MCA initiates decriminalization process of compoundable offences of LLP Act

MCA initiates decriminalization process of compoundable offences of LLP Act

The Ministry of Corporate Affairs (MCA) will decriminalize twelve compoundable offences under the Limited Liability Partnership Act, 2008(LLP Act) and it will also omit Section 73, which deals with penal provisions in case of non-compliance with orders of a Tribunal

The Corporate Affairs Ministry stated that "The objective of the decriminalization exercise is to remove criminality of offences from business laws where no malafide intentions are involved."

The MCA has decided to initiate the process of decriminalization of compoundable offences under the LLP Act for greater ease of doing business for law abiding LLPs.

Principles adopted for the decriminalization of compoundable offences under the LLP Act-

1. Principle 1- Offences that relate to minor compliance issues, that involve predominantly objective determinations, will be shifted to the in-house adjudication mechanism framework instead of being treated as criminal offences.

2. Principle 2- Offences that are more appropriate to be dealt with under other laws, will be omitted.

3. Principle 3-For non-compoundable offences that are very serious violations entailing an element of fraud, intent to deceive, and caused injury to the public interest or non-compliance of the order of statutory authorities impinging on effective regulation, Status Quo would be maintained.

In this process, the Ministry has incorporated all the suggestions of the Company Law Committee that has proposed the decriminalization of provisions in the LLP Act. It has given suggestions regarding the maintenance of books of account, other records and audit (Section 34), annual returns (Section 35), schemes for compromise or arrangements (Section 60) and reconstruction or amalgamation (Section 62), among others.

The Ministry proposed to create a class of LLP called "Small LLP" that will be based on the concept of Small Companies. It would be subject to lesser compliances, lesser fees or additional fees, and lesser penalties in case of default.

It is further proposed to allow LLPs to raise capital through the issue of fully secured Non-Convertible Debentures (NCDs) that will be done as an alternative to equity participation from investors who are regulated by the Stock Exchange Board of India (SEBI) or the Reserve Bank of India (RBI). It is stated that this process will be helpful in deepening the Debt Market and enhance the capitalization of LLPs.

The MCA would also amend Section 69 of the LLP Act to reduce the additional fee of Rs. 100 per day, presently applicable for the delayed filing. A reduced additional fee will act as an incentive for smooth filing of records and returns of LLPs and it will also result in an updated registry for proper regulation and policy-making.