In a move towards improving the compliance of Limited Liability Partnerships (LLPs) and to finely regulate designated partners, the Ministry of Corporate Affairs (MCA) vide notification dated 11th February 2022 has effectuated applicability of certain provisions of the Companies Act, 2013 to the LLPs as well.
Total of eight sections relating to the register of significant beneficial owners, disqualifications of directors, conduct of inquiries and inspections and non-cognizable offences will soon be applicable to LLPs.
Partners and designated partners of Limited Liability Partnerships can have a tactful look at the below provisions for appropriate action(s):
Section 90 – Significant Beneficial Owner (SBO)
LLPs are compulsorily required to adhere to the provisions with respect to SBO. The intention of this section would be to identify a natural person that is controlling and exercising the beneficial interests of the LLP.
Section 164 – Disqualification of Directors
Existing and proposed designated partners of the LLP need to undergo qualification check under this section. Wherein, designated partner should not be eligible for appointment, in case he is of unsound mind or undischarged insolvent or order of disqualification passed by a court or convicted of the offence dealing with related party transactions.
Also, a person who is designated partner in an LLP, which has not filed statement of account and solvency or annual return, for any continuous period of three years; or has failed to repay the deposits or redeem any debentures or pay any interest(s) thereon for a continued period of one year or more, shall not be eligible to become or continue as designated partner of that LLP or to become designated partner in any other LLPs for a period of five years.
Section 165(2) – Reduction in the Number of Directorships
According to section 165(2), no person will be allowed to become designated partner in more than 20 LLPs. Further a cooling period of one year for compliance with this provision is provided in the notification.
Section 167 – Vacation of office by Designated Partners
The office of designated partners would be liable to be vacated in case of occurrence of any of the stipulated events under this section like,
- Disqualification under section 164
- Contravention relating to entering into contract with interested designated partner
- Disqualified by the order of Court or tribunal
- Failing to disclose interest in any contract or arrangement
- Removal of designated partner as per LLP act provisions etc.
Section 206 – Power to Call for Information, Inspect Books and Conduct Inquiries
This provision enables the government to direct inspection of books of accounts and papers of any LLP by an inspector, within such reasonable time as may be specified in the notice. If it is satisfied that circumstances so warrant.
Section 207 – Conduct of Inspection and Inquiry
In case of any inspection or inquiry into the affairs of an LLP by the Registrar or an Inspector, they shall have all the powers as are vested in a civil court under the Code of Civil Procedure, 1908.
Section 252- Appeal to Tribunal
Any person aggrieved by an order of the Registrar, notifying an LLP as struck off and dissolved, may file an appeal to the tribunal within a period of 3 years for restoration of the name of that LLP.
Section 439 – Offences to be non-Cognizable
Every offence under the LLP Act shall deemed to be non-cognizable. Also, no court shall take cognizance of any offence under the LLP Act, except on the complaint in writing of the Registrar or any partner or any government authorized person.
To conclude, the provisions of the Act that are sought to be incorporated under the LLP Act seems to have a wide-spread effect. This will lead to major changes in the administration of LLPs once they come into effect. However, it is to be noted that though the provisions seem to have far-reaching consequences, the extent and manner of applying them on the LLPs will only be clear once the rules come out in this connection.
