Limited Liability Partnership

MCA Initiates Process of Decriminalisation of Compoundable Offences under LLP Act

Based on the recommendations from the Company Law Committee, the Ministry of Corporate Affairs has begun the process of decriminalization of the compoundable offences under LLP Act (Limited Liability Partnership), 2008. The Committee is headed by the Corporate Affairs secretary, Mr. Rajesh Verma. In this article, we shall have a complete look at the MCAs decriminalization exercise.  

An overview on LLP

A Limited Liability Partnership denotes an alternative corporate business format that provides benefits of private limited company and flexibility of partnership firm. This business structure also enjoys the benefit of separate legal entity and perpetual succession.

The LLP Act was enacted by the Indian parliament to introduce and legally sanction the concept of LLP in India. It was enforced in 2008.

Compoundable offences under LLP Act: What is set to change?

The following changes are set to take place with respect to the decriminalization of compoundable offences under LLP Act:

• 12 offences under the Act have been proposed to be decriminalised, and 1 provision having criminal liability has been proposed to be omitted.
• 12 decriminalized offences shall be transferred to in house adjudication mechanism with a view to free criminal courts from routine cases.

A number of offences pertaining to timely filings of annual reports and filings on changes in partnership status of an LLP that are not related to fraud are recommended for decriminalization exercise.

This move is in line with the decriminalization of various offences under the Companies Act, 2013 through an amendment in 2020.  While none of the provisions recommended for decriminalization currently have prison terms as punishment, the panel has recommended that companies are required to pay penalties for non-compliance rather than fines that are imposed when a partner or the LLP is found guilty by the court.

The report provides that there is a risk of convicted person being disqualified or becoming ineligible for different posts and designations in case of fines imposed by courts which will not be the case for penalties that is imposed by an authority. The ROC will have the authority to impose penalties with minimum and maximum penalties for contravention of LLP Act provisions.  

What is meant by Compoundable Offences under law?

Compounding refers to a process where the company admits to the commission of an offence and also admits to making allowances for it. It can be called as a settlement mechanism where the offender pays some money instead of prosecution. The ROC has been conferred with powers under the Companies Act to start prosecution against a defaulter, whether a company, or an officer, or any of its directors.

What is the objective behind the decriminalization of compoundable offences under LLP Act?

With an objective to unleash the entrepreneurial spirit of the youths of the country and with a view to remove the fear of criminal prosecutions for non-substantive minor and procedural omissions and commissions in the normal course of their business transactions, the Ministry of Corporate Affairs, Government of India, has decided to initiate the decriminalization process of compoundable offenses under the Limited Liability Partnership Act for greater ease of doing business for law-abiding Limited Liability Partnerships.

The Indian government stated that it treats honest and ethical corporate entrepreneurs as wealth creators and as nation builders. The main objective behind this decriminalization exercise is to remove the criminality of offences from business laws where no malafide intentions are involved.  

In view of the aforesaid objective, an exercise was undertaken with a view to identify the provisions of the LLP Act, violations of which doesn’t result in injury to the public interest but are currently criminal in nature with fine and punishment after conviction provided for under the LLP Act. 

The above points can be summed as:

• To encourage youths to take up the entrepreneurial spirit;
• Remove the fear of criminal prosecutions for non-substantive minor and procedural omissions and commissions in normal business transactions;
• To remove criminality of offence from business laws wherein there are no ill intentions involved;
• To ensure ease of doing business for law abiding LLPs.

Principles adopted for decriminalization of compoundable offences under LLP Act

The Ministry of Corporate Affairs has adopted three principles for this process. They are as follows:

• Principle 1-

Those offences that relate to minor or less serious compliance issues involving predominantly objective determinations is proposed to be shifted to in-house adjudication mechanism framework rather than being treated as criminal offences.

• Principle 2-

Those offences that are more appropriate to be dealt with under other laws are proposed to be omitted from Limited Liability Partnership Act 2008.

• Principle 3-

For non-compoundable offences that involve serious violations entailing an element of fraud, intent to deceive, and caused injury to public interest or non-compliance of order of statutory authorities impinging on effective regulation, status quo shall be maintained.

Introduction of new concepts in the Act

Apart from the decriminalization of compoundable offences under LLP Act, the government has also proposed certain new concepts into the LLP Act for greater ease of doing business.

These new concepts include the following:

• Small LLP-

It has been proposed by the government to introduce a class of LLP called the small LLP in line with the concept of the small companies. These small LLPs would be subject to lesser compliances and lesser fee or additional fee, and lesser penalties in case of a default.

Therefore a lower cost of compliance can incentivize unincorporated micro and small partnerships to convert to organized structure of LLP and derive its benefits.

• Non-convertible debentures-

The Ministry of Corporate Affairs has proposed to permit LLPs to raise capital through issuance of fully secured Non-convertible debentures (alternative to equity participation) from investors who are regulated by the Securities Exchange Board of India or by the Reserve Bank. This will help in enhancing the deepening of debt market and also enhance the capitalization of LLPs.

• Reduction in additional fee-

It has also been proposed by the MCA to amend section 69 of the Limited Liability Partnership Act, 2008 with a view to reduce the additional fee of 100 rupees per day which is currently applicable in case of delayed filing of forms or documents.

A reduced additional fee can also incentivize smooth filing of the records and returns of the LLPs and consequently results in an updated registry for the proper regulation and for policy making.

Conclusion

The Ministry of Corporate Affairs has initiated decriminalization exercise of compoundable offences under LLP Act, 2008^[1]. However, it is worth mentioning here that reforming the corporate set up through decriminalizing certain offences in no way strips the criminal sanctions placed on offences such as fraud, deceit, etc. therefore, they would be still punishable offences under the Act. The aforementioned amendments seek to eliminate the notion of criminality from actions that don’t have any malicious spirit.  

Read our article:Understanding the Provision Regarding Strike off of LLP