THE LIMITED LIABILITY PARTNERSHIP (AMENDMENT) BILL, 2021 – PART I

[Mr. M. GOVINDARAJAN]

Limited Liability Partnership Act

The Limited Liability Partnership Act, 2008 (the Act) was enacted with a view to make provisions for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto.  The main purpose of the Act was to provide a new body corporate form that would provide an alternative to the traditional partnership form to enable professional expertise and entrepreneurial initiative to be combined, organized and operated in a flexible, innovative and efficient manner.

Amendment

In view of the constant endeavor of the Central Government to facilitate greater ease of living to law abiding corporate and to decriminalize certain provisions of the Act, it has become necessary to amend certain provisions of the Act. Hence the Bill, namely, the Limited Liability Partnership (Amendment) Bill, 2021 is proposed to be enacted.  The Union Cabinet gave its approval on 28.07.2021.   The Bill was introduced in Rajya Sabha on 29.07.2021. 

Omissions

The amendment Bill omits the following sections:

• Section 18 – Application for direction to change the name in certain circumstances;
• Section 73 – Penalty on non compliance of any order passed by Tribunal.
• Section 81 – Transitional provisions.

Insertions

• Section 2(1)(ia) -  definition – debenture;
• Section 2 (1) (ra) – definition  - Regional Director;
• Section 2 (1)(ta) – definition – Small LLPs;
• Section 34A – Accounting and Accounting Standards;
• Sections 67A, 67B and 67C – Establishment of Special Courts;
• Section 68A – Registration Offices;
• Section 76A – Adjudication of Penalties;
• Section 79 (2) (ta), (zf) – Power to make rules.
• Section 80(1A) – Power to remove difficulties.

Features of amendment

The amendment brings the following features-

• introduce the concept of ‘small limited liability partnership’ in line with the concept of ‘small company’ under the Companies Act, 2013;
• amend certain sections of the Act so as to convert offences into civil defaults and to convert the nature of punishment provided in the said sections from fines to monetary penalties;
• insert a new section 34A so as to empower the Central Government to prescribe the ‘Accounting Standards’ or ‘Auditing Standards’ for a class or classes of limited liability partnerships;
• amend section 39 of the Act relating to “compounding of offences” so as to authorize the Regional Director to compound any offence under this Act which is punishable with fine only;
• to establish or designate as many ‘Special Courts’ as may be necessary for the purpose of providing speedy trial of offences under the Act;
• to provide more clarity in the provisions when any person aggrieved by an order of  ‘Tribunal’  prefers an appeal to the ‘Appellate Tribunal’;
• to appoint as many officers as Adjudicating Officers as it thinks necessary for the purpose of adjudicating penalties.

Small LLPs

The Bill introduces the concept of Small LLPs as that of small companies under Companies Act, 2013.  The expression ‘small LLPs’ is defined vide newly inserted section 2(1)(ta) as a limited liability partnership-

• the contribution of which, does not exceed ₹ 25 lakhs  or such higher amount, not exceeding ₹ 5 crores, as may be prescribed; and
• the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed ₹ 45 lakhs  or such higher amount, not exceeding ₹ 50 crores, as may be prescribed; or
• which meets such other requirements as may be prescribed,

and fulfils such terms and conditions as may be prescribed.

Rectification of names

Section 17 of the Act has been substituted for a new section.  The newly inserted section 17 provides that a limited liability partnership, on its first registration or on its registration by a new name, is registered by a name which is identical with or too nearly resembles to-

• that of any other limited liability partnership or a company; or

• a registered trade mark of such proprietor under the Trade Marks Act, 1999

as is likely to be mistaken for it, then on an application of such limited liability partnership or proprietor or a company, the Central Government may direct that such limited liability partnership to change its name or new name within a period of three months from the date of issue of such direction.

An application of the proprietor of the registered trademarks shall be maintainable within a period of 3 years from the date of incorporation or registration or change of name of the limited liability partnership under this Act.

Where a limited liability partnership changes its name or obtains a new name it shall within a period of fifteen days from the date of such change, give notice of the change to Registrar along with the order of the Central Government.  The Registrar shall carry out necessary changes in the certificate of incorporation and within 30 days of such change in the certificate of incorporation, such limited liability partnership shall change its name in the limited liability partnership agreement.

If the limited liability partnership is in default in complying with any direction given, the Central Government shall allot a new name to the limited liability partnership in such manner as may be prescribed. The Registrar shall enter the new name in the register of limited liability partnerships in place of the old name and issue a fresh certificate of incorporation with new name, which the limited liability partnership shall use thereafter.

Name can be changed subsequently to this.

Accounting and Auditing Standards

A new section 34A is to be inserted in the Bill.  The newly inserted section 34A provides that the Central Government may, in consultation with the National Financial Reporting Authority prescribe the standards of accounting; and prescribe the standards of auditing, as recommended by the Institute of Chartered Accountants of India for a class or classes of limited liability partnerships.

Compounding of offences

The Bill substitutes section 39 of the Act which provides for compounding of offences.  The newly substituted section 39 provides that the Regional Director or any other officer not below the rank of Regional Director authorized by 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 provided for the offence but shall not be lower than the minimum amount provided for the offence.

Limitation

The compounding of offences shall apply to an offence committed by a limited liability partnership or its partner or its designated partner within a period of 3 years from the date on which similar offence committed by it or him was compounded under this section.  It shall be deemed to be the first offence.

Filing of application

The application for the compounding of an offence shall be made to the Registrar.  The Registrar shall forward the same, together with his comments thereon, to the Regional Director or any other officer not below the rank of Regional Director authorized by the Central Government, as the case may be.

If any offence is compounded under this section, whether before or after the institution of any prosecution, intimation thereof shall be given to the Registrar within a period of 7 days from the date on which the offence is so compounded.

If any offence is compounded before the institution of any prosecution, no prosecution shall be instituted in relation to such offence.

Where the compounding of any offence is made after the institution of any prosecution, such compounding shall be brought by the Registrar in writing, to the notice of the court in which prosecution is pending and on such notice of the compounding of the offence being given, the offender in relation to which the offence is so compounded shall be discharged.

Order

The Regional Director or any other officer not below the rank of Regional Director authorized by the Central Government, while dealing with the proposal for compounding of an offence may, by an order, direct any partner, designated partner or other employee of the limited liability partnership to file or register, or on payment of fee or additional fee as required to be paid under this Act, such return, account or other document within such time as may be specified in the order.

Fine

If any partner or designated partner or other employee of the limited liability partnership who fails to comply with any order made by the Regional Director or any other officer not below the rank of Regional Director authorized by the Central Government the maximum amount of fine for the offence, which was under consideration of Regional Director or such authorized officer for compounding under this section shall be twice the amount provided in the corresponding section in which punishment for such offence is provided.

Special Courts

The Bill introduces sections 67A, 67B and 67C for the purpose of establishment of Special Courts to providing speedy trial in LLP litigations.  Until Special Courts are designated or established under sub-section (1), the Courts designated as Special Courts in terms of section 435 of the Companies Act, 2013 shall be deemed to be Special Courts for the purpose of trial of offences punishable under this Act. 

Summary trial

• The Special Court may, if it thinks fit, try in a summary way any offence under this Act which is punishable with imprisonment for a term not exceeding three years.
• In the case of any conviction in a summary trial, no sentence of imprisonment for a term exceeding one year shall be passed.
• If it appears to the Special Court that it is undesirable to try the case summarily, the Special Court shall, after hearing the parties, record an order to that effect and thereafter recall any witnesses who may have been examined and proceed to hear or re-hear the case in accordance with the procedure for the regular trial.

Jurisdiction

The Special Court shall have jurisdiction and power to impose punishment under section 30 of the Act and the criminal cases against the limited liability partnership or its partners

or designated partners or any other person in default filed under this Act and pending before the court of Judicial Magistrate of the first class or Metropolitan Magistrate, as the case may be, shall be transferred to the Special Court.

Cognizance of offence

The Special Courts shall take cognizance of any offence punishable under this Act or the rules made there under save on a complaint in writing made by the Registrar or by any officer not below the rank of Registrar duly authorized by the Central Government for this purpose.

Appeal and revision

The High Court is having power to hear appeals and revisions against the order of Special Courts under this Act within the local limits of the jurisdiction of the High Court were a Court of Sessions trying cases within the local limits of the jurisdiction of the High Court.

Establishment of Registration Offices

The newly introduced section 68A provides that for the purpose of exercising such powers and discharging such functions as are conferred on the Central Government by or under this Act or under rules made there under and for the purpose of registration of limited liability partnerships under this Act, the Central Government shall, by notification, establish such number of registration offices at such places as it thinks fit, specifying their jurisdiction.