Corporate Laws Amendment Bill: Recognizing LLPs in IFSCA, decriminalisation  and easing compliances for AIF LLPs

– Team Corplaw | corplaw@vinodkothari.com

In line with an overhaul of changes proposed in the Companies Act, 2013, the Corporate Laws (Amendment) Bill proposes some changes in the Limited Liability Partnership (LLP) Act, 2008. Aimed at greater ease of doing business for corporates, the proposals are dominated by provisions to recognise LLPs operating in International Financial Services Centres by allowing them to issue and maintain share capital in foreign currency as permitted by the International Financial Services Centres Authority . Further, decriminalisation of various procedural defaults under the LLP Act have been provided for by replacing criminal provisions with civil penalties, , and easing compliances for Alternative Investment Funds which are formed asLLPs. 

Following definitions added: 

• IFSC and IFSCA inserted and aligned with definition in International Financial Services Centres Authority Act, 2019
• “Permitted foreign currency” to be specified by IFSCA in consultation with CG
• “Specified IFSC LLP” meaning an LLP set up in an IFSC, and regulated by IFSCA
  • To facilitate LLPs operating in International Financial Services Centres allowing them to issue and maintain share capital in foreign currency

Specified IFSC LLPs

• Registered office to be in IFSC
• “IFSC LLP” to form part of its name.
• If any LLP is regulated by SEBI or IFSC, primarily meaning AIFs:
  • Details of changes in partners to be furnished to the Registrar annually. 
  • Manner of filing changes in LLP Agreement to be prescribed.
• Monetary value of contribution by partner in Specified IFSC LLP to be accounted for and disclosed only in permitted foreign currency and any prior contribution also to be converted to such foreign currency.
  • Subsequent monetary contribution not allowed without converting the same into permitted foreign currency.
• To prepare its books and records in the permitted foreign currency, however, may be allowed to prepare in INR, if permitted by IFSCA. [Section 34(1)]
• Specified IFSC LLPs may be required to use permitted foreign current for filings under this Act, however, payment of fees/fines/penalties, to be made in INR. [Section 68]

Incorporation/Conversion of/into LLP 

• Changes in the LLP agreement, names and other details of partner of those LLPs regulated by SEBI or IFSCA to be intimated as may be prescribed i
• Requirement of compliance statement by advocate/CS/CA/CMA replaced by the requirement of an affidavit, only in cases where such professional is engaged
• Specified IFSC LLP to state its objects of financial service activities as per Section 3(1)(e) of IFSC Authority Act, 2019 
• Enabling provisions for conversion of a specified trust, established under Indian Trusts Act, 1882 or Central/State Act and registered by SEBI/IFSCA, having prescribed activities. primarily aimed at AIFs formed as trust, to convert into LLPs. [Sections 57A and 58]

Adjudication and Penalties

• Decriminalising extant provisions providing for punishment with:
  • Fine of Rs. 2,000-25,000 for failure to comply with Registrar’s summons/requisition to a penalty of Rs. 10,000 for failing to comply with any requisition of Registrar (other than summons). [Section 38(4)]
  • Fine of Rs. 25,000-5,00,000 for LLP, and Rs. 10,000-1,00,000 for every DP, for failure to comply with requirements of maintenance of accounts, and annual Statement of Account and Solvency to Rs. 100/day upto Rs. 1,00,000 for LLP, and Rs. 50,000 for DP.
• LLP/Partner/DP expressly permitted to make application suo moto for adjudication of penalty.
• For failure to comply with any requisition of the Registrar, penal actions will apply instead of fine  
• From the commencement of the proposed legislation, where a provision in respect of any offence provided in LLP Act has been amended to provide for adjudication under the said section, the manner of withdrawal of the complaint and the manner of transfer of such matter for adjudication under such section, whether pending in the Court or otherwise, shall be dealt with in accordance with such Scheme as may be notified by the Central Government.
• Appeal allowed against decision of Registrar  regarding name reservation (Section 16) or declining to incorporate LLP (Section 12). [Section 68B]

Valuation

• Provisions of Section 247 of Companies Act, 2013 to apply mutatis mutandis for valuation of partner’s contribution, property/assets/net worth i.e. only valuer registered with IBBI in accordance with Section 247

Read our coverage on the amendments proposed in the Companies Act, 2013 here.

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