Regulatory Alert: Amendment to Limited Liability Partnership Act, 2008

Particulars

Provisions

Insertion of new definition - ‘Debenture’

The concept of ‘Debenture’ is introduced in LLP.

• ‘Debenture’ is defined to mean a non-convertible debenture issued by an LLP evidencing a debt and constituting a charge on the assets of such LLP.

Introduction of concept of Small LLP

An LLP, to be termed as ‘Small LLP’ must meet following conditions:

• Partner’s contribution is up to INR 25 Lacs or such higher amount, not exceeding INR 5 Crores; and
• Turnover for the immediately preceding financial year is up to INR 40 Lacs or such higher amount, not exceeding INR 50 Crores; or
• Any other conditions prescribed from time to time.

Meaning of the term ‘Resident in India’

• The term ‘resident in India’ is now modified to mean a person who has stayed in India for a period of at least 120 days during the financial year (as against 182 days during the immediately preceding one year).

Rectification of name of LLP

• The LLP Act imposed a fine on the LLP and its partners when they failed to change the name of the LLP pursuant to directions issued by the Central Government.  The fine amount for LLP is INR 10,000 which may extend to INR 5 Lacs. Similarly for designated partners, fine amount is INR 10,000 which may extend to INR 1 Lac.
• In the Bill, such penal provisions are done away with. Rather, Central Government shall allot a new name to the LLP and registrar shall enter the new name in the register of LLPs.

Unlimited liability in case of fraud

• The LLP Act specifies every person who knowingly is a party to the carrying of the business of LLP with an intent to defraud creditors or any other person, or for any fraudulent purpose, shall be punishable with imprisonment up to 2 years. In terms of the Bill such period is extended to 5 years.

Introduction of Accounting and Auditing Standards for certain LLPs.

• The Central Government may prescribe accounting standards and auditing standards as recommended by the Institute of Chartered Accountants of India for certain classes of LLP.

Compounding of Offences

• According to the LLP Act, the Central Government may compound any offence which is punishable only with a fine, by collecting a sum which may extend to the amount of the maximum fine prescribed for the offence
• According to the Bill, a Regional Director (RD) or any officer of rank of RD & above (as authorised by the Central Government) is allowed to compound such offences by collecting a sum which may extend to the amount of the maximum fine prescribed for the offence. If any offence by the LLP or its partners is compounded once, similar offence cannot be compounded within the period of 3 years.

New provision related to establishment of Special Courts

• New provisions empowering Central Government to establish special courts with intention of providing speedy trial of offences are inserted. Such special courts shall be composed of Sessions Judge or Additional Sessions Judge (for offences punishable with imprisonment with 3 years or more) and Metropolitan Magistrate or a Judicial Magistrate of the first class (in the case of other offences).
• The section also provides for the procedural aspects for appeal and revision for the orders by the High Court.
• Further, special courts established under Companies Act, 2013 shall serve as special courts for trial of offences under LLP Act till the time such courts are established.

Appeals against the order of Tribunal

• The LLP Act states that any person aggrieved by the order of NCLT, may prefer an appeal to the Appellate Tribunal. The Bill further adds a condition that no such appeal shall be allowed to be made if the order passed by the NCLT was made with consent with both parties. Further, the appeal must be made within 60 days (with another 60 days extension) from the date of order.

Default in complying with orders of NCLT

• The Bill has omitted all the punishment in case of any default by an LLP on complying with the orders of the NCLT.

Decriminalising of provisions

• The Bill has decriminalised the fine with a monetary penalty, which is imposed in case of default in complying with the provision related to (i) Changes in partners of LLP, (ii) Change of Registered Office; and (iii) Filing a statement of accounts and solvency; (iv) Arrangement between LLP and its creditors and partners.