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Why LLP firms can no longer get away with lapses

Rishi Ranjan Kala
LLP firms, Registrar of Companies, Ministry of Corporate Affairs, Companies Act, AMRG & Associates, Company Law Settlement Scheme

Limited liability partnership (LLP) firms can no longer get away with lapses in filing of assorted information with the Registrar of Companies (RoC). The Ministry of Corporate Affairs has made the regulatory norms for them stricter, even as it allows them to approach the respective RoCs for condoning of fines/punishment for delays in filing of documents. The move is being seen as part of the government’s efforts in tracking doubtful companies as well as to have a stricter compliance environment.

The MCA has made Section 460 of Companies Act, 2013 applicable for LLPs through a notification issued last month. It deals with condonation of delays by the government in case of default in submission of any application or filing of documents with the RoC within the specified time period. Hitherto, default in filing of documents with RoC used to attract penalty, but LLPs, under a much liberation regulatory regime, used to circumvent such imposts.
As of 2019, India had a little over 1.55 lakh active LLPs. A major part of these are in business services, followed by trading, manufacturing and real estate & renting. LLPs as a form of entity was introduced in India in 2009 and it combines advantages of a partnership with those of a company.

AMRG & Associates chief executive Gaurav Mohan said this move can be seen as the beginning of imposition of sections of Companies Act to LLPs. "Presently, LLPs have easier compliance norms as a result of which there is a limitation on the power of RoC to inspect affairs of such entities. Imposition of more provisions of the Act would bring inspection and inquiry of LLPs in the ambit of the power of RoC which is presently limited to companies alone. Imposition of more compliance norms will be a pioneering move in unmasking doubtful organisations which have taken the LLP route to stay at bay from compliance requirements of Companies Act 2013."

Vishwas Panjiar, a partner at Nangia Andersen, explained that it has been observed that large percentage of companies and LLP's have not filed statutory documents, making them liable for penalties and prosecution because of such non-compliance.

The MCA has been taking steps for regularising such non-compliant entities and has introduced Company Law Settlement Scheme, 2014 and Condonation of Delay Scheme 2018, wherein companies were given a chance to condone the delay in filling documents and granting them immunity from prosecution and reduced additional fee.
Recently, the MCA amended Section 460 of the Act to make it applicable for LLPs. Many instances have been reported to the ministry wherein LLP's have not been able to file the annual documents with RoC due to various reasons like disqualification of designated partners/directors, requirement of affixation of digital signature certificate of two designated partners (DP) on annual forms and de-activation of DIN of such disqualified DPs, he said.

"Unfortunately, the LLP Act does not provide any cure for such a situation unlike Companies Act. This amendment now enables the government to come up with schemes to provide an opportunity to defaulting LLPs to make their default good by filling these belated documents without prosecution and penalty," Panjiar said.