1. Winding-up of an LLP:
1.1 There are two ways in which an LLP can be wound-up, by an order of the Court or voluntarily.
1.2 An LLP can be wound-up by an order of the High Court under any of the fall owing circumstances:
a) If the LLP decides that it should be wound-up by a Court Order.
(b) If the minimum number of partners reduces to less than two and remains sa far mare than 6 months,
c) If it is unable to pay its debts. The Act does not prescribe any minimum amount of debts or any conditions under which an LLP is deemed to be unable to pay its debts. All these are contained in the draft Concept LLP (Winding-up and Dissolution) Rules.
d) If it has acted against the interests of the sovereignty and integrity of India, security of the State or public order.
e) If it has made a default in filing the Statement of Account and Solvency or the Annual Return far any 5 consecutive years.
f) If the Court is of the opinion that it is just and equitable to wind-up the LLP.
1.3 The above section is similar in its operation to S. 433 of the Companies Act. However, unlike the Companies Act, the LLP Act does not contain any provisions far the compulsory or voluntary winding-up of an LLP. All these provisions are contained in the draft Concept LLP (Winding-up and Dissolution) Rules. The final Rules have yet not been notified. It is interesting to note that while normally Rules only contain the procedures and the substantive portion is contained in the Act, the Winding-up Rules, even deal with the substantive portion of winding-up of LLPs. One would expect that such an important provision is passed by the Parliament rather than notified by the Ministry of Corporate Affairs.
1.4 S. 51 of the Act also provides that if an LLP’s affairs are under investigation if, based an an inves-tigatian report made u/s.49, the Central Covernment is of the view that it is expedient to do sa, then the Gavernment may present a winding-up petition to the High Court, The petition may be presented an the ground that it is just and equitable to wind-up the LLP.
2. Investigation of an LLP:
2.1 S. 43 of the Act empawers the Central Government to appoint an inspector to investigate the affairs of an LLP in any of the following circumstances:
a) If partners having at least 20% voting pawer apply to the Tribunal far an investigation and the Tribunal passes an order to that effect. An application should be accompanied with a security of an amount calculated based an the turnover. The amount of security ranges from Rs.2 to 25 lakhs.
b) If the Tribunal sua moto passes an order far an investigation into the affairs of an LLP.
c) Any Court passes an Order that the affairs of an LLP should be investigated.
d) If in the opinion of the Central Gavernment, there are circumstances suggesting that the business of the LLP is being conducted :
- with an intent to defraud creditors, partners
- otherwise far a fraudulent/unlawful purpase
- in a manner .oppressive or unfairly prejudicial to its partners
e) If in the opinion of the Central Gavernment, there are circumstances suggesting that the LLP was farmed far any fraudulent or unlawful purpase.
f) If in the opinion of the Central Gavernment, there are circumstances suggesting that the LLP’s affairs are not being conducted in accordance with the provisions of the Act.
g) If in the opinion .of the Central Gavernment, there are circumstances suggesting that, based an a rep art of the RaC, there are sufficient reasons that the affairs of the LLP should be investigated.
2.2 The inspector may make interim reports and on conclusion of the investigation make a final report.
2.3 If based on this report, the Central Government is of the view that any person named in the report is guilty of any offence, then it may launch crimi-nal prosecution against him. The Government may also initiate proceedings:
a) for the recovery of damages; or
b) for the recovery of any property of the LLP/ any entity which has been misappropriated or wrongfully retained.
3. Defunct LLPs :
3.1 The RoC may strike off the name of an LLP from its register. It can do so, where an LLP is not carrying on any business or operation:
a) For a period of 2 years or more and the RoC has reasonable cause to believe the same, for taking suo moto action for striking off the LLP’s name; or
b) For a period of 1 year or more and it has made an application to the RoC in Form 24 with the consent of all the partners for striking off its name from the register.
3.2 The RoC shall in all cases of suo moto action provide an opportunity of being heard to the LLP. After that if the RoC is satisfied that the name should be struck off then it will publish a notice in the Gazette and from that date, the LLP shall stand dissolved.
4. Offences and penalties:
4.1 The LLP Act lays down various penalties and prosecutions for non-compliance with the provisions of the Act. It also lays down penalties for various procedural offences such as not filing forms on time. Further, where any document or return is required to be filed and if it is not so done on time, then it may be filed within 300 days from the original date of filing along with a daily fine of Rs. 100 for every day of delay.
4.2 In offences where no penalty has been pre-scribed, the punishment shall be a fine ranging from Rs.50,000 to Rs.5 lakhs along with a further fine which may extend to Rs.50 per day for every day after which the default continues.
4.3 A petition for compounding of offences can be made in From 31 to the RoC. Only those offences can be compounded for which the punishment is only a fine. Thus, offences which are punishable with imprisonment are not compoundable. This is different from the provisions of S. 621A of the Companies Act. Under this Act, offences for which the punishment is a fine or imprisonment are compoundable. One reason for the same is that there are no offences under the LLP Act for which the punishment is a fine or an imprisonment. The punishments under the Act are in the form of fines and imprisonment. Where any offence by an LLP is compounded no prosecution would be launched against the offender.
4.4 Offences in relation to the Incorporation Document, carrying on of a fraudulent business, making of false statements under the Act, matters arising out an Inspection Report and non-compliance of any Order of the Tribunal, are offences under the Act which also attract imprisonment as a punishment.
Thus, these offences would not be compoundable.
4.5 Where any offence by an LLP is proved to be because of the consent or connivance of a partner or attributable to the neglect of any partner, then such person shall be proceeded against and punished under the Act.
5. Whistle blowers:
5.1 A Court or Tribunal is empowered to reduce or waive any penalty leviable against any partner or employee of an LLP who is a whistle blower, if :
- he provided useful information during the investigation of the LLP; or
- he provided some information which lead to the LLP or its partner / employee being convicted under any Act.
5.2 The Act also contains a safeguard against harassment of such a whistle blower by providing that he would not be discharged, demoted, suspended, threatened, harassed or discriminated against merely because he provided the above information.
