New Threat from MCA- LLP Strike off Notice

SHORTSUMMARY:

Recently MCA has issued Notice of Thousands of LLPs u/s 75 of LLP Act, 2008 read with Rule 37 of LLP Rules, 2009 for non-filling of Financial Statements and Annual Returns for previous two years. The main focus of this research editorial onWhat should be the Steps for LLP after receipt of Notice along with implication of Strike off LLP by ROC.

Language of Notice:Notice is hereby given that the Registrar has a reasonable cause to believe thatLLPs mentioned below have not been carrying on any business or operation for a period of two immediately preceding financial years.” And these LLPs have to file their Financial Statements (Form 8) and Annual Return (Form 11) for the Financial Year 2015-16 and 2016-17 but they have failed to do so. Therefore, the Registrar has reasonable cause to believe the same for the purpose of taking suo-moto action for striking off the name of these LLPs” It is therefore proposes to remove/Strike off the names of the said LLPs from the Register and dissolve them unless a cause is shown to the contrary

BACKGROUND:

Provision in relation to closure of LLP has been mentioend u/s 75 of LLP Act, 2008 read with Rule 37 of LLP Rules, 2009.

Name of defunct LLP can be struck off by the Registrar:

• Suo-motto; or
• On application by the LLP.

Defunct:The generic meaning of the word ‘defunct’ is a state of being non-existing and dysfunctioning. A Limited Liability Partnership is said to be defunct when it is no longer in business for more than one year.

LANGUAGEOFSECTION:

Section 75 of the LLP Act, 2008 is produced below:

The section empower the Registrar to strike-off defunct LLPs in such manner as may be prescribed (Rule 37 of the LLP Rules, 2009), where the Registrar has reasonable cause to believe that a LLP is not carrying on business or operation in accordance with the provisions of this Act.

Provided that the Registrar shall, before striking off the name of any limited liability partnership under this section, give such Limited Liability Partnership a reasonable opportunity of being heard.

Rule 37 of the LLP Act, 2009 is produced below:

(1) Where a limited liability partnership is not carrying on any business or operation

(a)for a period of two years or more and the Registrar has reasonable cause to believe the same, for the purpose of taking suo motu action for striking off the name of the LLP; or

(b)for a period of one year or more and has made an application in Form 24 to the Registrar, with the consent of all partners of the limited liability partnership for striking off its name from the register,

the Registrar shall send a notice to the limited liability partnership and all its partners, of his intention to strike off the name of the limited liability partnership from the register and requesting them to send their representations along with copies of the relevant documents, if any, within a period of one month from the date of the notice:

3) At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the limited liability partnership, or the Registrar is satisfied that the name should not be struck off from the register, strike its name off the register, and shall publish notice thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the limited liability partnership shall stand dissolved.

Above mentioned are the provision of strike off of LLP along with the notices issued by ROC to Defunct LLP. Therefore after discussion of legal provisions and Notice following questions came into mind:

• What should be reply of ROC Letter
• Implications of Notice from ROC.
• What is the liability of Designated Partners Etc.

REMEDY AVAILABLE TO THE LLP

As mentioned in Sub-Rule 1 of Rule 37 of LLP Rules, 2009, ROC has given an opportunity to the LLP to revert in 30 days of issue of notice.

STEP I Decision of Designated Partners

After receipt of notice from ROC, Designated Partners of LLP have to take one decision before replying the notice of ROC. Decision Whether

• They want to continue the LLP, or;
• They want to get Strike off LLP

STEP II IF, Designated Partners wants to Continue the LLP

1. First:They have to reply to Notice of ROC in the form of objections. Like: Our LLP is not a defunct LLP and carry on the Business or we are in process of starting of Business or LLP is looking for some good market opportunities, etc.
2. Second:If any compliances are pending on part of LLP eg. LLP have not completed the annual filing by filing of e-form LLP-11 and LLP-8 then LLP have to complete all the pending filing with ROC.

Food for Thought..

1. As per LLP Act late filing fees for any form is Rs. 100/- per day. In such situation if LLP have to file pending forms, then additional fees shall be high. Whether there is any provision in Act reduction of such additional Fees

As per LLP Act, if LLP filing e-forms after the prescribed due dates as mentioned below, LLP have to pay additional fees of Rs. 100/- per day. There is no provision under the act to reduce the additional fees on such forms.

STEP II IF, Designated Partners doesnt want to Continue the LLP

First:They have to reply to Notice of ROC that our LLP is defunct; we are not having any business/ operations since last[1]one year or more. We suo-moto want to apply for Strike off the LLP As per provisions of the Act. Allow us to file e-form LLP-24 as per provision of the Act.
Second:LLP have to do following Checks:

• When LLP cease to carry on Business
• Whether there are any assets or liability in the LLP, etc

Because as per Rule 37The limited liability partnership referred to in clause (b) of sub-rule (1) of rule 37 shall, file overdue returns in Form 8 and Form 11 up to the end of the financial year in which the limited liability partnership[2]ceased to carry on its businessor commercial operations before filing of form for strike off

Third:If LLP Cease to Carry on business since last one or more years;

• File all the pending annual filing form i.e. LLP-11 and LLP-8 with roc till the year in which LLP has carried business.

Fourth:File the Documents for Strike off of LLP with ROC. Process of strike off of LLP given at the end of the editorial.

NOTE:

Above we have discussed how to reply ROC and what are the steps available with LLP after receipt of notice. While following steps focus should be on Whether LLP want to continue the business or not.
Implication of Notice / Liability of Designated Partners

1. If LLP Fails to reply within given time of 30 days as per Rule 37 then LLP shall be struck off by the ROC.
2. Designated partners shall be liable for non-compliance of provision of LLP Act, 2008. (eg. Non filing of Annual Forms)

Liability of Designated Partners:

The Designated partners areresponsible for continuingliabilityfor the LLP as mentioned in Rule 37 (5). Under this rule it states that the liability, if any, of every designated partner of an LLP dissolved under sub-rule (3), must continue and shall be enforced as if the limited liability partnership is not dissolved.

Therefore one can opine that as per rule 37 after struck off of LLP Designated partners shall be personally liable for the statutory / other liabilities of the LLP.

Food for Thought

What shall be status of LLP on MCA website after receipt of notice from ROC

MCA Portal Status in the Master Data of LLPs named in the strike-off notices are appearing as Under Process Of Strike Off, which means the LLPs are not Struck-off but only the notices issued against them for strike-off and they can save themselves from Striking-Off by giving representation of non-compliances.

Process Strike Off LLP

In case the LLP wants to close down its business or where it is not carrying on any business operationsfor the period of one year or more,, it can make an application to the Registrar of Companies for declaring the LLP as defunct and removing the name of the LLP from its register of LLPs. The procedure is given below:(clause (b) of sub rule 1 of Rule 37 of LLP Rules 2008)

An application is required to be madein e-Form 24to the Registrar of Companies for Striking off the name of the LLP under Rule 37(1)(b) and 37(1A) of LLP Rules with following below mentioned documents:

File e-form 24 with following documents:

a)a statement of account disclosing nil assets and nil liabilities, certified by a Chartered Accountant in practice made up to a date not earlier than thirty days of the date of filing of Form 24.
b)Copy of acknowledgement of latest Income tax return- Self Explanatory
c)copy of the initial limited liability partnership agreement, if entered into and not filed, along with changes thereof
d)an affidavit signed by thedesignated partners, either jointly or severally, to the effect,

• that the Limited Liability Partnership has not commenced business or where it commenced business, it ceased to carry on such business from .(dd/mm/yyyy);
• that the limited liability partnership has no liabilities and indemnifying any liability that may arise even after striking off its name from the Register;
• that the Limited Liability Partnership has not opened any Bank Account and where it had opened, the said bank account has since been closed together with certificate(s) or statement from the respective bank demonstrating closure of Bank Account;
• that the Limited Liability Partnership has not filed any Income-tax return where it has not carried on any business since its incorporation, if applicable.

e)Copy of Detailed Application- Mention full details of LLP plus reasons for closure
f)Copy of Authority to Make the Application- Duly signed by all the Partners

(Author CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted [email protected])

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