Ease of doing business gains momentum with the latest amendments to the LLP Act

A.    

Decriminalization of compoundable offences

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Modification of penalty

The Amendment Act has reduced the monetary penalty for several compoundable offences. Accordingly, minor, technical or compliance related offences have been moved to the ‘IAM’ or the ‘In-house Adjudication Mechanism’ framework with modified penal provisions. Key modifications include: 

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Compounding of offence

As per the Amendment Act, regional directors appointed by the Central Government may compound any offence under the LLP Act which is punishable with fine only. The scope of the erstwhile section of the LLP Act has been considerably broadened to include the process for such compounding. While the maximum sum to be collected upon compounding may extend to the maximum fine provided for such offence under the LLP Act, it is clarified that such cap would not apply to any subsequent offence committed by the LLP/ partner/ designated partner within a period of 3 (three) years from the date of the first offence.

B.    

Effective disposal of cases

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Adjudication of penalties

The Central Government may now appoint adjudicating officers for the purpose of adjudging penalties under the LLP Act. The Central Government by an order dated 11 February 2022has appointed registrar of companies of various states as adjudicating officers for adjudging penalties under the LLP Act. This order is effective from 1 April 2022. Further, any person aggrieved by an order of an adjudicating officer may prefer an appeal within a period of 60 (sixty) days to the relevant regional director.

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Special courts

The Amendment Act recommends establishing special courts for speedy trial of criminal offences including fraud. It also lays down the procedures and powers of such special courts, including the power to conduct summary trials for offences punishable with imprisonment not exceeding 3 (three) years.

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Time bound appeals

As per the Amendment Act, any appeal preferred to the National Company Law Appellate Tribunal (NCLAT) must be filed within 60 (sixty) days, from the date of the order of the National Company Law Tribunal, provided that the NCLAT may, for sufficient cause, entertain an appeal after the expiry of the said period but provided the appeal is preferred within a further period of 60 (sixty) days. In other words, a maximum appeal time of 120 (one hundred and twenty) days has been prescribed under the Amendment Act.

C.     

Improved functioning

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Registration offices

The Amendment Act proposes establishment of registration offices by the Central Government at such places as it may deem fit for discharge of various functions under the LLP Act, including registration of new LLPs.

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Greater flexibility in case of filing lapses

As an additional relaxation, the erstwhile section prescribing a period of 300 (three hundred) days for late filing has been amended to remove the said time limit.

D.    

Ease of doing business

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Concept of small LLPs:

The concept of small LLPs, in line with the concept of ‘small companies’ under the Companies Act, has been introduced. Small LLPs will have significantly reduced cost of compliance and will benefit from fewer applicable penalties. To qualify as a small LLP, the contribution by the partners should be limited to a maximum of INR 5,00,00,000 (Indian Rupees Five crore) and the turnover (in the immediately preceding financial year) should be limited to INR 50,00,00,000 (Indian Rupees Fifty crore).

The relaxations available to small LLPs include reduction in (i) compliances like registering, or recording notice of appointment, cessation, change in name, address, designation of a partner or designated partner, and (ii) penalty amount by half of the penalty prescribed under the LLP Act subject to a maximum of INR 1,00,000 (Indian Rupees One lakh) for the LLP and INR 50,000 (Indian Rupees Fifty thousand) for a partner/ designated partner.

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Residency requirement for designated partners

The erstwhile provision required every LLP to have at least one designated partner who is a ‘resident in India’ (similar to the residency requirement for directors under the Companies Act). To meet this requirement, such designated partner had to stay in India for a period of not less than 182 (one hundred and eighty-two) days during the immediately preceding one year. This tenure has been relaxed and the resident designated partner is now required to stay not less than 120 (one hundred and twenty) days during the financial year.

E.     

Enhanced transparency

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Stringent compliance in the event of fraudulent activities

It is pertinent to note that for any act committed with fraudulent intention by an LLP or its partners, the defrauding partners shall be punishable with imprisonment of a term which may extend to 5 (five) years as opposed to 2 (two) years provided earlier.

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Accounting and auditing standards

The Amendment Act provides that the Central Government in consultation with the National Financial Reporting Authority may prescribe standards of accounting and auditing for LLPs. This will encourage transparency in reporting and avoid manipulations and fraud.