Table of contents

Introduction

Objective of the bill

Key provisions

• Small LLP
• Change of name of LLP
• Certain offences decriminalised
• Punishment for fraud
• Standards of accounting
• Compounding of offences
• Non-compliance of orders of Tribunal
• Appeals to Appellate Tribunal
• Adjudicating Officers
• Special courts

Conclusion

Introduction

On July 30, 2021 The Limited Liability Partnership (Amendment) Bill, 2021 was introduced in Rajya Sabha by Smt. Nirmala Sitharaman, Minister of Finance and Corporate Affairs.  The Act provides for regulation of limited liability partnerships (LLP).  LLP is an alternative corporate body form to traditional partnership firms.  Under LLP, a partner’s liabilities are limited to their investment in the business. The Limited Liability Partnership Act, 2008 had its 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, organised and operated in a flexible, innovative and efficient manner. The Central Government to facilitate greater ease of living to law abiding corporates and to decriminalise certain provisions of the Act, it has become necessary to amend certain provisions of The Limited Liability Partnership Act, 2008. Therefore, the Limited Liability Partnership (Amendment) Bill, 2021 has been proposed.

Objective of the bill

Certain key objective which is to be achieved by The Limited Liability Partnership (Amendment) Bill, 2021 are as follows:

1. To introduce the concept of “small limited liability partnership” in line with the concept of “small company” under the Companies Act, 2013.
2. To 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.
3. To empower the Central Government to prescribe the “Accounting Standards” or “Auditing Standards” for a class or classes of limited liability partnerships.
4. To amend section 39 of the Act relating to “compounding of offences” so as to authorise the Regional Director to compound any offence under this Act which is punishable with fine only.
5. To empower the Central Government to establish or designate as many “Special Courts” as may be necessary for the purpose of providing speedy trial of offences under the Act.
6. To provide more clarity in the provisions when any person aggrieved by an order of “Tribunal” prefers an appeal to the “Appellate Tribunal”.
7. To provide that the Central Government may appoint as many officers as Adjudicating Officers as it thinks necessary for the purpose of adjudicating penalties under the Act.

Key provisions

Small LLP

Amendment of section 2 subsection (1) of The Limited Liability Partnership Act, 2008 by inserting clause (ta) to define “small limited liability partnership” as, any  limited liability partnership  whose  contribution  does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, 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 forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed  or which meets such other requirements or such terms and conditions as may be prescribed can be classified as small limited liability partnership.

Change of name of LLP

If a limited liability partnership is registered by a name which is identical with that of any other limited liability partnership or a company or a registered trade mark of such proprietor under the Trade Marks Act, 1999 then on an application of such limited liability partnership or proprietor, 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.

However, in The Limited Liability Partnership Act, 2008 provision of fine was present in case of non-compliance of the above norm. But this amendment have such fine or punishment to be imposed and incorporated new provision which provides that in case of default in complying, the Central Government shall allot a new name to the limited liability partnership and 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.

Certain offences decriminalised

 The Act specifies the manner of operations of LLPs, and provides that violating these requirements will be punishable with a fine (ranging between two thousand rupees and five lakh rupees).  These requirements include: (i) changes in partners of the LLP, (ii) change of registered office, (iii) filing of statement of account and solvency, and annual return, and (iv) arrangement between an LLP and its creditors or partners, and reconstruction or amalgamation of an LLP.  The Bill decriminalises these provisions and imposes a monetary penalty.

Punishment for fraud

Section 30 of The Limited Liability Partnership Act, 2008 provides that Where any business is carried on with such intent or for such purpose, every person who was knowingly a party to the carrying on of the business shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees. This bill proposes to increase the period of imprisonment from “two years” to “five years”.

Standards of accounting

Under Section 34A the Central Government may, in consultation with the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013 prescribe the standards of accounting and prescribe the standards of auditing, as recommended by the Institute of Chartered Accountants of India constituted under section 3 of the Chartered Accountants Act, 1949, for a class or classes of limited liability partnerships.

Compounding of offences

Central Government may compound any offence which punishable with fine only by The Regional Director or any other officer not below the rank of Regional Director, 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. However, if an offence committed by a limited liability partnership or its partner or its designated partner within a period of three years from the date on which similar offence committed by it or him was compounded under this section then such offence cannot be compounded again.

Non-compliance of orders of Tribunal

Section 73 under The Limited Liability Partnership Act, 2008 provides that whoever fails to comply with any order made by the Tribunal 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. However, this section is proposed to be omitted under this bill which means non-compliance of orders of the tribunal will not be an offence.  

Appeals to Appellate Tribunal

Any person aggrieved by an order of Tribunal may prefer an appeal to the Appellate Tribunal. Every appeal shall be filed within a period of sixty days from the date on which the copy of the order of the Tribunal is made available to the person aggrieved.

Adjudicating Officers

After amendment under section 76A, for the purposes of adjudging penalties, the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers in such manner as may be prescribed. Adjudicating officers may impose the penalty on the limited liability partnership or its partners or designated partners or any other person for non-compliance or default under the relevant provisions of this Act. Any person aggrieved by an order made by the adjudicating officer may appeal to the Regional Director having jurisdiction in the matter. If a partner or designated partner of a limited liability partnership or any other person who is in default fails to comply with an order within a period of ninety days from the date of receipt of the copy of the order, such partner or designated partner or any other person shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but may extend to one lakh rupees, or with both.

Special courts

For the purpose of providing speedy trial of offences new sections 67A, 67B and 67C for the Establishment, power and procedure of Special Courts is proposed to be inserted. Section 67A provides that the Central Government may establish or designate as many Special Courts as may be necessary for such areas or areas.

Conclusion

The Limited Liability Partnership (Amendment) Bill, 2021 have proposed to 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, Introduced of concept of Small LLPs, Registration offices, Establishment of Special Courts, Rectification of name of LLP, Standards of Accounting and Auditing, Compounding of offences and various other amendments to the Limited Liability Partnership Act, 2008. This amendment would encourage the start-up ecosystem by decriminalising certain offences.

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