LegaLogic Corporate Laws Newsletter: Amendments to the Limited Liability Partnership Act, 2008 (“LLP Act”)-Sep-2021

Keeping in view the aim of facilitating and promoting ease of doing business, MCA vide its notification dated August 13, 2021, notified the Limited Liability Partnership (Amendment) Act, 2021. Key amendments introduced in the LLP Act are as follows:

(a) Small limited liability partnership: A concept of small limited liability partnership in line with the concept of small companies under the Companies Act, 2013 has been introduced. A small limited liability partnership means LLP whose (i) contribution does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, as may be prescribed; (ii) turnover as per the Statement of Accounts and Solvency for the immediately preceding financial year does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed; and LLP which meets other requirements as prescribed from time to time.

(b) Decriminalization of certain offences: Certain provisions of the LLP Act have been amended to convert offences in relation to violation of provisions into civil defaults punishable with monetary penalty ranging from two thousand rupees to five lakh rupees. Reporting in relation to changes in registered office of the LLP, filing of statement of accounts and solvency are few provisions wherein the provisions for penalties in case of default made in compliance with the requirements of the said sections of the LLP Act have been amended.

(c) Accounting and auditing standards: A new section 34A has been inserted to empower the Central Government to prescribe the “Accounting Standards” or “Auditing Standards” for a class or classes of limited liability partnerships.

(d) Powers to Regional Director: The newly substituted Section 39 provides for power given to regional director or any officer above his rank appointed by the central government to compound offences which are punishable with fine only.

(e) Special Courts: With introduction of section 67A, the central government with an objective of providing speedy trial has power to establish special courts as may be necessary from time to time. The introduction of Small LLP and other amendments undertaken in the LLP Act have been undertaken with an attempt to create a level playing field with the companies under the Companies Act, 2013, and these amendments will help in ease of doing business and definitely encourage start-ups to consider LLP as preferred organization structure for their businesses.

Amendments to the Insolvency and Bankruptcy Code, 2016 (“IBC”)

The Insolvency and Bankruptcy Board of India has recently been amended vide notification dated August 11, 2021.

Few important amendments are listed below:

(a) Pre- packaged insolvency resolution process for MSMEs: Pre-packaged insolvency process has been introduced under newly inserted Chapter IIIA of the IBC for stressed micro small and medium enterprises. This chapter sets out in detail the provisions relating to prepackaged insolvency resolution process, time-limit for its conclusion, eligibility of corporate debtors, duties and powers of insolvency resolution professional, Committee of creditors and so on. Parties may apply to matters relating to insolvency and liquidation of corporate debtors in cases where the minimum amount of default is one lakh rupees, however, for matters relating to the pre-packaged insolvency resolution process of corporate debtors, the Central Government may prescribe the minimum amount of default of higher value which shall not be more than one crore rupees.

(b) Addition of pre-packaged insolvency resolution process: The reference to ‘pre-packaged insolvency resolution process’ has been added along with corporate insolvency resolution process in multiple sections of the IBC as an alternate process for resolution of insolvency by various stakeholders.

(c) New section 11A: A new section which lays down provisions for the disposal of applications filed under Section 54C, Section 7 or section 9 or Section 10 of the IBC has been introduced which inter alia lays down the timelines for the disposal of such applications.

(d) Section 67A and 77A: Newly inserted Section 67A and Section 77A deal with fraudulent management of corporate debtor during pre-packaged insolvency resolution process and punishment for offences related to pre-packaged insolvency resolution process, respectively.

Introduction of pre-packaged insolvency resolution process is a welcome step for MSMEs as it will facilitate quicker resolution and disposal of applications. However, it remains to be seen whether separate benches of NCLT will be authorized to hear matters related to pre-packaged insolvency resolution aiming at fast disposal of matters.

SEBI Regulations for Alternate Investment Funds

With a view to simplify and rationalise compliance requirements for Alternative Investment Funds (“AIFs”), the Securities Exchange Board of India (“SEBI”), in its Board Meeting held in August 2021 has provided investment flexibility and streamlined regulatory processes, by approving the following the amendments to the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”).

a) Category I AIF: Venture Capital Funds (VCFs) to invest at least 75% of investable funds in unlisted equity shares and equity linked instruments of venture capital undertakings or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange. The existing investment restrictions on the residual portion of investable funds of VCFs have been done away with.

b) Social Venture Funds: The minimum amount of grant of INR 25 Lakhs stipulated for Category I AIFs – Social Venture Funds will not apply to grants received from Accredited Investors.

c) Issue of partly paid units: AIFs can also issue partly paid-up units to investors to represent the portion of committed capital invested.

d) Private Placement Memorandum: AIFs to file private placement memorandum (PPM) with SEBI through registered Merchant Banker at least thirty days prior to launch of scheme along with the applicable fees. Payment of scheme fees will not apply in case of launch of first scheme by the Alternative Investment Fund. SEBI may communicate its comments, if any, to the merchant banker prior to launch of the scheme and the merchant banker will have to ensure that the comments are incorporated in the placement memorandum prior to launch of the scheme.