LLP Amendment Act, 2021

Articles analyses Important Provisions of Limited Liability Partnership (Amendment) Act, 2021. With LLP Amendment Act, 2021 7 new sections have been inserted, 3 sections have been omitted whereas 5 sections have been substituted.

Introduction

The LLP (Amendment) Act, 2021 (hereinafter referred to as the Amendment Act) came into effect after it was introduced as Limited Liability Partnership (Amendment) Bill, 2021 in Rajya Sabha on July 30^th, 2021 and subsequently passed therein on August 4^th, 2021 and then in Lok Sabha on August 9^th 2021. It finally got the assent of President on August 13^th, 2021 and became operative. As per MCA Notification dated 11^th February, 2022, it appoints 1^st day of April, 2022 as the date on which the provisions of Section 1 to 29 of the said Act shall come into force. The main aim of this amendment is to facilitate greater ease of living to law abiding corporates and to decriminalize certain provisions of the Act, including the concept of small LLPs, appointment of adjudicating officers, special courts etc.

The Limited Liability Partnership Act, 2008 contained 81 sections and with the introduction of Amendment Act, 7 new sections have been inserted, 3 sections have been omitted whereas 5 sections have been substituted.

Objectives of Amendment

1. It focuses more on Ease of doing business by introducing the concept of Start – Up LLP and small LLP.

2. It aims to remove the fear of criminal prosecution for some offences.

3. It empowers Central Government to prescribe Accounting Standards or Auditing Standards in consultation with National Financial Reporting Authority (NFRA) for a class of LLP.

4. Establishment of Special Court for expediting the trial of offences under the Act.

5. Powers conferred to Regional Director to compound any offence which is compoundable with fine only.

Analysis of Major changes

1. Small LLP – In line with the concept of Small Company as per Companies Act, 2013, Amendment Act introduced the concept of “Small LLP”. Accordingly Small Limited Liability Partnership means a Limited Liability Partnership –

• The contribution of which does not exceed Twenty-Five laths rupees or such higher amount not exceed five crore rupees as may be prescribed ; and
• The turnover of which as per Statement of Accounts and Solvency for the immediate preceding financial year does not exceed forty lakhs rupees or such higher amount not exceeding fifty crore rupees as may be prescribed;
• Which meets such other terms as may be prescribed and fulfils such terms and conditions as may be prescribed;

This new concept has been introduced to create a separate class of LLP which will be subject to lesser compliance burden, lesser fee or additional fee in order to promote the Government initiative of Ease of Doing Business particularly for small enterprises.

2. Start up LLP – To facilitate ease of doing business and to encourage LLP’s to promote start – up, the concept of “Start-UP LLP” has been recognized under the LLP Act which will promote this form of business rather than proprietorship or partnership, extending simplified regulations. The penalty payable for non-compliance of provisions of LLP Act will be one-half of penalty prescribed for small LLPs and start – up LLPs, subject to a maximum of Rupees one lakh for limited liability partnership and rupees fifty thousand for every partner or designated partner or any other person .

3. Prescribe standard of Accounting and Auditing – Section 34A has been inserted which states that Central Government may, in consultation with National Financial Reporting Authority (NFRA) constituted under Section 132 of Companies Act, 2013 –

• Prescribes the standard of accounting; and
• Prescribes the standard of auditing

for a class or class of LLP, the responsibility of formulation and recommendation of which has been assigned to the Institute of Chartered Accountants of India (ICAI).

4. Compounding of Offence – Section 39 was substituted in the LLP (Amendment) Act, 2021 and the substituted section states as follows :

• The Regional Director or any officer not below his rank, authorized by the Central Government may compound any offence, which is punishable with fine only;
• The Regional Director or such officer can collect a sum from the person who is suspected to have committed such offence which may extend to maximum fine prescribed for such offence but shall not be lower than the minimum amount provided for such offence;
• Second or subsequent offence committed after the expiry of period of three years from the date of commission of previously compounded offence shall be deemed to be first offence. In other words, if any offence by an LLP or its partners is compounded, then a similar offence cannot be compounded within a period of three years;
• Every Application for compounding of offence shall be made to Registrar who shall forward the same to Regional Director or such officer, together with his comments;

5. Establishment of Special Court – The LLP (Amendment) Act, 2021 has inserted Section 67A after Section 67 of the LLP Act, 2008 which envisages the provision relating to establishment of Special Court. Special Court will ensure speedy trial of offences under this Act and shall consist of the following :

• A single judge holding office as Sessions Judge or Additional Sessions Judge in case of offence punishable with imprisonment of three years of more;
• Metropolitan Magistrate or a Judicial Magistrate of the first class, in case of other offences;

They shall be appointed with the concurrence of the Chief Justice of High Court. Any appeal against orders of these special courts will lie with High Court.

6. Transfer of pending cases to Special Court – Section 77 has been totally substituted and the powers of judicial magistrate of first class or metropolitan magistrate has been conferred to special court which shall have the power to impose punishment under Section – 30 of the Act in the matters involving fraud. Moreover all the criminal cases pending against the limited liability partnership, its partners, designated partners and any person concerned shall be transferred to the Special Court formed u/s 67A.

7. Cognizance of Offence – A new Section 77A has been inserted after Section – 77 which empower Special Court established under Section – 67A of the Act to take cognizance of any offence punishable under the Act on a complaint in writing made by Registrar or any officer not below the rank of Registrar duly authorized for such purpose.

8. Establishment of Appellate Tribunal – Provisions of Section – 72(2) has been substituted in the Act, which states as under :

• Any person aggrieved by an order of National Company Law Tribunal (NCLT) may prefer an appeal to the National Company Law Appellate Tribunal (NCLAT). Provided that no appeal shall lie to NCLAT from an order of the former, if the same was with the consent of both the parties;
• Every appeal preferred to NCLAT shall be filed within a period of 60 days from the date on which copy of order of NCLT is made available to the aggrieved person, together with prescribed fees;
• NCLAT may entertain an appeal even after the expiry of 60 days, not exceeding another such period of 60 days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within such period.

9. Adjudication of Penalties – A new Section – 76A has been inserted for adjudging penalties under the Act, wherein Central Government is empowered to appoint officers not below the rank of Registrar as adjudicating officers. The new section 76A states as under :

• In case of default in filing of Statement of Accounts and Solvency u/s 34(c), i.e. Form – 8 or in case of default in filing of Annual Return u/s 34(1), i.e. Form – 11 within the due date, has been rectified, either prior to or within 30 days of issue of notice by the adjudicating officer, no penalty shall be imposed in this regard and proceeding shall be concluded;
• In case of default of any provisions of the Act, by a small Limited Liability Partnership or a start up limited liability partnership or by its partners or designated partners or any other person of such LLP, then they shall be liable to a penalty which shall be one half of the penalty specified for such provision, subject to a maximum of Rs. 1 lakh for LLP’s and Rs. 50,000/- for every such partners/designated partners/person concerned and such defaulter(s) shall also be directed to rectify the default;
• An opportunity of being heard shall be provided to such defaulting partners/designated partners/person concerned before imposing of penalty by such adjudicating officer;
• Any person aggrieved with the order of Adjudicating Officer can file an appeal to Regional Director within 60 days of receiving of copy of order in Form No – 33 LLP ADJ which may further be extended by 30 days by Regional Director after recording reasons in writing. But such appeal shall not seek relief against more than one order unless the relief prayed for are consequential;
• Where a limited liability partnership fails to comply with the order of Registrar or Regional Director within a period of 90 days from the date of receipt of order, such LLP shall be punishable with fine ranging between Rs. 25,000/- to Rs. 5,00,000/-;
• Where a partner / designated partner / person concerned fails to comply with the order of Registrar or Regional Director within a period of 90 days from the date of receipt of copy of its order, they shall be punishable with imprisonment which may extend to six months or with fine ranging between Rs. 25,000/- to Rs. 1,00,000/- or with both;

10. Change of Name of LLP – Section 17 has been substituted to align it with the provisions of Companies (Amendment) Act, 2020, wherein a limited liability partnership may be directed by Central Government to change its name if –

• It is identical or too nearly resembles the name of any LLP or Company;
• It is identical or too nearly resembles a registered trade mark of a proprietor;

The Central Government shall direct such LLP to change its name within three months from the date of issue of such direction. A proprietor of Registered Trademark is entitled to make an application to Central Government, i.e. Regional Director within three years from the date of incorporation of LLP / registration of new name in e-form INC – 23.

Where a LLP is in default in complying the direction of Registrar for such change of name, the Registrar shall suo-moto allot a new name o the LLP, which shall be ending with “ORNDC”, which is an abbreviation of the word “Order of Regional Director Not Complied”, the year of passing of the direction, serial number and the existing LLPIN of the LLP shall become the new name of the LLP and the Registrar shall issue fresh certificate of incorporation in form – 16A and accordingly such name shall be entered in the register of LLP.  The complete abbreviation “ORNDC” shall be mentioned by such non-compliant LLP in bracket below the name of such LLP, on its invoices, official correspondence and publications, till the time such LLP changes its name in accordance with Section – 19. Nothing in this section shall prevent a LLP to subsequently changing its name in accordance with Section – 16 in future.

11. Change in definition of “Resident in India” – To be appointed as a Designated Partner, one partner out of two shall be “resident in India”. For deciding the residential status of Designated Partner, one should have stayed in India for a period of not less than 120 days during the financial year, which was “182 days during the immediate preceding one year” in the old act.

12. Registration Offices – The LLP Act has inserted Section – 68A after Section 68 which includes the following :

• Central Government shall establish such number of registration offices at such places as it thinks fit, specifying their jurisdiction for the purpose of registration of LLP.
• To give effect to the above, and to discharge various functions under the LLP Act, 2008, Central Government shall appoint such number of Registrar, Additional Registrar, Joint Registrars, Deputy Registrars and Assistant Registrar as it considers necessary.

13. De-criminalization of monetary penalties – The overall number of criminal provisions under the LLP Act will be reduced to 22, with compoundable offences reduced to 7, non-compoundable offences reduced to 3.  A total of 12 offences are decriminalized under the LLP Act, 2008.

CONCLUSION

The LLP Amendment Act takes a more business – friendly view with the advent of concept of Small LLP and Start – Up LLP, which are subject to less compliance, lower fee or additional fees, thereby reducing compliance costs. Compounding of offences will speed up as it will be handled by designated officials, whereas Special Courts will offer a speedy trial.

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Author – CS Anuj Saraswat, A SARASWAT & ASSOCIATES Company Secretary in Practice and can be contacted at [email protected].

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation by the author. Although due care has been taken to ensure the accuracy, reliability and completeness, of the information provided in this article, I assume no responsibility thereof. Users of this information are expected to refer to the relevant existing provisions of applicable laws too, for a clear understanding of the subject. The user of the information agrees that the information is not a piece of professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.