LIMITED LIABILITY PARTNERSHIP

 

 

 

Chapter IX

Investigation

Investigation of the affairs of limited liability partnership.

43. (1) The Central Government shall appoint one or more compe­tent persons as inspectors to investigate the affairs of a limit­ed liability partnership and to report thereon in such manner as it may direct if—

  (a)  the Tribunal, either suo motu, or on an application received from not less than one-fifth of the total number of partners of limited liability partnership, by order, declares that the affairs of the limited liability partnership ought to be investigated; or

  (b)  any Court, by order, declares that the affairs of a limited liability partnership ought to be investigated.

(2) The Central Government may appoint one or more competent persons as inspectors to investigate the affairs of a limited liability partnership and to report on them in such manner as it may direct.

(3) The appointment of inspectors pursuant to sub-section (2) may be made,—

  (a)  if not less than one-fifth of the total number of partners of the limited liability partnership make an application along with supporting evidence and security amount as may be prescribed; or

  (b)  if the limited liability partnership makes an applica­tion that the affairs of the limited liability partnership ought to be investigated; or

  (c)  if, in the opinion of the Central Government, there are circumstances suggesting—

   (i)  that the business of the limited liability partnership is being or has been conducted with an intent to defraud its creditors, partners or any other person, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive or unfairly prejudicial to some or any of its partners, or that the limited liability partnership was formed for any fraudulent or unlawful purpose; or

  (ii)  that the affairs of the limited liability partnership are not being conducted in accordance with the provisions of this Act; or

(iii)  that, on receipt of a report of the Registrar or any other investigating or regulatory agency, there are suffi­cient reasons that the affairs of the limited liability partner­ship ought to be investigated.

Application by partners for investigation.

44. An application by partners of the limited liability partner­ship under clause (a) of sub-section (1) of section 43 shall be supported by such evidence as the Tribunal may require for the purpose of showing that the applicants have good reason for requiring the investigation and the Central Government may, before appointing an inspector, require the applicants to give security, of such amount as may be prescribed, for payment of costs of the investigation.

Firm, body corporate or association not to be appointed as in­spector.

45. No firm, body corporate or other association shall be ap­pointed as an inspector.

Power of inspectors to carry out investigation into affairs of related entities, etc.

46. (1) If an inspector appointed by the Central Government to investigate the affairs of a limited liability partnership thinks it necessary for the purposes of his investigation to investigate also the affairs of an entity which has been associated in the past or is presently associated with the limited liability part­nership or any present or former partner or designated partner of the limited liability partnership, the inspector shall have the power to do so and shall report on the affairs of the other entity or partner or designated partner, so far as he thinks that the results of his investigation thereof are relevant to the investigation of the affairs of the limited liability partner­ship.

(2) In the case of any entity or partner or designated partner referred to in sub-section (1), the inspector shall not exercise his power of investigating into, and reporting on, its or his affairs without first having obtained the prior approval of the Central Government thereto :

Provided that before according approval under this sub-section, the Central Government shall give the entity or partner or desig­nated partner a reasonable opportunity to show cause why such approval should not be accorded.

Production of documents and evidence.

47. (1) It shall be the duty of the designated partner and part­ners of the limited liability partnership—

  (a)  to preserve and to produce before an inspector or any person authorised by him in this behalf with the previous approv­al of the Central Government, all books and papers of, or relat­ing to, the limited liability partnership or, as the case may be, the other entity, which are in their custody or power; and

  (b)  otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.

(2) The inspector may, with the previous approval of the Central Government, require any entity other than an entity referred to in sub-section (1) to furnish such information to, or produce such books and papers before him or any person authorised by him in this behalf, with the previous approval of that Government, as he may consider necessary, if the furnishing of such information or the production of such books and papers is relevant or neces­sary for the purposes of his investigation.

(3) The inspector may keep in his custody any books and papers produced under sub-section (1) or sub-section (2) for thirty days and thereafter shall return the same to the limited liability partnership, other entity or individual by whom or on whose behalf the books and papers are produced :

Provided that the inspector may call for the books and papers if they are needed again :

Provided further that if certified copies of the books and papers produced under sub-section (2) are furnished to the inspector, he shall return those books and papers to the entity or person concerned.

(4) An inspector may examine on oath—

  (a)  any of the persons referred to in sub-section (1) ;

  (b)  with the previous approval of the Central Government, any other person in relation to the affairs of the limited li­ability partnership or any other entity, as the case may be; and

  (c)  may administer an oath accordingly and for that purpose may require any of those persons to appear before him personally.

(5) If any person fails without reasonable cause or refuses—

  (a)  to produce before an inspector or any person authorised by him in this behalf with the previous approval of the Central Government any book or paper which it is his duty under sub-section (1) or sub-section (2) to produce; or

  (b)  to furnish any information which it is his duty under sub-section (2) to furnish; or

  (c)  to appear before the inspector personally when required to do so under sub-section (4) or to answer any question which is put to him by the inspector in pursuance of that sub-section; or

  (d)  to sign the notes of any examination,

he shall be punishable with fine which shall not be less than two thousand rupees but which may extend to twenty-five thousand rupees and with a further fine which shall not be less than fifty rupees but which may extend to five hundred rupees for every day after the first day after which the default continues.

(6) The notes of any examination under sub-section (4) shall be taken down in writing and signed by the person whose examination was made on oath and a copy of such notes shall be given to the person so examined on oath and thereafter be used as an evidence by the inspector.

Seizure of documents by inspector.

48. (1) Where in the course of investigation, the inspector has reasonable ground to believe that the books and papers of, or relating to, the limited liability partnership or other entity or partner or designated partner of such limited liability partner­ship may be destroyed, mutilated, altered, falsified or secreted, the inspector may make an application to the Judicial Magistrate of the first class, or, as the case may be, the Metropolitan Magistrate, having jurisdiction, for an order for the seizure of such books and papers.

(2) After considering the application and hearing the inspector, if necessary, the Magistrate may, by order, authorise the inspec­tor —

  (a)  to enter, with such assistance, as may be required, the place or places where such books and papers are kept;

  (b)  to search that place or those places in the manner specified in the order; and

  (c)  to seize books and papers which the inspector considers it necessary for the purposes of his investigation.

(3) The inspector shall keep in his custody the books and papers seized under this section for such period not later than the conclusion of the investigation as he considers necessary and thereafter shall return the same to the concerned entity or person from whose custody or power they were seized and inform the Magistrate of such return :

Provided that the books and papers shall not be kept seized for a continuous period of more than six months :

Provided further that the inspector may, before returning such books and papers as aforesaid, place identification marks on them or any part thereof.

(4) Save as otherwise provided in this section, every search or seizure made under this section shall be carried out in accord­ance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that Code.

Inspector’s report.

49. (1) The inspectors may, and if so directed by the Central Government, shall make interim reports to that Government, and on the conclusion of the investigation, shall make a final report to the Central Government and any such report shall be written or printed, as the Central Government may direct.

(2) The Central Government—

  (a)  shall forward a copy of any report (other than an interim report) made by the inspectors to the limited liability partnership at its registered office, and also to any other entity or person dealt with or related to the report; and

  (b)  may, if it thinks fit, furnish a copy thereof, on request and on payment of the prescribed fee, to any person or entity related to or affected by the report.

Prosecution.

50. If, from the report under section 49, it appears to the Central Government that any person in relation to the limited liability partnership or in relation to any other entity whose affairs have been investigated, has been guilty of any offence for which he is liable, the Central Government may prosecute such person for the offence; and it shall be the duty of all partners, designated partners and other employees and agents of the limited liability partnership or other entity, as the case may be, to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give.

Application for winding up of limited liability partnership.

51. If any such limited liability partnership is liable to be wound up under this Act or any other law for the time being in force, and it appears to the Central Government from any such report under section 49 that it is expedient to do so by reason of any such circumstances as are referred to in sub-clause (i) or sub-clause (ii) of clause (c) of sub-section (3) of section 43, the Central Government may, unless the limited liability partner­ship is already being wound up by the Tribunal, cause to be presented to the Tribunal by any person authorised by the Central Government in this behalf, a petition for the winding up of the limited liability partnership on the ground that it is just and equitable that it should be wound up.

Proceedings for recovery of damages or property.

52. If, from any report under section 49, it appears to the Central Government that proceedings ought, in the public inter­est, to be brought by the limited liability partnership or any entity whose affairs have been investigated,—

  (a)  for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such limited liability partnership or such other entity; or

  (b)  for the recovery of any property of such limited li­ability partnership or such other entity, which has been misap­plied or wrongfully retained,

the Central Government may itself bring proceedings for that purpose.

Expenses of investigation.

53. (1) The expenses of and incidental to an investigation by an inspector appointed by the Central Government under this Act shall be defrayed in the first instance by the Central Govern­ment; but the following persons shall, to the extent mentioned below, be liable to reimburse the Central Government in respect of such expenses, namely :—

  (a)  any person who is convicted on a prosecution, or who is ordered to pay damages or restore any property in proceedings brought by virtue of section 52, may, in the same proceedings, be ordered to pay the said expenses to such extent as may be speci­fied by the court convicting such person, or ordering him to pay such damages or restore such property, as the case may be;

  (b)  any entity in whose name proceedings are brought as aforesaid shall be liable, to the extent of the amount or value of any sums or property recovered by it as a result of the pro­ceedings; and

  (c)  unless, as a result of the investigation, a prosecution is instituted in pursuance of section 50,—

   (i)  any entity, a partner or designated partner or any other person dealt with by the report of the inspector shall be liable to reimburse the Central Government in respect of the whole of the expenses, unless and except insofar as, the Cen­tral Government otherwise directs; and

  (ii)  the applicants for the investigation, where the inspec­tor was appointed in pursuance of the provisions of clause (a) of sub-section (1) of section 43, shall be liable to such extent, if any, as the Central Government may direct.

(2) Any amount for which a limited liability partnership or other entity is liable by virtue of clause (b) of sub-section (1) shall be a first charge on the sums or property mentioned in that clause.

(3) The amount of expenses in respect of which any limited li­ability partnership, other entity, a partner or designated part­ner or any other person is liable under sub-clause (i) of clause (c) of sub-section (1) to reimburse the Central Government shall be recoverable as arrears of land revenue.

(4) For the purposes of this section, any costs or expenses incurred by the Central Government or in connection with the proceedings brought by virtue of section 52 shall be treated as expenses of the investigation giving rise to the proceedings.

Inspector’s report to be evidence.

54. A copy of any report of any inspector or inspectors appointed under the provision of this Act, authenticated in such manner, if any, as may be prescribed, shall be admissible in any legal proceeding as evidence in relation to any matter contained in the report.

Chapter X

Conversion to limited liability partnership

Conversion from firm into limited liability partnership.

55. A firm may convert into a limited liability partnership in accordance with the provisions of this Chapter and the Second Schedule.

Conversion from private company into limited liability partner­ship.

56. A private company may convert into a limited liability part­nership in accordance with the provisions of this Chapter and the Third Schedule.

Conversion from unlisted public company into limited liability partnership.

57. An unlisted public company may convert into a limited liabil­ity partnership in accordance with the provisions of this Chapter and the Fourth Schedule.

Registration and effect of conversion.

58. (1) The Registrar, on satisfying that a firm, private company or an unlisted public company, as the case may be, has complied with the provisions of the Second Schedule, the Third Schedule or the Fourth Schedule, as the case may be, shall, subject to the provisions of this Act and the rules made thereunder, register the documents submitted under such Schedule and issue a certifi­cate of registration in such form as the Registrar may determine stating that the limited liability partnership is, on and from the date specified in the certificate, registered under this Act :

Provided that the limited liability partnership shall, within fifteen days of the date of registration, inform the concerned Registrar of Firms or Registrar of Companies, as the case may be, with which it was registered under the provisions of the Indian Partnership Act, 1932 (9 of 1932) or the Companies Act, 1956 (1 of 1956), as the case may be, about the conversion and of the particulars of the limited liability partnership in such form and manner as may be prescribed.

(2) Upon such conversion, the partners of the firm, the share­holders of private company or unlisted public company, as the case may be, the limited liability partnership to which such firm or such company has converted, and the partners of the limited liability partnership shall be bound by the provisions of the Second Schedule, the Third Schedule or the Fourth Schedule, as the case may be, applicable to them.

(3) Upon such conversion, on and from the date of certificate of registration, the effects of the conversion shall be such as specified in the Second Schedule, the Third Schedule or the Fourth Schedule, as the case may be.

(4) Notwithstanding anything contained in any other law for the time being in force, on and from the date of registration speci­fied in the certificate of registration issued under the Second Schedule, the Third Schedule or the Fourth Schedule, as the case may be,—

  (a)  there shall be a limited liability partnership by the name specified in the certificate of registration registered under this Act;

  (b)  all tangible (movable or immovable) and intangible property vested in the firm or the company, as the case may be, all assets, interests, rights, privileges, liabilities, obliga­tions relating to the firm or the company, as the case may be, and the whole of the undertaking of the firm or the company, as the case may be, shall be transferred to and shall vest in the limited liability partnership without further assurance, act or deed; and

  (c)  the firm or the company, as the case may be, shall be deemed to be dissolved and removed from the records of the Regis­trar of Firms or Registrar of Companies, as the case may be.

Chapter XI

Foreign limited liability partnerships

Foreign limited liability partnerships.

59. The Central Government may make rules for provisions in rela­tion to establishment of place of business by foreign limited liability partnerships within India and carrying on their busi­ness therein by applying or incorporating, with such modifica­tions, as appear appropriate, the provisions of the Companies Act, 1956 (1 of 1956) or such regulatory mechanism with such composition as may be prescribed.

Chapter XII

Compromise, arrangement or reconstruction of limited
liability partnerships

Compromise, or arrangement of limited liability partnerships.

60. (1) Where a compromise or arrangement is proposed—

  (a)  between a limited liability partnership and its credi­tors; or

  (b)  between a limited liability partnership and its part­ners,

the Tribunal may, on the application of the limited liability partnership or of any creditor or partner of the limited liabili­ty partnership, or, in the case of a limited liability partner­ship which is being wound up, of the liquidator, order a meeting of the creditors or of the partners, as the case may be, to be called, held and conducted in such manner as may be prescribed or as the Tribunal directs.

(2) If a majority representing three-fourths in value of the creditors, or partners, as the case may be, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, by order be binding on all the creditors or all the partners, as the case may be, and also on the limited liability partnership, or in the case of a limited liability partnership which is being wound up, on the liquidator and contributories of the limited liability partnership :

Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the limited liability partnership or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all materi­al facts relating to the limited liability partnership, including the latest financial position of the limited liability partner­ship and the pendency of any investigation proceedings in rela­tion to the limited liability partnership.

(3) An order made by the Tribunal under sub-section (2) shall be filed by the limited liability partnership with the Registrar within thirty days after making such an order and shall have effect only after it is so filed.

(4) If default is made in complying with sub-section (3), the limited liability partnership, and every designated partner of the limited liability partnership shall be punishable with fine which may extend to one lakh rupees.

(5) The Tribunal may, at any time after an application has been made to it under this section, stay the commencement or continua­tion of any suit or proceeding against the limited liability partnership on such terms as the Tribunal thinks fit, until the application is finally disposed of.

Power of Tribunal to enforce compromise or arrangement.

61. (1) Where the Tribunal makes an order under section 60 sanc­tioning a compromise or an arrangement in respect of a limited liability partnership, it—

  (a)  shall have power to supervise the carrying out of the compromise or an arrangement; and

  (b)  may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

(2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 60 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the limited liability partnership, make an order for winding up the limited liability partnership, and such an order shall be deemed to be an order made under section 64 of this Act.

Provisions for facilitating reconstruction or amalgamation of limited liability partnerships.

62. (1) Where an application is made to the Tribunal under sec­tion 60 for sanctioning of a compromise or arrangement proposed between a limited liability partnership and any such persons as are mentioned in that section, and it is shown to the Tribunal that—

  (a)  compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruc­tion of any limited liability partnership or limited liability partnerships, or the amalgamation of any two or more limited liability partnerships; and

  (b)  under the scheme the whole or any part of the undertak­ing, property or liabilities of any limited liability partnership concerned in the scheme (in this section referred to as a “trans­feror limited liability partnership”) is to be transferred to another limited liability partnership (in this section referred to as the “transferee limited liability partnership”),

the Tribunal may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provisions for all or any of the following matters, namely :—

   (i)  the transfer to the transferee limited liability part­nership of the whole or any part of the undertaking, property or liabilities of any transferor limited liability partnership;

  (ii)  the continuation by or against the transferee limited liability partnership of any legal proceedings pending by or against any transferor limited liability partnership;

(iii)  the dissolution, without winding up, of any trans­feror limited liability partnership;

(iv)  the provision to be made for any person who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; and

  (v)  such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgama­tion shall be fully and effectively carried out :

Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a limited liability partnership, which is being wound up, with any other limited liability partnership or limited liability partnerships, shall be sanctioned by the Tribunal unless the Tribunal has received a report from the Registrar that the af­fairs of the limited liability partnership have not been conduct­ed in a manner prejudicial to the interests of its partners or to public interest :

Provided further that no order for the dissolution of any trans­feror limited liability partnership under clause (iii) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the limited liability part­nership, made a report to the Tribunal that the affairs of the limited liability partnership have not been conducted in a manner prejudicial to the interests of its partners or to public inter­est.

(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee limited liability partnership; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.

(3) Within thirty days after the making of an order under this section, every limited liability partnership in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.

(4) If default is made in complying with the provisions of sub-section (3), the limited liability partnership, every designated partner of the limited liability partnership shall be punishable with fine which may extend to fifty thousand rupees.

Explanation.—In this section “property” includes property, rights and powers of every description; and “liabilities” in­cludes duties of every description.