INVESTIGATION OF LIMITED LIABILITY PARTNERSHIP

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

     The Lok Sabha has passed the Limited Liability Partnership Bill, 2008 and it would become an act on the assent of the President of India.  In this article the investigation of limited liability partnership is discussed with the provisions contained in the bill.  Chapter IX of the bill deals with the investigation of limited liability partnership ('LLP' for short).

     Since the LLP is a separate legal entity and it is considered as an alternative to the companies the provisions of investigation of the affairs of the limited liability partnership are inserted in the bill which are more or less similar to the provisions relating to the investigation of the affairs of the companies. 

APPOINTMENT OF INSPECTORS:

     The Central Government is given power to appoint one or more competent persons as Inspectors to investigate the affairs of a LLP and to report thereon in such matter as it may direct.   The Central Government may appoint Inspectors on three aspects as follows:

1. If the tribunal, either suo motu, or an application received from not less than one fifth of the total number of partners of LLP, by order, declares that the affairs of the LLP ought to be investigated or any Court, by order, declares that the affairs of a LLP ought to be investigated.  An application shall be supported by such evidence as 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.

2. The Central Government may appoint one or more Inspectors, otherwise than the order of tribunal or court-

If not less than one fifth of the total number of the partners of the LLP make an application along with supporting evidence and security amount as may be prescribed; or

If the LLP makes an application that the affairs of the LLP ought to be investigated; or

If , in the opinion of the Central Government, there are circumstances suggesting-

-          that the business of the LLP 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 LLP was formed for any fraudulent or unlawful purpose; or

-          that the affairs of the LLP are not being conducted in accordance with the provisions of the Act; or

-          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 LLP ought to be investigated.

No firm, body corporate or other association shall be appointed as Inspector.

POWERS OF INSPECTORS:

1. If an Inspector 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 associating with the LLP or any present or past partner or the designated partner of the LLP, the Inspector shall have to power to do so and        shall report on the affairs of the other entity or partner or designated partner, so far he thinks that the results of his investigation thereof are relevant to the investigation of the affairs of the LLP.  For this the Inspector has to obtain the prior permission of the Central Government.   The Central Government before giving prior permission to the Inspector shall give the entity or partner or designated partner a reasonable opportunity to show cause why such approval should not be accorded.

2. The Inspector may require from the designated partner and partners of the LLP to produce before him or any person authorized by him in this behalf with the previous approval of the Central Government all books and papers of, or relating to, the LLP or, as the case may be, the other entity, which are in this custody or power.

3. The Inspector may, with the previous approval of the Central Government, require any entity other than an entity referred to in point No.2 to furnish such information to, or produce such books and papers before him or any person authorized 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.

4. The Inspector may examine on oath-

any of the persons referred to in point No. 2;

with the previous approval of the Central Government any other person in relation to the affairs of the LLP or any other party, as the case may be; and

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

OBLIGATION OF THE DESIGNATED PARTNER AND PARTNERS OF LLP AND INSPECTOR:

     It shall be the duty of the designated partner and the partners of the LLP to preserve and produce before an Inspector or any person authorized in this behalf with the previous approval of the Central Government, all books and papers of, or relating to, the LLP or, as the case may be, the other entity, which are in the custody or power and otherwise to give to the Inspector all assistance in connection with the investigation which they are reasonably able to give.

     The Inspector may keep in his custody any books and papers for thirty days and therefore return the same to the LLP, other entity or individual by whom or on whose behalf the books and papers are produced.  If certified copies of the books and papers produced are furnished to the Inspector he shall return those books and papers to the entity or person concerned.  The Inspector may call for the books and papers if they are needed again.

     The notes of any examination 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 evidence by the Inspector.

PENALTY:

     If any person fails without reasonable cause or refuses-

to produce before an Inspector or any person authorized by him in this behalf with the previous approval of the Central Government any book or paper which it is his duty to produce; or

to furnish any information which it is his duty to furnish; or

to appear before the Inspector personally when required to do so or to answer any question which is put to him by the Inspector; or

to sign the notes of any examination

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

SEIZURE OF DOCUMENTS BY INSPECTOR:

     Where in the course of investigation, the Inspector has reasonable ground to believe that the books and papers of, or relating to, the LLP or other entity or partner or designated partner of such LLP 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.

     After considering the application and hearing the Inspector, if necessary, the Magistrate may, by order, authorize the Inspector-

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

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

to seize books and papers which the Inspector considers it necessary for the purposes of his investigation.

The Inspector shall keep in his custody, the books and papers seized for such period not later than the conclusion of the investigation as he considers necessary and thereafter return the same to the concerned entity or person from whose custody or power they were seized and inform the Magistrate of such return.   The same shall not be kept seized for a continuous period of more than six months.  The Inspector may, before returning such books and papers place identification marks on them or any part thereof.

     Every search or seizure, save as otherwise, shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures under that code.

INSPECTOR'S REPORT:

     The Inspectors shall make interim report if so directed by the Central 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.

     A copy of any report of any Inspector or Inspectors authenticated in such manner, if any, as may be prescribed, shall be admissible in any legal proceedings as evidence in relation to any matter contained in the report.

ACTION TO BE TAKEN BY GOVERNMENT:

     On receipt of the report from the Inspectors, the Central Government shall forward a copy of any report made by the Inspectors to the LLP at the registered office and also to any other entity or person dealt with or related to the report; and 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.

     The Central Government may take the following actions on the report:

If it appears to the Central Government that any person in relation to the LLP 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;

If any such LLP is liable to be wound up and it appears to the Central Government from any such report that it is expedient to do so by reason of any such circumstances the Central Government may, unless the LLP is already being wound up by the Tribunal, cause to be presented to the Tribunal by any person authorized by the Central Government in this behalf, a petition for the winding up of the LLP on the ground that it is just and equitable that it should be wound up.

If it appears to the Central Government that proceedings ought, in the public interest, to be brought by the LLP or any entity whose affairs have been investigated-

-          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 LLP or such other entity; or

-          for the recovery of any property of such LLP or such other entity, which has been misapplied or wrongfully retained,

the Central Government may itself bring proceedings for that purpose.

EXPENSES OF INVESTIGATION:

     The expenses of and incidental to an investigation by an Inspector 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:-

any person who is convicted on a prosecution, or who is ordered to pay damage or restore any property in proceedings,  be ordered in the same proceedings 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;

any entity in whose name proceedings are brought 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

unless, as a result of the investigation, a prosecution is instituted in-

-          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

-          the applicants for the investigation, where the inspector was appointed in pursuance of the provisions of this Act shall be liable to such extent, if any, as the Central Government may direct.

The amount of expenses in respect of which any LLP, other entity, a partner or designated person or any other person is liable to reimburse the Central Government shall be recoverable as arrears of land revenue.