Certain provisions of Cos. Act, 2013 applicable to LLP

MCA has issued a Notification (dated Feb. 11, 2022) and has stated that certain provisions of Cos. Act, 2013 will be applicable to LLP (with modifications). This post relates to analysis of the said notification:

Provisions of maintaining register of SBO now applies to LLP. By the notification ‘company’ is substituted by ‘LLP’, ‘member’ is substituted by ‘partner’, ‘officer’ is substituted by ‘partner/designated partner’. Complex provisions of SBO are made so easily applicable for LLPs!! Without such substitution of words, MCA ought to have drafted a separate provision drafted for LLP as the amount capital contribution could be different than the voting rights in LLP. Not clear from MCA notification, whether Cos. SBO Rules are applicable for LLPs. Also, provisions similar to section 89(10) of Cos. Act, 2013 should have been applicable to LLPs.

Provisions of disqualification for appointment of directors now applies to designated partners of the LLPs. Sub-section (1) and (2) of section 164 of the Companies Act, 2013 are now applicable to LLPs. No reference to other provisions applicable to LLPs.

Provisions of number of directorships for directors in company are now applicable for number of LLPs in which a person can be DP (i.e. 20). There is no restriction for a person to be a partner in no. of LLPs.

Provisions relating to vacation of office of director are not applicable for DP of LLP. There is also a possibility provided where all DPs of LLP vacate their office (similar to Co. Act, 2013).

Central Govt. may if it is satisfied direct inspection of books and papers of LLP by inspector appointed by it for the purpose. The ROC or Inspector making an inspection or inquiry shall have all the powers as are vested in a civil suit in respect of certain matters (as prescribed).

Govt. has also introduced a provision for ‘Appeal to NCLAT’ in case of dissolution of LLP under section 75 of the LLP Act.

Provisions of section 439 of Cos. Act (relating to ‘offenses to be non-cognizable’) are now applicable to LLP with certain modifications.

Basically, all these provisions applicable to LLPs could have been drafted and made applicable to LLPs instead of substitution of words/phrases. Also, the LLP Act ought to have been amended for such significant amendments. There could have been many provisions of the Cos. Act, 2013 that could have been made applicable to LLPs. There ought to have been some clarity in applicability of provisions relating to RPTs under Cos. Act, 2013 to transaction between Co. and LLP.

Amendments to LLP Rules, 2009 - Adjudication of penalties & its impact.

 Last week, the LLP Rules, 2009 were amended (effective from April 1, 2022). The amendments are quite significant. One of the amendments relates to adjudication of penalties. Provisions are a bit similar to adjudication under the Cos. Act, 2013. These provisions in the Rules are to be read with the penal provisions under the LLP Act. The amendment Rules states that the requirement of submission of replies in electronic mode shall become mandatory after creation of e-adjudication platform. Amendment to LLP Rules also provide for appeal against order of adjudicating officer i.e. to Regional Director having jurisdiction.

Another important amendment to the Rules is a change in the filing fees by LLP for filing, registering, or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return and an application along with the statement for conversion of a firm or a private co. or an unlisted public co. into LLP. Different statutory fees for Small LLPs and other than Small LLPs.

Changes proposed w.r.t. the name resembling Trademark and remedies.

Also, quite a few provisions of Cos. Act are now applicable to LLPs (will share my analysis on this soon). The provisions of LLP (Amendment) Act are also notified.

My views: For India Inc., 2022 is a year for adjudication of penalties under Cos. Act and LLP Act, both. For Cos., the process has already started. LLP Act and Rules gives necessary powers to initiate adjudication proceedings for non-compliances. The orders for LLPs would be available on the MCA website. Just like Cos., now the compliances for LLPs would be required to be taken seriously. It is now not only about paying hefty annual filing fees for LLPs. However, there should be some rationale (justified in writing) in initiating action against LLP for the non-compliances and also there should be specific parameters for imposing penalties. Parameters could be capital contribution, turnover of LLP, whether public interest is affected, nature of non-compliance, etc. Otherwise, instead of promoting compliance, such adjudication proceedings would be harassment for LLPs (presently, the case is for Cos.).

My observations on MCA directing Cos. to furnish CSR Report in e-Form CSR-2:

MCA has issued a notification and amended Companies (Accounts) Rule, 2014. MCA has directed every Co. (to whom CSR provisions are applicable) to furnish a report on CSR in e-Form CSR-2 to the ROC for the preceding year (2020-2021). For FY 2020-2021, e-Form CSR – 2 shall be filed separately on or before March 31, 2022.

My observations (after going through the notification): Very precise and micro-details asked by the MCA about the compliance of section 135 of the Act and Rules. After going through the Form, it seems that the Rules have been converted into an e-Form. Some extra financial information is also asked by the MCA. This means that Cos. have to take CSR provisions very seriously from the perspective of compliance. The form has no certification of practising professional. The e-Form will require a lot of co-ordination between CS Dept., CSR Dept. and finance dept. (at least for the first return).

Good for ESG consultants and analyst. a lot of sorted information.

SEBI’s rules governing related party transactions requires immediate amendment

SEBI’s rules governing related party transactions requires immediate amendment

Business Standard article titled 'India Inc sees red over new rules governing related party transactions': https://www.business-standard.com/article/markets/india-inc-sees-red-over-new-rules-governing-related-party-transactions-122021100437_1.html

3 months back, when the SEBI board approved the proposal, I had mentioned that RPT amendments are made extremely stringent and would require another round of amendment.

In fact, on the SEBI consultation paper on RPTs, I had written an article titled - Regulating ‘unrelated party transactions’ under the provisions of ‘related party transactions’.

Various industry and business associations are now taking efforts and seeking amendments to the SEBI regulations. Amendments would now take place in due course.

Interestingly, everything other than harmonization of company law provisions and SEBI regulations is being done. Not sure, if this is ease of doing business.

Tough days for listed entities, compliance officers and secretarial auditors.

My LinkedIn post for reference: