Business Laws

The LLP Amendment Bill bats for further ‘ease of business’

Vinod Surana | Updated on September 06, 2021

The Amendment seeks to de-criminalise certain offences and increase flexibility with regard to compounding of offences

The Limited Liability Partnership (Amendment) Bill, 2021 was first introduced on the floor of the Rajya Sabha on July 30, 2021 and was passed on August 9, 2021. This is an effort on the part of the government to further promote ease of doing business in India. The Amendment inter alia seeks to de-criminalise certain offences and increase flexibility with regard to compounding of offences.

The Bill also provides for the formation of ‘Small LLPs’. These would be Limited Liability Partnerships where: (a) the contribution from the partners is up to ₹25 lakh (may be increased up to ₹5 crore), (b) The turnover of the partnership for the preceding financial year is up to ₹40 lakh (may be increased up to ₹50 crore). This brings the concept of Small LLPs in line with ‘Small Companies’ as provided in the Companies Act, 2013.

LLP Act 2008 required LLPs to intimate in case of change in partners/change in registered office address and file statements of accounts, insolvency, annual returns, arrangement between an LLP and its creditors etc. Prior to the LLP Amendment, violation of these provisions attracted criminal liability. However, the LLP Amendment has de-criminalised these provisions and has restricted the liability to monetary penalty.

Another change that has been made has been to the powers imbibed with the Central government in relation to changing the name of an LLP. Under the 2008 Act, if an LLP failed to comply with some of the Act regulations, the Central government may order it, under certain circumstances, to alter its name or pay a fine ranging from ₹10,000 to ₹5 lakh. These circumstances may include undesirability on some count or a potential/ongoing trademark dispute. Instead of imposing a punishment, the revised Act now allows the Central government to assign a new name to such an LLP. The LLP Amendment Act will increase the punishment for fraud from 2-5 years. Earlier, the Central government could compound any offence which was punishable only with fine.

The Amendment Bill proposes to empower the Central government to establish or designate Special Courts for the conduct of trials relating to offences under the 2008 LLP Act.

The LLP Amendment 2021 mandates that appeals cannot be filed against the orders that have been made with the consent of the parties. The outer limit for filing appeals has been fixed at 60 days.

Implications of changes

The concept of Small LLP is to create a class of LLPs that are subject to less compliance requirements, lower fees, or additional fees, and so on, in order to lower compliance costs. The idea behind laws should be to ensure smooth functioning of business within the legal framework. The very imposition of fine for an undesirable or identical name was against this spirit. A more corporate-friendly approach is reflected in the LLP Amendment, wherein the Central government may allot a new name to the LLP instead of imposition of fine. This would lead to continuity of business and not expose a start-up to legal hassles at the stage of incorporation itself.

Having a designated official to oversee the compounding of offences would expedite the compounding of offences. Not allowing appellate mechanism to parties who have arrived at the orders based on mutual consent would reduce frivolous litigation. However, it may also erode justice, as the parties may allege that the consent was not free and hence open doors to new litigation. Fixing upper limit of time period for filing of appeals would also reduce unnecessary appeal litigation.

(The author is Managing Partner & CEO, Surana & Surana, International Attorneys)

Published on September 05, 2021

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