LLP Settlement Scheme 2020 Introduced for Defaulting LLP’s: A Complete Summary

Deepti Shikha

06 Sep, 2022

The Ministry of Corporate Affairs on March 4, 2020, announced a remission scheme called LLP Settlement Scheme, 2020 for Limited Liability Partnerships (LLPs). This scheme will offer a one-time settlement scheme for non-compliant LLPs by giving them one more year to submit their pending documents and to get immunity from prosecution for defaults.
In basic terms, it means that the scheme is providing a three-month window from March 16, 2020, to June 13, 2020, to Limited Liability Partnerships (LLP) for completing overdue or delayed filings of the four forms which were due for filing till October 31, 2019. Also, the additional fee on these forms is reduced to Rs. 10 from Rs. 100 per day of delay with an upper cap of Rs. 5,000 per form.

Reasons for Introduction of LLP Settlement Scheme, 2020

The reasons for the introduction of LLP Settlement Scheme, 2020 are as follows:

• Many of the LLP’s make default in filing the documents. Such LLP’s were charged with an amount of Rs.100 per day as fine, as prescribed under Section 69 of the LLP Act, 2008^[1] along with the additional fee for delayed filing of the document.
• A large number of representations were made from various quarters for waiver of fee or condonation of delay and relaxations in additional fee on the ground of excessive financial burden.
• The designated partners in the LLP become liable for criminal prosecution in case the LLP fails to file the document. For such defaults, the LLP cannot close until the completion of all its compliances.

About the LLP Settlement Scheme, 2020

The Ministry of Corporate Affairs (MCA), taking into consideration the non- compliance by the LLP’s and for regularization and promotion of good governance policy has come up with the following initiatives:

• Applicability of Section 460 of the Companies Act, 2013 on the LLPs vide Section 67 of LLP Act, 2008.
• Permitting a one-time condonation of delay in filing the statutory documents with the Registrar of Companies (ROC).
• This scheme shall apply from March 16 to June 13 including both the dates, which means it shall remain in operation for 90 days’ period. During the given time period, the LLP’s can ensure completion of pending compliance.

Late fee structure as per the LLP Settlement Scheme, 2020

• Under the proposed LLP Settlement Scheme, 2020, the late fee shall be Rs.10/day subject to a maximum of Rs. 5000 for Form 8 and Form 11 charged separately.
• Whereas according to the LLP Act, 2008, a late fee of Rs. 100 per day shall be leviable with no maximum limit for Form 8 and Form 11.
• Hence the maximum penalty charged for late filing of Form 8 and Form 11 can only be Rs. 5000 per year charged separately for both the forms.
• A cap on the additional fee of Rs 5,000 is applicable per document and not in aggregate. Therefore, if there is a delay of 600 days, then an additional fee at the rate of Rs. 10 per day will be Rs. 6,000 which is more than Rs. 5,000 and hence additional fee will be Rs. 5,000 for the form.

How can the LLP’S Avail LLP Settlement Scheme, 2020?

• The defaulting LLP as per this scheme means an LLP as prescribed under the Limited Liability Partnership Act, 2008 which has defaulted in the filing of the documents on the due date as mentioned under the LLP Act, 2008 and rules made thereunder.
• The defaulting LLP is allowed to file the belated documents, which were due for filing till 31^st, October 2019.
• The defaulting LLP is not required to apply to Registrar of Companies (ROC) to avail this scheme.
• The defaulting LLP’s as per this scheme can file the documents themselves, which have not been submitted or registered in time on payment of additional fee and statutory fee.

Applicability of the LLP Settlement Scheme, 2020

The LLP scheme, 2020 is applicable only for filing the following delayed documents specified under the Limited Liability Partnership Act, 2020:

• Form 3- This form relates to information regarding the LLP Agreement. It is applicable in case of a change in details in the LLP Agreement.
• Form-4- This form discloses the Notice of appointment, cessation, change in name or address of the designated partner. Such form must be filed with the registrar within 30 days of such change.
• Form 8- This form discloses all the details relating to Accounts and Solvency with the registrar it can be interim as well as annual. This must be filed within 30 days from six months of the closure of the relevant financial year.
• Form11- Filing of LLP Form 11 is a mandatory annual compliance for all LLPs. Limited Liability Partnership firm must file an annual return every year in Form 11.

Non-Applicability of LLP Settlement Scheme, 2020

Advantage of LLP Settlement Scheme, 2020

The following are the advantages of LLP Settlement Scheme, 2020:

• Defaulting LLP’s will get the monetary benefit as a large amount of additional fees that used to be charged before is waived through this scheme.
• The LLP’s in default which has filed their pending forms till June 13, 2020, shall not be subjected to prosecution by the ROC for such defaults.

Immunity from Prosecution under LLP Settlement Scheme, 2020

There is immunity from prosecution with respect to documents filed under the LLP Settlement scheme, 2020. The defaulting LLPs, filing their pending documents till June 13, 2020, and who have failed to pay the fees, shall not be subjected to prosecution by Registrar of Companies (ROC) for such defaults.

Consequences of Not Availing LLP Settlement Scheme, 2020

In case the defaulting LLP does not take the benefit of LLP Settlement Scheme, 2020 then they will have to face the following impacts:

• The defaulting LLPs will have to file forms with an additional fee as specified in Section 69 of Limited Liability Partnership Act, 2008  that is an amount of Rs.100 per day of such delay in addition to the fee that is payable.
• The registrar may initiate prosecution against the defaulting LLPs.

Takeaway

This move of the Government comes in the wake of several LLPs making default in filing of statutory documents and their inability to correct the situation owing to the financial burden arising from the inordinate delays in statutory compliance. Due to the inability to pay late fees, a considerable number of LLP’s have remained non- compliant for a cumulative period of delay. The scheme is introduced as a Government’s objective of providing greater ease of living to the citizens of the country. It is expected that this scheme will provide significant relief and scope of opportunity for LLPs to abide by the law and conduct business accordingly.

Please find the notification in the given link: