LIMITED LIABILITY PARTNERSHIP PART-XXXXV - Defunct Limited Liability Partnerships

[Dr. Sanjiv Agarwal]

Section 75 of LLP Act, 2008 provides for the power of Registrar to strike defunct limited liability partnership off register. Accordingly, Where the Registrar has reasonable cause to believe that a limited liability partnership is not carrying on business or its operation, in accordance with the previsions of this Act, the name of limited liability partnership may be struck off the register of limited liability partnerships in such manner as may be prescribed. 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.

Section 75 seeks to provide that where the Registrar has reasonable cause to believe that an LLP is not carrying on business or its operation, the name of LLP may be struck off from the register of LLPs. The section  seeks to empower the Central Government to prescribe, by rules, the manner which shall be followed for such striking off of name of any LLP by the Registrar. It also seeks to provide that Registrar shall, before striking off the name of any LLP under this clause give such LLP a reasonable opportunity of being heard.

Power of Registrar to strike off the name of LLP

This section empowers the Registrar to strike off the name of the defunct LLP from the register of LLPs, subject to his giving a reasonable opportunity of being heard to such LLP.

A company comes into existence by registration in the office of the Registrar of Companies. Section 34(1) of the Act provides that on the registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incorporated and, in the case of a limited company, that the company is limited.

On registration of a LLP, the Registrar shall issue a certificate called Certificate of Incorporation, which certifies that the LLP is incorporated. For a LLP, the certificate also certifies that the LLP is  a limited liability entity  which indicates that the members have limited liability. The validity of the incorporation cannot be challenged after incorporation.

Striking off short cut to Dissolution

A LLP registered under the Act cannot be removed from the Register of LLP maintained by the Registrar nor can the Certificate of Incorporation be cancelled unless the company   is  wound up or dissolved by the process of law, either as a result of its winding-up or its amalgamation with another company. However, the LLP Act provides a short-cut to the dissolution, namely striking if off the Register of LLP by the Registrar of Companies under section 75 , in case the LLP is a defunct LLP. Section 75 of the Act contains provisions for striking defunct companies off the register, which is an  easier alternative to winding-up of a LLP. It is a mode of dissolution of a LLP without winding-up, the only statutory criterion being that there should be a reasonable cause to believe that the LLP is not carrying on business or is not in operation in accordance with law . This section and related rules prescribes the law and procedure the Registrar is required to follow in striking off any LLP.

The words , ‘striking-off’ implies removal. The words, ‘defunct LLP’ denotes a company that has been wound up and has therefore, ceased to exist. But for the purposes of section 75, a defunct LLP means a company which is no longer in effect or use; not operating or functioning; not carrying on any business or in operation, in accordance with law.

Before striking the name of any LLP, the Registrar must have a reasonable cause to believe that a LLP is not carrying on business or its operations as per the provisions of the LLP Act, ie, it is a defunct LLP.

The striking off of LLP shall be done in the prescribed manner. Section 79(zg) empowers the Central Government to prescribe the manner for striking off the names of LLPs from the Register. Accordingly, Rule 37 of LLP Rules prescribe the manner and procedure for the striking off of the name of LLP under section 75 of the Act.

Pre-Requisites for Striking off

Section 75, thus, provides that following are the two pre-requisites for striking off of a name of LLP-

(a) Registrar has reasonable course to believe that a LLP is not carrying on business or operations in accordance with LLP Act, and

(b)   Registrar has given a reasonable opportunity of being heard to LLP before striking off the name of LLP.

The LLP can also apply for striking off its name under Rule 37. The reasons for  striking off would cover non functioning as well as mal -functioning as the phrase ‘not carrying on business or its operation’ is followed by the words’ in accordance with the provisions of this Act’ . It may be noted that the nomenclature of the provision uses the word ‘defunct’ which means non functioning. The provisions provides discretion or arbitrary power to  the Registrar to form an opinion as the whether LLP’s business or operations are in accordance with the provisions of LLP Act. This is so because section 74 already provides for general penalty for any contravention or violation of law for which no specific penalty has been prescribed.

Ground for striking off name of company

Where the Registrar has reasonable cause to believe that the company is not carrying on business or the company is not in operation, the Registrar may strike out the name of the company from the register. The Registrar has power to strike off a defunct company. [Sukhbir Saran Bhatnagar v. Registrar of Companies, (1972) 42 Comp Cas. 408 (Del)].

No prosecution where Registrar refused to strike off the company

In a case where the company did not carry on the business right from its inception, the Registrar of Companies was requested to strike off the company and the Registrar refused to do so on the ground that the company had some liability and thus he advised the company to take steps to put the company under voluntary winding up. Under such circumstances, prosecution of directors for not filing of Annual Return would not be warranted. [Calculating & Business Machines Pvt. Ltd. v. State of Bihar, (1983) 54 Comp Cas. 100 (Pat)].

Unlike the provisions in Companies Act, 1956 where section 560(6) provides for restoration of name of company, section 75 of LLP Act, does not provided for restoration of the name of LLP afther being struck off by the Registrar. However, Rule 37 provides for the same.

Forms to be used

Following Forms are required to be used for the purpose of section 75 or rule 37 of LLP Rules –

Form 22  Notice of intimation of order of Court/ Tribunal to the Registrar

Form 24   Application to the Registrar or Central Government.