LLP Act: MCA proposes to decriminalise compoundable offences

Our Bureau New Delhi | Updated on June 20, 2020

In what could be major relief for small and medium businesses in India, the Government proposes to decriminalise the compoundable offences under the Limited Liability Partnership Act 2008.

This is expected to provide greater ease of doing business in India to law abiding LLPs. In India, more than 1.45 lakh LLPs are registered under the LLP Act and the majority of them are small and medium enterprises.

LLP is basically an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organising their internal structure as a partnership based on a mutually arrived agreement.

The Government plan is to decriminalise compoundable offences involving minor, procedural or technical violations, or offences which may not involve any harm to public interest.

The Corporate Affairs Ministry ( MCA) has, for this purpose, invited public comments by July 4. While listing out 20 provisions of the LLP Act along with the current punishment prescribed for violation of those provisions, the MCA has sought suggestions for the same.

The exercise to identify and decriminalise the provisions of LLP Act is aimed at incentivising compliance, de-clogging of criminal justice system and promoting congenial business climate, the MCA has said. Criminalisation of minor violations acts as an avoidable deterrent and impinges upon the business sentiments, it added.

The offences proposed to be decriminalised include non-compliance with norms regarding--(i) eligibility and appointment of designated partners (ii) registration of changes in partners (iii) maintenance of books of account, other records and audit and (iv) filing of annual return.

Experts’ Take

Prasenjit Chakravarti, Partner, Khaitan & Co, a law firm, said this move, besides being cheered by MSMEs, will be perceived as a positive signal to foreign investors and for those who are permitted to set up their presence in India as LLP, subject to certain conditionalities under Indian foreign investment norms. “This will only further boost Government's business friendly image and be a testimony to the fact that it is constantly looking to take steps to enhance ease of doing business in India”, he said.

Sandeep Jhunjhunwala, Director, Nangia Andersen LLP said that the Government seems to be actively marching ahead towards achieving its objective of Sabka Saath, Sabka Vikas and Sabka Vishwas. “Subsequent to the proposed decriminalisation of various offences under the Companies Act, 2013, the Government has turned its eye towards limited liability partnerships, a legal entity form commonly used by small and medium enterprises for doing business in India”, he said.

Published on June 20, 2020

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