The Ministry of Corporate Affairs, by notification dated February 11, 2022, has notified amendments to the Limited Liability Partnership Act, 2008, (“Act”) through the Limited Liability Partnership (Amendment) Act, 2021, (“Amendment Act”), which shall be effective from April 1, 2022.[1]
The Amendment Act is in line with the slew of changes announced by the Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman in the Budget 2021,[2] and is a step in the positive direction to further promote ease of doing business in India and decriminalization of offences under the Act, in order to further encourage the budding entrepreneurs in the country.
The Amendment Act provides for a number of changes in the Act with respect to limited liability partnership (“LLP”). A brief overview of the changes introduced through the Amendment Act are as follows:
Following are the key amendments of the Amendment Act:
- Introduction of small limited liability partnership[3]
Vide the Amendment Act, the concept of small LLP has been introduced. An LLP shall qualify to be a small LLP if (i) it’s total contribution is upto INR 25,00,000 (Twenty-Five Lakhs Rupees) or such higher amount as may be prescribed but does not exceed INR 5,00,00,000 (Five Crores Rupees); (ii) turnover of such LLP is upto INR 40,00,000 (Forty Lakhs Rupees) or such higher amount as may be prescribed but does not exceed INR 50,00,00,000 (Fifty Crore Rupees); and (iii) if it fulfills all other conditions mentioned under the Act.
- Start-up LLP
The Amendment Act introduced the concept of start-up LLP. While the concept has only been touched upon in case of payment of penalty by small LLP or start-up LLP, the term is yet to be defined by the Central Government vide its prospective notification, after which there shall be better clarity on what qualifies to be a start-up LLP.
- Resident Designated Partner[4]
The Act provides that, at least one of the designated partners of an LLP must be resident of India. Prior the Amendment Act, the term “resident in India” meant a person who has stayed in India for a period of not less than 182 (One Hundred Eighty-Two) days during the immediately preceding one year. However, as per the Amendment Act, it means a person who has stayed in India for a period of not less than 120 (One Hundred Twenty) days during the financial year.
- Rectification of name of limited liability partnership[5]
Prior to the Amendment Act, on satisfaction of the Central Government that the name of a LLP is undesirable or identical or too nearly resembles to that of any other partnership firm or other entities including a registered trade mark, or a trade mark which is the subject matter of an application for registration of any other person under the Trade Marks Act, 1999, as to be likely to be mistaken for it, the Central Government had the power to direct such LLP to change its name, and such LLP was required to comply with the said direction within 3 (three) months after the date of the direction. In case, such LLP fails to comply with such direction, the LLP and its designated partners were punishable with fine.
As per the Amendment Act, in case of resemblance of name of an LLP, the Central Government upon its own satisfaction, cannot direct to such LLP to change its name.
However, in case of any resemblance with the name of other LLPs or any other entity, only upon application of such other LLP or such other entity, the Central Government may direct that such LLP to change its name within a period of three months from the date of issue of such direction.
Where such LLP complies with the direction of Central Government, it requires to give notice to the Registrar of such change within a period of 15 (fifteen) days from the date of such change. In case, such LLP fails to comply with such direction, the Central Government shall allot a new name to such LLP. However, the said LLP may subsequently change its name in accordance with the Act.
- Audit & Accounting Standard[6]
The Amendment Act provides that in consultation with the National Financial Reporting Authority, the Central Government may prescribe the standards of accounting and auditing as recommended by the Institute of Chartered Accountants of India for a class or classes of LLPs.
Prior to the Amendment Act, there were no such standards.
- Compounding[7]
Under the Act, the Central Government had the power to compound any offence under the Act which was punishable with fine only.
As per the Amendment Act, Regional Director or any other officer not below the Regional Director is authorized to compound such offences. Further, compounding is not allowed if such offences committed by LLP or its partner or its designated partner within a period of three years from the date on which similar offence committed by it or him was compounded under the Act. The Amendment Act further lays down the manner and procedure for making and disposal of the compounding application.
- Special Courts[8]
The Amendment Act provides that Central Government may for the purpose of providing speedy trial of offences under this Act, by notification, establish or designate as many special courts as may be necessary for such area or areas. The special court shall consist of a single judge holding office as sessions judge or additional sessions judge, which shall have power to try offences with imprisonment of 3 (three) years or more, and a metropolitan magistrate or a judicial magistrate of the first class for all other offences. Further, the special court may also try in a summary way any offence under the Act which is punishable with imprisonment for a term not exceeding 3 (three) years.
- Appeal[9]
The Amendment Act provides that no appeal shall lie to the National Company Law Appellate Tribunal from an order made by the National Company Law Tribunal with the consent of parties.
- Appointment of Adjudicating Officers[10]
Under the Act, registrar appointed under the Companies Act, 2013 and the National Company Law Tribunal had the authority to impose penalties on LLPs.
As per the Amendment Act, the Central Government may appoint as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers. Such adjudicating officers are authorized to impose the penalty on the LLP or its partners or designated partners or any other person, and direct such LLP or persons to rectify the default. However, the order of the adjudicating officers can be challenged before the Regional Director of the respective jurisdiction.
- Modification of penalties
The Amendment Act has revised the penalty of several contraventions under the Act. Following are the key changes:
| Section | Original Provision under the Act | Changes post Amendment Act |
| 10 | In case the LLP fails to follow the provisions for designated partners, it shall be punishable with fine, which shall not be less than INR 10,000 but which may extend to INR 5 lakhs. | LLP shall be liable to a penalty of INR 10,000 and in case of continuing contravention, with a further penalty of INR 100 for each day after the first during which such contravention continues, subject to a maximum of INR 1 lakhs for the LLP and INR 50,000 for every partner. |
| 13 | Section 13 of the Act pertains to registered office of the LLP and the contravention is for non-maintenance of the registered office for receiving and acknowledging communications as may be addressed to the LLP. The penalty for the default was earlier punishable with fine of not less than INR 2,000 but which may extend to INR 25,000. | The penalty provision has been now modified to INR 500 for each day till the default continues subject to a maximum of INR 50,000 for the LLP. |
| 21 | Section 21 of the Act is a procedural section which requires the LLP invoices, official correspondences and publications to bear certain information. The penalty for default was earlier punishable with fine of not less than INR 2,000 but which may extend to INR 25,000. | The penalty for contravention of Section 21 has been revised to INR 10,000. |
| 25 | Section 25 of the Act relates to providing information to the registrar about changes in partner. The penalty for this section for the LLP, every designated partner and partner was punishable with fine of not less than INR 2,000 but which may extend to INR 25,000. | The penalty for or contravention of Section 25 has been revised to INR 10,000 for the LLP, every designated partner and partner. |
| 30 | Section 30 of the Act talks about unlimited liability of the LLP and its partners in case of fraud, being punishable with imprisonment which may extend to 2 years and with fine of not less than INR 50,000 which may extend to INR 5,00,000. | The Amendment Act has increased the imprisonment in case of fraud to 5 years instead of 2 years. |
| 34 | Section 34 of the Act relates to maintenance of books of account and filing of statement of account and solvency. The penalty for this section was punishable with a fine of INR 25,000 but which may extend to INR 5,00,000 and every designated partner of LLP was punishable with fine of not less than INR 10,000 but which may extend to INR 1,00,000. | As per the Amendment Act, if any LLP fails to file the statement of account and solvency within the prescribed time, then the LLP and its designated partners shall be liable to a penalty of INR 100 for each day during which the default continues, subject to a maximum of INR 1,00,000 for the LLP and INR 50,000 for the designated partners. Further, in case of any default in maintaining books of account, preparing statement of account and audit as prescribed, such LLP shall be punishable with fine of not less than INR 25,000 but which may extend to INR 5,00,000 and every designated partner shall be punishable with fine of not less than INR 10,000 but may extend to INR 1,00,000. |
| 35 | Section 35 mandates the LLP to file annual return with the registrar within 60 days from closure of financial year. Contravention of this section was punishable with fine of not less than INR 25,000 but which may extend to INR 5,00,000 and designated partner of such LLP was punishable with fine of not less than INR 10,000 but which may extend to INR 1,00,000. | The Amendment Act limits the amount of penalty for failing to file annual return to INR 100 for each day during which the default continues, subject to a maximum of INR 1,00,000 for the LLP and INR 50,000 for the designated partners. |
| 60 | Section 60 of the Act relates to contravention of non-filing of order of the tribunal for compromise or arrangement within the prescribed time. The penalty for the same for LLP and every designated partner was punishable with fine which may extend to INR 1,00,000. | Contravention of Section 60 is now punishable to a penalty of INR 10,000, and in case of continuing offence, with a further penalty of INR 100 for each day during which the default continues, subject to a maximum of INR 1,00,000 for the LLP and INR 50,000 for every designated partners. |
| 62 | In case, an LLP fails to file the order of the tribunal related to reconstruction or amalgamation of the LLP, such LLP and every designated partner were punishable with fine which may extend to INR 50,000. | As per the Amendment Act, in case of such default under Section 62, the LLP and its every designated partner shall be liable to a penalty of INR 10,000 and in case of the continuing default, with a further penalty of INR 100 for each day, after the first during which such default continues, subject to a maximum of INR 1,00,000 for the LLP and INR 50,000 for every designated partner. |
| 74 | Section 74 is the general penalty clause, providing that in case of any offence for which no penalty is provided for under the Act, shall be punishable with a fine which may extend to INR 5,00,000 but not less than INR 5,000, and with a further fine of INR 50 for each day till which the default continues. | The Amendment Act decriminalizes the punishment for defaults for which no specific punishment was provided to a penalty of INR 5,000 and in case of continuing offence with a further penalty of INR 100 for each day till which the default continues, subject to a maximum of INR 1,00,000. |
For further information, please contact:
Vinita Sahitya, Partner, Alpha Rajan & Partners
