WHETHER NCLT IS AN APPROPRIATE FORUM TO RESOLVE INTER-SE DISPUTES AMONG PARTNERS OF LLP?
Hon’ble Delhi High Court held that inter se disputes between partners of an LLP are required to be tried as a commercial suit in terms of the Commercial Courts Act, 2015 and the National Company Law Tribunal (NCLT) is not the appropriate forum for deciding such disputes.
BRIEF FACTS
1. One of the partners of the LLP preferred a suit before the District Judge (Commercial), New Delhi, wherein, inter alia, the plaintiff sought a declaration that it was entitled at all times to access the business accounts of the LLP and that the action of the other partners of the LLP in revoking access of the plaintiff to business dealings of the LLP was illegal and void.
2. The plaint from which instant petition arose was filed by the respondent/plaintiff, being one of the partners of the petitioner 3/defendant 3 which was a Limited Liability Partnership (LLP) and against the respondents 1 and 2/defendants 1 and 2 who were the remaining partners of the said LLP.
3. The defendants in the original suit had preferred an application for rejection of the plaint which was dismissed by the District Court.
4. The defendants being aggrieved by the order of the District Court, preferred a review application under Article 227 of the Constitution of India before a Single Bench of the High Court of Delhi.
5. One of the key arguments advanced by the petitioners / defendants in support of their application for rejection of the plaint, was that the Civil Courts did not have jurisdiction to try the present dispute as the jurisdiction for such disputes lay with the NCLT.
6. This was because the definition of ‘body corporate’ under Section 2(1)(d) of the LLP Act, 2008 (“LLP Act”) includes an LLP and Section 2(1)(u) of the LLP Act defines ‘Tribunal’ as the NCLT. Hence, in respect of inter se disputes between the partners of an LLP, it would be the Tribunal, being the NCLT, which would be the competent forum to try such disputes under the provisions of the LLP Act.
7. The plaintiff / respondent in its reply stated that the only dispute that can be tried by the NCLT under the LLP Act pertains to Sections 60, 61, 62 and 63 which relates to compromise or arrangement between the partners. As the present case did not pertain to compromise or arrangement between the partners, therefore, the jurisdiction of NCLT could not be invoked.
DECISION OF DELHI HIGH COURT
8. The Single Judge after considering the submission of the parties held that the present suit did not pertain to compromise, arrangement or reconstruction of LLPs, as provided under Sections 60, 61, 62, 63 of the LLP Act.
9. The present suit was an inter se dispute between the partners relating to the business accounts of the LLP and would not come within the ambit of the aforementioned provisions of the LLP Act in respect of which NCLT had exclusive jurisdiction.
10. It was, therefore, held that merely because the definition of ‘body corporate’ under Section 2(1)(d) of the LLP Act includes an LLP, the same would not automatically confer jurisdiction upon the NCLT for deciding all disputes inter se the partners of an LLP.
DECISION It was further observed by the Court, that unlike Section 430 of the Companies Act, 2013 there was no bar on the jurisdiction of the Civil Courts under the provisions of the LLP Act and therefore, in terms of Section 9 of the Code of Civil Procedure, 1908 (“CPC”), the suit would be maintainable in a Civil Court.
The High Court further expressed that an LLP or any other business entity can carry out business in different parts of the country, but that would not mean that a suit with regard to disputes between the partners, could be filed in any place where the business of the firm/LLP is carried out. The Commercial Suit should be filed in the court having jurisdiction ,where registered office or principal place of business of LLP is situated.
CONCLUSION: the decision court clarified that the inter-se dispute between partners of a LLP is of commercial nature and same will be tried in Civil Court under provisions of Commercial Court Act,2015. The court further held that mere considering a LLP under definition of Body Corporate under LLP Act, cannot be equated it with a company, where all disputes are controlled by NCLT. The court further held that LLP should file commercial or other suits in the court which has jurisdiction of the principal place or registered office of the LLP and LLP is not allowed to file complaint in any part of India, where it is doing business.
DISCLAIMER the case law presented is only for sharing knowledge and information with readers. The views are personal and same should not be considered as professional /legal advice. In case of necessity do consult with legal advisors.
Footnotes:
SECTION 60 of LLP Act,2008- Compromise or arrangement of limited liability partnerships .-
(1) Where a compromise or arrangement is proposed-
(a) between a limited liability partnership and its creditors; or
(b) between a limited liability partnership and its partners, the Tribunal may, on the application of the limited liability partnership or of any creditor or partner of the limited liability partnership, or, in the case of a limited liability partnership which is being wound up, of the liquidator, order a meeting of the creditors or of the partners, as the case may be, to be called, held and conducted in such manner as may be prescribed or as the Tribunal directs.
(2) If a majority representing three-fourths in value of the creditors, or partners, as the case may be, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, by order be binding on all the creditors or all the partners, as the case may be, and also on the limited liability partnership, or in the case of a limited liability partnership which is being wound up, on the liquidator and contributories of the limited liability partnership:
Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the limited liability partnership or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the limited liability partnership, including the latest financial position of the limited liability partnership and the pendency of any investigation proceedings in relation to the limited liability partnership.
(3) An order made by the Tribunal under sub-section (2) shall be filed by the limited liability partnership with the Registrar within thirty days after making such an order and shall have effect only after it is so filed.
(4) If default is made in complying with sub-section (3), the limited liability partnership, and every designated partner of the limited liability partnership shall be punishable with fine which may extend to one lakh rupees.
(5) The Tribunal may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the limited liability partnership on such terms as the Tribunal thinks fit, until the application is finally disposed of.
SECTION 61 of LLP Act,2008
Power of Tribunal to enforce compromise or arrangement. –
(1) Where the Tribunal makes an order under section 60 sanctioning a compromise or an arrangement in respect of a limited liability partnership, it-
(a) shall have power to supervise the carrying out of the compromise or an arrangement; and
(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.
(2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 60 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the limited liability partnership, make an order for winding up the limited liability partnership, and such an order shall be deemed to be an order made under section 64 of this Act.
SECTION 62 of LLP Act,2008
62 Provisions for facilitating reconstruction or amalgamation of limited liability partnerships .-
(1) Where an application is made to the Tribunal under section 60 for sanctioning of a compromise or arrangement proposed between a limited liability partnership and any such persons as are mentioned in that section, and it is shown to the Tribunal that-
(a) compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any limited liability partnership or limited liability partnerships, or the amalgamation of any two or more limited liability partnerships; and
(b) under the scheme the whole or any part of the undertaking, property or liabilities of any limited liability partnership concerned in the scheme (in this section referred to as a “transferor limited liability partnership”) is to be transferred to another limited liability partnership (in this section referred to as the “transferee limited liability partnership”), the Tribunal may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provisions for all or any of the following matters, namely:-
(i) the transfer to the transferee limited liability partnership of the whole or any part of the undertaking, property or liabilities of any transferor limited liability partnership;
(ii) the continuation by or against the transferee limited liability partnership of any legal proceedings pending by or against any transferor limited liability partnership;
(iii) the dissolution, without winding up, of any transferor limited liability partnership;
(iv) the provision to be made for any person who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; and
(v) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out:
Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a limited liability partnership, which is being wound up, with any other limited liability partnership or limited liability partnerships, shall be sanctioned by the Tribunal unless the Tribunal has received a report from the Registrar that the affairs of the limited liability partnership have not been conducted in a manner prejudicial to the interests of its partners or to public interest:
Provided further that no order for the dissolution of any transferor limited liability partnership under clause (iii) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the limited liability partnership, made a report to the Tribunal that the affairs of the limited liability partnership have not been conducted in a manner prejudicial to the interests of its partners or to public interest.
(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee limited liability partnership; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.
(3) Within thirty days after the making of an order under this section, every limited liability partnership in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.
(4) If default is made in complying with the provisions of sub-section (3), the limited liability partnership, every designated partner of the limited liability partnership shall be punishable with fine which may extend to fifty thousand rupees. Explanation .-In this section “property” includes property, rights and powers of every description; and “liabilities” includes duties of every description.
SECTION 63 of LLP Act,2008- Winding up and dissolution
The winding up of a limited liability partnership may be either voluntary or by the Tribunal and limited liability partnership, so wound up may be dissolved.
SECTION 64 of LLP Act, 2008 – A limited liability partnership may be wound up by the Tribunal,—
(a) if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;
(b) if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;
(c) 1[***]
(d) if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
(e) if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
(f) if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.
Section 430 of the Companies Act, 2013 -provides that
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.
Section 9 of the Code of Civil Procedures,1908- explicates the jurisdiction of civil courts in India. The Section reads “subject to provisions herein contained courts shall have the jurisdiction to adjudicate on all suits of a civil nature barring those the cognizance of which are impliedly or expressly barred.” Two conditions need to be satisfied for a civil court to exert jurisdiction on a suit:
1. “The suit must be civil
2. The cognizance should not have been impliedly or expressly barred for such a suit.”
A civil suit has not been defined in any Act. Any suit of a non-criminal nature which ratifies or determines civil rights can be termed as a civil suit.
The Supreme Court enunciated on the definition of a civil proceeding in Kehar Sinha Nihal Singh v. Custodian General as an approbation of private rights to corporations or human beings. The reward or retrieval of private property is the objective of a civil action. A civil action may, in other words, be defined as “a legal proceeding between two parties for the redressal, determination or implementation of private rights.”
References:
1. https://www.mondaq.com/india/contracts-and-commercial-law/1194088/inter-se-disputes-involving-partners-in-an-llp-nclt-not-the-appropriate-forum
2. https://indiankanoon.org/
Author Bio
Please see sec 43 ,44 of LLP Act 2008
Those sections confer jurisdiction On NCLT apart from Secs 62,63,64 of LLP Act 2008.
It appears those sections were not brought to the Notice of hon’ble DELHI high court