to five lakh rupees but which shall not be less than five thousand rupees and with a further fine which may extend to fifty rupees for every day after the first day after which the default continues.

17. Sec. 76 provides that where an offence under this Act committed by a LLP is provided-

§ to have been committed with the consent or connivance of a partner or partnership or designated partner or designated partners of the LLP; o

§ to be attributable to any neglect on the part of the partner or partners or designated partner or designated partners of that LLP

the partner or partners or designated partner or designated partners of the LLP, as the case may be, as well as that LLP shall be guilty of the offences and shall be liable to be proceeded against and punished accordingly.

18. Sec. 39 deals with the compounding of offences.   It provides that the Central Government may compound any offence under this Act which is punishable with fine only, by collecting from a person reasonably suspected of having committed the offence, a sum which may extend to the amount of the maximum fine prescribed for the offence.