LIMITED LIABILITY PARTNERSHIP-PART-XXVI (Investigation- Prosecution & Winding up)

[Dr. Sanjiv Agarwal]

Prosecution (Section 50)

Section of LLP Act, 2008 provides that 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.

This section seeks to provide that if, from the inspector's report, it appears to the Central Government that any person in relation to LLP or any other entity being investigated has been guilty of any offence for which he is liable, the Central Government may prosecute such person for the offence. The section further seeks to provide that it shall be the duty of all partners, designated partners, other employees and agents of the LLP to give the Central Government all assistance in connection with such prosecution.

Section 50 provides power to Central Government, based on investigation report, to start prosecution proceedings against any person in relation to LLP or other entity whose affairs have been investigated and who has been found guilty of any offence for which he is liable.

It shall be the duty of the following persons to provide all assistance to the Central Government which they are reasonably able to give in connection with such prosecution -

a) partners

b) designated partners

c) other employees and agents of LLP

d) other employees and agents of other entities

This is statutory obligation cast upon the above mentioned persons.

Thus, section 50 provides for two fold provision-firstly, Central Government may prosecute (the discretion exists) and two, partners, designated partners, employees and agents are duty bound to provided all assistance in prosecution proceedings which can reasonably be provided.

Another important point to be noted for initiating prosecution is that, it should appear to the Central Government from the report of investigation under section 49 that prosecution is called for.

Employees and agents have not been defined in LLP Act. However, section 240 (6) of Companies Act, 1956 provides for as follows-

(a) the expression "officers" in relation to any company or body corporate, includes any trustee for the debenture holders of such company or body corporate;

(b) the expression "agent", in relation to any company,- body corporate or person, means anyone acting or purporting to , act for or on behalf of such company, body corporate or person, and includes the bankers and legal advisers of, and persons employed as auditors by, such company, body corporate or person; and

(c) any reference to officers and other employees, agents or partners shall be construed as a reference to past as well as present officers and other employees, agents or partners as the case may be.

It is to be noted that as per provision 50, any prosecution on the basis of the report of the inspector will be admissible only as an opinion of the inspector about the subject matter of the prosecution.

Application for winding up of LLP (Section 51)

According to section 51 of LLP Act, 2008, 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.

This section seeks to provide that if any such LLP is liable to be wound up under this Act, or any other law and it appears to the Central Government from the report made by an Inspector under section 49 that it is expedient to do so by reason that the business of the LLP is being 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, the Central Government, may, cause to be presented to the Tribunal by any person authorised by it, a petition for the winding up of the LLP on the just and equitable grounds.

Central Government may by any authorized person cause to be presented to the Tribunal, a petition for the winding up of LLP on just and equitable grounds if it appears to the Central Government from the investigation report under section 49 that it is expedient to do so by the following reasons-

(i) business of the LLP has been or is being conducted with fraudulent intention to defraud

-  its creditors, or

-  its partners, or

-  any other persons

(ii) business has been or is being conducted otherwise for a fraudulent or unlawful purpose, or

(ii) business has been or is being conducted in an oppressive manner or unfairly prejudicial to some or any of its partners, or

(i) LLP was formed for any fraudulent or unlawful purpose

(ii) affairs of LLP are not being conducted in accordance with the provisions of the Act.

It may be noted that just and equitable ground for seeking a winding up order by the Tribunal is only one of the grounds in section 64 of the LLP Act. The ground of just and equitable is an independent ground irrespective of other five grounds.

The job of the inspector is of a fact finding and his report is prima facie, not a conclusive evidence. If the inspection report and his evidence are not challenged, the inspectors evidence will be material for passing order for winding up: Travel & Holiday Club Ltd. In re (1967) 2 All ER 606; S B A Properties Ltd In re (1967) 2 All ER 618.

As per provision of this section, Central Government can authorize any person for filing a petition for the winding up of the company or for making an application for an order. The persons so authorized for filing the winding up petition have to verify on oath that they entertained the option that the winding up was necessary in public interest : Re S.B.A. Properties Ltd., (supra) Travel & Holiday Club Ltd. (supra).

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