New: Budget 2013-14 - 1. Proposal to introduce Commodity Transaction Tax (CTT) in a limited way. CTT applicable on the sale of commodities. Agricultural commodities will be exempted. CTT shall be at the rate of 0.01% on the value of transaction and the tax shall be payable by the seller.2.No change in the normal rates of 12 percent for excise duty and service tax.3. Excise duty on SUVs increased from 27 to 30 percent. Not applicable for SUVs registered as taxis.4.Proposals to levy Service Tax on all air conditioned restaurant.5.Additional deduction of interest upto 1 lakh for a person taking first home loan upto 25 lakh during period 1.4.2013 to 31.3.2014 (Total 2.5 lacs) Budget 2013-14!!!

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Tuesday, November 30, 2010

Code of Civil Procedure 1908 Notes

Q. Explain Decree, Order, and Judgment and distinguish between them.  What are the essential elements of a decree? What are the kinds of decree? What are the consequences of non appearance of parties? What is an ex parte decree? Discuss the remedies available to a defendant against whom an ex parte decree has been passed. All questions regarding execution of a decree shall be determined by the court executing the decree and not by a separate suit. Explain.
 

Decree

In a civil suit several facts might be alleged and the court may be required to rule on several claims. In simple terms, a decree is the ruling of the court regarding the claims of the parties of the suit. For example, in a suit between A and B, A may claim that a particular property P belongs A. After hearing all the arguments, the court will rule in the favor of either A or B. The final decision of the court regarding this claim i.e. whether the property belongs to A or B, is a decree.

As per Section 2(2), a decree is the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit. It can be final or preliminary.

From the above definition we can see the following essential elements of a decree -

1. There must be adjudication - Adjudication means Judicial Determination of the matter in dispute. In other words, the court must have applied its mind on the facts of the case to resolve the matter in dispute. For example, dismissing a suite because of default in appearance of the plaintiff is not a decree. But dismissing a suite on merits of the case would be a decree.

2. There must be a suit - Decree can only be given in relation to a suit. Although CPC does not define what suit means, in Hansraj vs Dehradun Mussoorie Tramways Co. Ltd. AIR 1933, the Privy Council defined the term suit as "a civil proceeding instituted by the presentation of a plaint".

3. Rights of the parties - The adjudication must be about any or all of the matters in controversy in the suit. The word right means substantive rights and not merely procedural rights. For example, an order refusing leave to sue in forma pauperis (i.e. an order rejecting the application of a poor plaintiff to waive court costs) is not a decree because it does not determine the right of the party in regards to the matters alleged in the suit.

4. Conclusive Determination - The determination of the right must be conclusive. This means that the court will not entertain any argument to change the decision. I.e. as far as the court is concerned, the matter in issue stands resolved. For example, an order striking out defence of a tenant under a relevant Rent Act, or an order refusing an adjournment is not a decree as they do not determine the right of a party conclusively. On the other hand, out of several properties in issue in a suit, the court may make a conclusive determination about the ownership of a particular property. Such a conclusive determination would be a decree even though it does not dispose off the suit completely.

5. Formal expression - To be a decree, the court must formally express its decision in the manner provided by law. A mere comment of the judge cannot be a decree.

Examples of decisions which are Decrees - Dismissal of appeal as time barred, Dismissal or a suit or appeal for want of evidence or proof, Order holding appeal to be not maintainable.

Examples of decisions which are not Decrees - Dismissal of appeal for default, order of remand, order granting interim relief.

Order

As per Section 2 (14), the formal expression of any decision of a civil court which is not a Decree is Order.  In a suit, a court may take certain decisions on objective considerations and those decisions must contain a discussion of the matters at issue in the suit and the reasons which led the court to pass the order. However, if those decisions fall short of a decree, they are orders.

Thus, there are several common elements between an order and a decree -  both related to matter in controversy, both are decisions given by the court, both are adjudications, both are formal expressions. However, there are substantial differences between them -
Decree - S. 2(2)
Order S. 2(14)
Can only be passed in a suit originated by the presentation of a plaint.
Can be passed in a suit originated by the presentation of a plaint, application, or petition.
Contains Conclusive Determination of a right
May or may not finally determine a right.
May be final, preliminary, or partly preliminary - partly final.
Cannot be a preliminary order.
In general, there can only be one decree or at the most one preliminary and one final decree in a suit.
There can be any number of orders in a suit.
Every decree is appealable unless an appeal is expressly barred.
Only those orders which are specified as appealable in the code are appealable.
A second appeal may lie against a decree to a High Court on certain grounds.
There is no second appeal for orders.

Judgment

As per Section 2 (9), "judgment" means the statement given by the judge of the grounds of a decree or order. Every judgment should contain -  a concise statement of the case, the points for determination, the decision thereon, the reasons for the decision. In the case of Balraj Taneja vs Sunil Madan, AIR 1999, SC held that a Judge cannot merely say "Suit decreed" or "Suit dismissed". The whole process of reasoning has to be set out for deciding the case one way or the other.

As per Rule 6 A of Order 20 the last part of the judgment should precisely state tge relief granted. Thus, a judgment is a state prior to the passing of a decree or an order. After pronouncement of a judgment, a decree shall follow.


Kinds of Decree


Preliminary -  Where an adjudication decides the rights of the parties with regard to all or any of the matters in controversy in the suit but does not completely dispose of the suit, it is a preliminary decree. It is passed when the court needs to adjudicate upon some matters before proceeding to adjudicate upon the rest.

In Shankar vs Chandrakant SCC 1995, SC stated that a preliminary decree is one which declares the rights and liabilities of the parties leaving the actual result to be worked out in further proceedings. CPC provides for passing preliminary decrees in several suits such as - suit for possession and mesne profits, administration suit, suits for pre-emption, dissolution of partnership, suits relating to mortgage. In Narayanan vs Laxmi Narayan AIR 1953, it was held that the list given in CPC is not exhaustive and a court may pass a preliminary decree in cases not expressly provided for in the code.

Final - When the decree disposes of the suit completely, so far as the court passing it is concerned, it is a final decree. A final decree settles all the issues and controversies in the suit.

Party preliminary and partly final - When a decree resolves some issues but leaves the rest open for further decision, such a decree is partly final and party preliminary. For example, in a suit for possession of immovable property with mesne profits, where the court decrees possession of the property and directs an enquiry into the mesne profits, the former part of the decree is final but the latter part is preliminary.

Deemed Decree - The word "deemed" usually implies a fiction whereby a thing is assumed to be something that it is ordinarily not. In this case, an adjudication that does not fulfill the requisites of S. 2 (2) cannot be said to be a decree. However, certain orders and determinations are deemed to be decrees under the code. For example, rejection of a plaint and the determination of questions under S. 144 (Restitution) are deemed decrees.


Consequences of Non appearance of parties (Order 9)

The general provisions of CPC are based on the principle that both the parties must be given an opportunity to be heard. The proceedings must not be held to the disadvantage of one party. Order 9 lays down rules regarding the appearance and the consequences of non appearance of a party in the hearing.

Rule 1 - Parties to appear on day fixed in summons for defendant to appear and answer— On the day fixed in the summons for the defendant to appear and answer, the parties shall be in attendance at the Court-house in person or by their respective pleaders, and the suit shall then be heard unless the hearing is adjourned to a future day fixed by the Court.

Dismissal of Suit

Rule 2 -
Dismissal of suit where summons not served in consequence of plaintiffs failure to pay cost— Where on the day so fixed it is found that the summons has not been served upon the defendant in consequence of the failure of the plaintiff to pay the court-fee or postal charges (if any) chargeable for such service, or to present copies of the plaint or concise statements, as required by rule 9 of order VII,  the Court may make an order that the suit be dismissed :
Provided that no such order shall be made, if, notwithstanding such failure the defendant attends in person (or by agent when he is allowed to appear by agent) on the day fixed for him to appear and answer.

Rule 3 -  Where neither party appears, suit to be dismissed— Where neither party appears when the suit is called on for hearing, the Court may make an order that the suit be dismissed.

Rule 4 -  Plaintiff may bring fresh suit or Court may restore suit to file— Where a suit is dismissed under rule 2 or rule 3, the plaintiff may (subject to the law of limitation) bring a fresh suit, or he may apply for an order to set the dismissal aside, and if he satisfies the Court that there was sufficient cause for such failure as is referred to in rule 2, or for his non-appearance, as the case may be, the Court shall make an order setting aside the dismissal and shall appoint a day for proceeding with the suit.

Rule 5 -  Dismissal of suit where plaintiff after summons returned unserved, fails for one month to apply for fresh summons—
    (1) Where after a summons has been issued to the defendant, or to one of several defendants, and returned unserved the plaintiff fails, for a periods of one month from the date of the return made to the Court by the officer ordinarily certifying to the Court returns made by the serving officers, to apply for the issue of a fresh summons the Court shall make an order that the suit be dismissed as against such defendant, unless the plaintiff has within the said period satisfied the Court that—
        (a) he has failed after using his best endeavours to discover the residence of the defendant, who has not been served, or
        (b) such defendant is avoiding service of process, or
        (c) there is any other sufficient cause for extending the time, in which case the Court may extend the time for making such application for such period as it thinks fit.
    (2) In such case the plaintiff may (subject to the law of limitation) bring a fresh suit.

Ex parte Proceedings

Rule 6 - 
Procedure when only plaintiff appears—
    (1) Where the plaintiff appears and the defendant does not appear when the suit is called on for hearing, then—
        (a) When summons duly served—if it is proved that the summons was duly served, the Court may make an order that the suit shall be heard ex parte.
        (b) When summons not duly served—if it is not proved that the summons was duly serve, the Court shall direct a second summons to be issued and served on the defendant;
        (c) When summons served but not in due time—if it is proved that the summons was served on the defendant, but not in sufficient time to enable him to appear and answer on the day fixed in the summons, the Court shall postpone the hearing of the suit to future day to be fixed by the Court, and shall direct notice of such day to be given to the defendant.
    (2) Where it is owing to the plaintiffs' default that the summons was not duly served or was not served in sufficient time, the Court shall order the plaintiff to pay the costs occasioned by the postponement.

Rule 7 - Procedure where defendant appears on day of adjourned hearing and assigns good cause for previous non-appearance— Where the Court has adjourned the hearing of the suit ex-parte and the defendant, at or before such hearing, appears and assigns good cause for his previous non-appearance, he may, upon such terms as the Court directs as to costs or otherwise, be heard in answer to the suit as if he had appeared on the day, fixed for his appearance.

Absence of Plaintiff

Rule 8 - 
Procedure where defendant only appears— Where the defendant appears and the plaintiff does not appear when the suit is called on for hearing, the Court shall make an order that the suit be dismissed, unless the defendant admits the claim or part thereof, in which case the Court shall pass a decree against the defendant upon such admission, and, where part only of the claim has been admitted, shall dismiss the suit so far as it relates to the remainder.

Rule 9 -  Decree against plaintiff by default bars fresh suit—
    (1) Where a suit is wholly or partly dismissed under rule 8, the plaintiff shall be precluded from bringing a fresh suit in respect of the same cause of action. But he may apply for an order to set the dismissal aside, and if he satisfies the Court that there was sufficient cause for his non-appearance when the suit was called on for hearing, the Court shall make an order setting aside the dismissal upon such terms as to costs or otherwise as it thinks fit. and shall appoint a day for proceeding with suit.
    (2) No order shall be made under this rule unless notice of the application has been served on the opposite party.

Multiple plaintiffs and/or Defendants

Rule 10 - 
Procedure in case of non-attendance of one or more of several plaintiffs— Where there are more plaintiffs than one, and one or more of them appear, and the others do not appear, the Court may, at the instance of the plaintiff or plaintiffs appearing, permit the suit to proceed in the same way as if all the plaintiffs had appeared, or make such order as it thinks fit.

Rule 11 -  Procedure in case of non-attendance of one or more of several defendants— Where there are more defendants than one, and one or more of them appear, and the others do not appear, the suit shall proceed, and the Court shall, at the time of pronouncing judgment, make such order as it thinks fit with respect to the defendants who do not appear.

General Consequence of Non appearance

Rule 12 - Consequence of non-attendance, without sufficient cause shown, of party ordered to appear in person— Where a plaintiff or defendant, who has been ordered to appear in person, does not appear in person, or show sufficient cause to the satisfaction of the Court for failing so to appear, he shall be subject to all the provisions of the foregoing rules applicable to plaintiffs and defendants, respectively who do no appear.

This means either the suit will be dismissed or will be continued ex parte.

Ex parte Decree (Order 9)

As per Rule 6, if the defendant fails to appear before the court in spite of a proper service of the summons, the court may proceed ex-parte and may pass a decree in favor of the plaintiff. This is called an ex-parte decree. In the case of Hochest Company vs V S Chemical Company, SC explained that an ex parte decree is such decree in which defendant did not appear before court and the case is heard in the absence of the defendant from the very beginning.

Remedies available to the defendant against an ex parte decree

1. Application to set aside the ex parte decree - As per Order 9, Rule 13, a defendant may apply before the court that passed the decree to set it aside.  If he satisfies the court that the summons was not duly served or he was prevented by any other sufficient cause from attending the hearding, the court shall make an order setting aside the decree.  For example, bona fide mistake as to the date or hearing, late arrival of train, etc. are sufficient causes for absence of the defendant. Such an application for setting aside may be made within 30 days from the date of decree as per Section 123 of Limitation Act.

Setting aside decrees ex parte

Rule 13 -  Setting aside decree BIex parte against defendant— In any case in which a decree is passed ex parte against a defendant, he may apply to the Court by which the decree was passed for an order to set it aside; and if he satisfies the Court that the summons was not duly served, or that he was prevented by any sufficient cause from appearing when the suit was called on for hearing, the Court shall make an order setting aside the decree as against him upon such terms as to costs, payment into Court or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit;
Provided that where the decree is of such a nature that it cannot be set aside as against such defendant only it may be set aside as against all or any of the other defendants also:
Provided further that no Court shall set aside a decree passed ex parte merely on the ground that there has been an irregularity in the service of summons, if it is satisfied that the defendant had notice of the date of hearing and had sufficient time to appear and answer the plaintiff's claim

Explanation.—Where there has been an appeal against a decree passed ex parte under this rule, and the appeal has been disposed of an any ground other than the ground that the appellant has withdrawn the appeal, no application shall lie under this rule for setting aside that ex parte decree.

Rule 14 -  No decree to be set aside without notice to opposite party— No decree shall be set aside on any such application as aforesaid unless notice thereof has been served on the opposite party.

The court may impose conditions as it may deem fit on the defendant for setting asided the decree. It may ask the defendant to pay costs.

When an ex parte decree is set aside, the court should proceed to decide the suit as it stood before the decree. The trial should commence de novo and the evidence that had been recorded in the ex parte proceeding should not be taken into account.

This remedy is specifically meant for an ex parte decree.

2. Prefer an appeal against the decree under Section 96(2).

3. Apply for review under Order 47 Rule 1.

4. File a suit on the ground of fraud.

All the above remedies are concurrent and can be pursued concurrently.


Execution of a Decree

As per Section 38, a decree may be executed either by the court which passed it or the court to which it is sent for execution. While executing a decree, several questions and objections may arise as to the manner of execution. It would be impractical to institute new suits to resolves such matters. Thus, Section 47 lays down the general principal that any questions that arise in relation to the execution of the decree should be resolved in execution proceeding itself and not by a separate suit. Section 47 says thus -

47. Questions to be determined by the Court executing decree -
 
(1) All questions arising between the parties to the suit in which the decree was passed, or their representatives, and relating to the execution, discharge or satisfaction of the decree, shall be determined by the Court executing the decree and not by a separate suit.
(3) Where a question arises as to whether any person is or is not the representative of a party, such question shall, for the purposes of this section, be determined by the Court.
Explanation I.For the purposes of this section, a plaintiff whose suit has been dismissed and a defendant against whom a suit has been dismissed are parties to the suit.
Explanation II. (a) For the purposes of this section, a purchaser of property at a sale in execution of a decree shall be deemed to be a party to the suit in which the decree is passed; and
(b) all questions relating to the delivery of possession of such property to such purchaser or his representative shall be deemed to be questions relating to the execution, discharge or satisfaction of the decree within the meaning of this section.

The objective of this section is to provide cheap and fast remedy for the resolution of any questions arising at the time of execution. Institution of new suits would only increase the number of suits and would also be a burden on the parties.

The scope of this section is very wide. It confers exclusive jurisdiction to the court executing the decree in all the matters regarding the execution. It does not matter whether the matter has arisen before or after the execution of the decree. Thus, this section should be construed liberally.


Conditions -
1. The question must be one arising between the parties or their representatives to the suit in which the decree is passed.
2. The question must relate to the execution, discharge, or satisfaction of the decree.

As held in the case of Arokiaswamy vs Margaret AIR 1982, both the conditions must be satisfied cumulatively.

What is meant by execution, discharge and satisfaction of a decree -
 This expression has not been defined in the code. However, the following questions are held to be relating to the execution, discharge and satisfaction of the decree  -
 whether a decree is executable, whether a property is liable to be sold in execution of a decree, whether the decree is fully satisfied, whether the execution of the decree was postponed.

The following questions have been held as not related - whether the decree is fraudulent or collusive, whether the decree has become in executable because of a compromise between the parties, a question about the territorial or pecuniary jurisdiction of the court passing the decree.

Appeal and Revision
Earlier, determination made under Section 47 was deemed to be a decree under Section 2(2). However, after the amendment in 1976, this is not so. Any determination made under an application under Section 47 is not considered a decree and is therefore not appealable under Section 96 or Section 100. Since it is no more a decree, a revision application under Section 115 is therefore maintainable provided the conditions stipulated in Section 115 are satisfied.

Q. What are the objects and essential conditions of the doctrine of res judicata? Illustrate the principle of constructive res judicata. Can an ex parte decree act as constructive res judicata?
 
Res iudicata is the Latin term for "a matter already judged", and refers to the legal doctrine meant to bar continued litigation of cases that have already been decided between the same parties. The doctrine of res judicata is based on three maxims

(a) Nemo debet lis vaxari pro eadem causa (no man should be vexed twice for the same cause)
(b) Interest republicae ut sit finis litium ( it is in the interest of the state that there should be an end to a litigation); and
(c) Re judicata pro veritate occipitur (a judicial decision must be accepted as correct)

The legal concept of RJ arose as a method of preventing injustice to the parties of a case supposedly finished as well as to avoid unnecessary waste of resources in the court system. Res iudicata does not merely prevent future judgments from contradicting earlier ones, but also prevents litigants from multiplying judgments, so a prevailing plaintiff could not recover damages from the defendant twice for the same injury.

Res Judicata is a rule of universal law pervading every well regulated system of jurisprudence and is based upon a practical necessity that there should be an end to litigation and the hardship to the individual if he is vexed twice for the same cause.  Thus, this doctrine is a fundamental concept based on public policy and private interest. It is conceived in the
larger public interest, which requires that every litigation must come to an end. It therefore, applies to all kinds of suits such as civil suits, execution proceedings, arbitration proceedings, taxation matters, writ petitions, administrative orders, interim orders, and criminal proceedings.


Res Judicata under Code Of Civil Procedure, 1908

Section 11 of CPC embodies the doctrine of res judicata or the rule of conclusiveness of a judgement, as to the points decided either of fact, or of law, or of fact and law, in every subsequent suit between the same parties. It enacts that once a matter is finally decided by a competent court, no party can be permitted to reopen it in a subsequent litigation. In the absence of such a rule there will be no end to litigation and the parties would be put to constant trouble, harassment and expenses.

Section 11 says thus:
No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.

Explanation I: The expression "former suit" shall denote a suit which has been decided prior to the suit in question whether or not it was instituted prior thereto.

Explanation II. For the purposes of this section, the competence of a Court shall be determined irrespective of any provisions as to a right of appeal from the decision of such Court.

Explanation III. The matter above referred to must in the former suit have been alleged by one party and either denied or admitted, expressly or impliedly, by the other.

Explanation IV. Any matter which might and ought to have been made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit.

Explanation V. Any relief claimed in the plaint, which is not expressly granted by the decree, shall, for the purposes of this section, be deemed to have been refused.

Explanation VI. Where persons litigate bona fide in respect of public right or of a private right claimed in common for themselves and others, all persons interested in such right shall, for the purposes of this section, be deemed to claim under the persons so litigating.

Explanation VII. The provisions of this section shall apply to a proceeding for the execution of a decree and reference in this section to any suit, issue or former suit shall be construed as references, respectively, to proceedings for the execution of the decree, question arising in such proceeding and a former proceeding for the execution of that decree.

Explanation VIII. An issue heard and finally decided by a Court of limited jurisdiction, competent to decide such issue, shall operate as res judicata in as subsequent suit, notwithstanding that such Court of limited jurisdiction was not competent to try such subsequent suit or the suit in which such issue has been subsequently raised.


The doctrine has been explained by Justice Das Gupta as follows - The
principle of Res Judicata is based on the need of giving a finality to the judicial decisions. What it says is that once a case is res judicata, it shall not be adjudged again. Primarily it applies as between past litigation and future litigation. When a matter- whether on a question of fact or a question of law  has been decided between two parties in one suit or proceeding and the decision is final, either because no appeal was taken to a higher court or because the appeal was dismissed, or no appeal lies, neither party will be allowed in a future suit or proceeding between the same parties to canvas the matter again.

Essential Elements for Res Judicata

1. The matter in issue in a subsequent suit must directly and substantially be same as in the previous suit.
2. The former suit must have been between the same parties or between parties under whom they or any of them claim.
3. Such parties must hae been litigating under the same title in the former suit.
4. The court which decided the former suit must be a court competent to try the subsequent suit or the suit in which such issue is subsequently raised.
5. The matter directly and substantially in issue in the subsequent suit must have been heard and finally decided by the court in the former suit.

Give Illustrations

---

The onus of proof lies on the party relying on the theory of res judicata.

Exceptions to application
Res iudicata does not restrict the appeals process, which is considered a linear extension of the same lawsuit as the suit travels up (and back down) the appellate court ladder. Appeals are considered the appropriate manner by which to challenge a judgment rather than trying to start a new trial. Once the appeals process is exhausted or waived, res iudicata will apply even to a judgment that is contrary to law.

The provisions of section 11 of the Code are mandatory and the ordinary litigant who claims under one of the parties to the former suit can only avoid its provisions by taking advantage of section 44 of the Indian Evidence Act which defines with precision the grounds of such evidence as fraud or collusion. It is not for the court to treat negligence or gross negligence as fraud or collusion unless fraud or collusion is the proper inference from facts.

In Beliram & Brothers and Others v. Chaudari Mohammed Afzal and Others it was held that where it is established that the minors suit was not brought by the guardian of the minors bona fide but was brought in collusion with the defendants and the suit was a fictitious suit, a decree obtained therein is one obtained by fraud and collusion within the meaning of section 44 of the Indian Evidence Act, and does not operate res judicata. The principle of res judicata in section 11 CPC is modified by section 44 of the Indian Evidence Act, and the principles will not apply if any of the three grounds mentioned in Section 44 exists.


Failure to apply
When a subsequent court fails to apply res iudicata and renders a contradictory verdict on the same claim or issue, if a third court is faced with the same case, it will likely apply a "last in time" rule, giving effect only to the later judgment, even though the result came out differently the second time.

Constructive Res Judicata
The rule of direct res judicata is limited to a matter actuallu in issue alleged by one party and denied by other either expressly or impliedly. But constructive res judicata means that if a plea could have been taken by a party in a proceeding between him and his opponent, and if he fails to take that plea, he cannot be allowed to relitigate the same matter again upon that plea. In affect, the partly impliedly gives up the right to that plea by not pleading it in the previous suit. This principle is embodied in Explanation IV of Section 11.

Explanation IV. Any matter which might and ought to have been made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit.

Give Illustrations -

In the case of Kesar Das Rajan Singh v. Parma Nand Vishan Dass, AIR 1959, a peculiar situation arose. In this case the plaintiff had filed a suit on the basis of a promissory note. However, the plaintiff himself left the country and in subsequent proceedings since he was unable to provide the promissory note to his advocate in the foreign country the suit got dismissed. The plaintiff later on filed another suit in the local courts. The defendant took the plea that the present suit was barred by res judicata. The Court held that the judgment on the previous suit since it did not touch upon the merits of the case, therefore could not be held to be res judicata for the present suit .

Ex parte decree as Res Judicata
An ex parte decree, unless it is set aside, is a valid and enforceable decree.  However, the real test for res judicata is whether the case was decided on merits. The real test for deciding whether the judgment has been given on merits or not is to see whether it was merely formally passed as a matter of course, or by way of penalty for any conduct of the defendant, or is based upon a consideration of the truth or falsity of the plaintiff's claim, notwithstanding the fact that the evidence was led by him in the absence of the defendant. Thus, a decree may not act as res judicata merely because it was passed ex parte.

It therefore acts a res judicata.

Q. "Every suit shall be instituted in court of lowest grade competent to try it", Explain. Explain the provisions of CPC which are applied in determining the forum for institution of a suite relating to immovable property. State principles which guide a plaintiff in determining the place of filing a suit. Explain.

In India, courts are hierarchically established. The lower courts have less powers than the higher or superior courts. The Supreme Court of India is at the top of the hierarchy. There are numerous lower courts but only one High Court per State and only one Supreme Court in the Country. Thus, it is immpractical to move superior courts for each and every trivial matter. Further, the subject matter of a suit can also be of several kinds. It may be related to either movable or immovable property,  or it may be about marriage, or employment. Thus, speciality Courts are set up to deal with the specific nature of the suit to deal with it efficiently. Similarly, it would be inconvenient for the parties to approach a court that is too far or is in another state. All these factors are considered to determine the court in which a particular suit can be filed. CPC lays down the rules that determine whether a court has jurisdiction to hear a particular matter or not.

These rules can be categorized as follows -  Pecuniary Jurisdiction, Territorial Jurisdiction, Subject matter jurisdiction, and Original Jurisdiction.

Pecuniary Jurisdiction
As per Section 15, every suit shall be instituted in the Court of the lowest grade competent to try it. This is a fundamental rule which means that if a remedy is available at a lower court, the higher court must not be approached. More specifically, this rule refers to the monetory value of the sute. Each court is deemed competent to hear matters having a monetory value of only certain extent. A matter that involves a monetory value higher than what a court is competent to hear, the parties must approach a higher court. At the same time, the parties must approach the lowest grade court which is competent to hear the suit.

However, this rule is a rule of procedure, which is meant to avoid overburdoning of higher courts. It does not take away the jurisdiction of higher courts to hear matter of lesser monetory value. Thus, a decree passed by a court, which is not the lowest grade court compenent to try the matter, is not a nullity. A higher court is always competent to try a matter for which a lower court is compenent. This rule applies to the parties as it bars the parties to approach a higher court when a lower court is competent to hear the matter.

Example

Valuation

Territorial Jurisdiction
Territorial Jurisdiction means the territory within a Court has jurisdiction. For example, if a person A is cheated in Indore, then it makes sense to try the matter in Indore instead of Chennai. The object of this jurisdiction to organize the cases to provide convenient access to justice to the parties. To determine whether a court has territorial jurisdiction, a matter may be categorized into four types -

1. Suits in respect of immovable property

Section 16 -  Suits to be instituted where subject-matter is situated — Subject to the pecuniary or other limitations prescribed by any law, suits—
(a) for the recovery of immovable property with or without rent or profits,
(b) for the partition of immovable property,
(c) for foreclosure, sale or redemption in the case of a mortgage of or charge upon immovable property,
(d) for the determination of any other right to or interest in immovable property,
(e) for compensation for wrong to immovable property,
(f) for the recovery of movable property actually under distraint or attachment,
shall be instituted in the Court within the local limits of whose jurisdiction the property is situated:
Provided that a suit to obtain relief respecting, or compensation for wrong to, immovable property held by or on behalf of the defendant, may where the relief sought can be entirely obtained through his personal obedience be instituted either in the Court within the local limits of whose jurisdiction the property is situate, or in the Court within the local limits of whose jurisdiction the defendant actually and voluntarily resides, or carries on business, or personally works for gain.
Explanation.— In this section "property" means property situated in India.

Section 17 -  Suits for immovable property situated within jurisdiction of different Courts— Where a suit is to obtain relief respecting, or compensation for wrong to, immovable property situate within the jurisdiction of different Court, the suit my be instituted in any Court within the local limits of whose jurisdiction any portion of the property is situated : Provided that, in respect of the value of the subject matter of the suit, the entire claim is cognizable by such Court.

Section 18 -  Place of institution of suit where local limits of jurisdiction of Courts are uncertain—
(1) Where it is alleged to be uncertain within the local limits of the jurisdiction of which of two or more Courts any immovable property is situate, any one of those Courts may, if satisfied that there is ground for the alleged uncertainty, record a statement to that effect and thereupon proceed to entertain and dispose of any suit relating to that property, and its decree in the suit shall have the same effect as if the property were situate within the local limits of its jurisdiction :
Provided that the suit is one with respect to which the Court is competent as regards the nature and value of the suit to exercise jurisdiction.
(2) Where a statement has not been recorded under sub-section (1), and objection is taken before an Appellate or Revisional Court that a decree or order in a suit relating to such property was made by a Court not having jurisdiction where the property is situate, the Appellate or Revisional Court shall not allow the objection unless in its opinion there was, at the time of the institution of the suit, no reasonable ground for uncertainty as to the Court having jurisdiction with respect thereto and there has been a consequent failure of justice.


2. Suits in respect of immovable property -  It is said that the movables move with the person. Thus, a suit for a movable person lies in the court, the territory of which the defendant resides.

Section 19 -  Suits for compensation for wrongs to person or movable— Where a suit is for compensation for wrong done to the person or to movable property, if the wrong was done within the local limits of the jurisdiction of one Court and the defendant resides, or carries on business, or personally works for gain, within the local limits of the jurisdiction of another Court, the suit may be instituted at the option of the plaintiff in either of the said Courts.
Illustrations
(a) A, residing in Delhi, beats B in Calcutta. B may sue A either in Calcutta or in Delhi.
(b) A, residing in Delhi, publishes in Calcutta statements defamatory of B. B may sue A either in Calcutta or in Delhi.

3. Suits for compensation for wrong (tort) - Section 19 applies to this as well.

4. Other suits

Section 20 - Other suits to be instituted where defendants reside or cause of action arises— Subject to the limitations aforesaid, every suit shall be instituted in Court within the local limits of whose jurisdiction—
(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or
(b) any of the defendants, where there are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or
(c) the cause of action, wholly or in part, arises.

Explanation—A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.
Illustrations
(a) A is a tradesman in Calcutta, B carries on business in Delhi. B, by his agent in Calcutta, buys goods of A and requests A to deliver them to the East Indian Railway Company. A delivers the goods accordingly in Calcutta. A may sue B for the price of the goods either in Calcutta, where the cause of action has arisen or in Delhi, where B carries on business.
(b) A resides at Simla, B at Calcutta and C at Delhi A, B and C being together at Benaras, B and C make a joint promissory note payable on demand, and deliver it to A. A may sue B and C at Benaras, where the cause of action arose. He may also sue them at Calcutta, where B resides, or at Delhi, where C resides; but in each of these cases, if the non-resident defendant objects, the suit cannot proceed without the leave of the Court.

Objection as to Jurisdiction

Section 21 - Objections to jurisdiction— (1) No objection as to the place of suing shall be allowed by any appellate or Revisional Court unless such objection was taken in the Court of first instance at the earliest possible opportunity and in all cases where issues or settled at or before such settlement, and unless there has been a consequent failure of justice.
(2) No objection as to the competence of a Court with reference to the pecuniary limits of its jurisdiction shall be allowed by any Appellate or Revisional Court unless such objection was taken in the Court of first instance at the earliest possible opportunity, and in all cases where issues are settled, at or before such settlement, and unless there has been a consequent failure of justice.
(3) No objection as to the competence of the executing Court with reference to the local limits of its jurisdiction shall be allowed by any Appellate or Revisional Court unless such objection was taken in the executing Court at the earliest possible opportunity, and unless there has been a consequent failure of justice.

As held in Pathumma vs Kutty 1981, no objection as to the place of suing will be allowed by an appellate or revisional court unless the following three conditions are satisfied -
(i) The objection was taken in first instance. (ii) The objection was taken at the earliest possible opportunity and in cases where issues are settled at or before settlement of issues (iii) there has been a consequent failure of justice.

All the three conditions must be satisfied simultaneously.

Q. Special Suits - State the procedure for institution of suits by and against minors or persons of unsound mind.
 

Order XXXII

As per Rule 1, the definition of minor given in Majority Act, 1875 applies - a person who has not attained the age of 18 yrs or for a minor for whose person or property a guardian or next friend has been appointed by the court or court of wards, the age of majority is 21 yrs.

Read all Rules in Order 32.

Ram Chandra vs Ram Singh AIR 1968 - SC held that a decree passed against a minor or a lunatic without appointment of a guardian is a nullity and is void and not merely voidable.

Q. Suits by and against the Govt.

Read Order 27 and Section 79-82.


Q. Interpleader Suit -

Section 88 and Order 35

Section 88 - Where interpleader suit may be reinstituted? Where two or more persons claim adversely to one another the same debts, sum of money or other property, movable or immovable, from another person, who claims no interest therein other than for charges or costs and who is ready to pay or deliver it to the rightful claimant such other person may institute a suit of interpleader against all the claimants for the purpose of obtaining a decision as to the person to whom the payment or delivery shall be made and of obtaining indemnity for himself:
Provided that where any suit is pending in which the rights of all parties can properly be decided, no such suit of interpleader shall be instituted.


Procedure -  Read Order 35 Rule 1 – 4

Q. What do you understand by Set Off and Counter Claim? Distinguish between Legal and Equitable set off.

A set-off is a kind of counter-claim that operates as a defence to a claim. The doctrine of Set Off allows the defendant to put his own claim against the plaintiff before the court under certain circumstances.Technically, a set off can be defined as a discharge of reciprocal objligations to the extent of the smaller obligation. For example, A files a suit against B claiming 5000/- . B may take a defence that A owes 3000/- to B as well. Thus, B is basically asking to set off 3000/- of A's claim and pay only 2000/-.

In Jayanti Lal vs Abdul Aziz AIR 1956, SC defined Set Off a the extinction of debts of which two persons are reciprocally debtors to one another by the credits of which they are reciprocally creditors to one another.

By claiming set off, the defendant is spared from filing a separate suit against the plaintiff. Thus, it reduces the number of suits before the court.

Provisions of Set off are specified in CPC under Order VIII Rule 6

6. Particulars of set-off to be given in written statement -
(1) Where in a suit for the recovery of money the defendant claims to set-off against the plaintiff's demand any ascertained sum of money legally recoverable by him from the plaintiff, not exceeding the pecuniary limits of the jurisdiction of the Court, and both parties fill the same character as they fill in the plaintiff's suit, the defendant may, at the first hearing of the suit, but not afterwards unless permitted by the Court, presents a written statement containing the particulars of the debt sought to be set-off.
(2) Effect of set-off—The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court to pronounce a final judgment in respect both of the original claim and of the set-off : but this shall not affect the lien, upon the amount decreed, of any pleader in respect of the costs payable to him under the decree.
(3) The rules relating to a written statement by a defendant apply to a written statement in answer to a claim of set-off.

Illustrations
(a) A bequeaths Rs. 2,000 to B and appoints C his executor and residuary legatee. B dies and D takes out administration to B's effect, C pays Rs. 1,000 as surety for D: then D sues C for the legacy. C cannot set-off the debt of Rs. 1,000 against the legacy, for neither C nor D fills the same character with respect to the legacy as they fill with respect to the payment of Rs. 1,000.
(b) A dies intestate and in debt to B. C takes out administration to A's effects and B buys part of the effects from C. In a suit for the purchase-money by C against B, the latter cannot set-off the debt against the price, for C fills two different characters, one as the vendor to B, in which he sues B, and the other as representative to A.
(c) A sues B on a bill of exchange. B alleges that A has wrongfully neglected to insure B's goods and is liable to him in compensation which he claims to set-off. The amount not being ascertained cannot be set-off.
(d) A sues B on a bill of exchange for Rs. 500. B holds a judgment against A for Rs. 1,000. The two claims being both definite, pecuniary demands may be set-off.
(e) A sues B for compensation on account of trespass. B holds a promissory note for Rs. 1,000 from A and claims to set-off that amount against any sum that A may recover in the suit. B may do so, for as soon as A recovers, both sums are definite pecuniary demands.
(f) A and B sue C for Rs. 1,000 C cannot set-off a debt due to him by A alone.
(g) A sues B and C for Rs. 1000. B cannot set-off a debt due to him alone by A.
(h) A owes the partnership firm of B and C Rs. 1,000 B dies, leaving C surviving. A sues C for a debt of Rs. 1,500 due in his separate character. C may set-off the debt of Rs. 1,000.


Essential Conditions for Set Off -
The suit must be of recovery of money. Example -  A sues B for 20,000/-. B cannot set off the claim for damages for breach of contract for specific performance.
The sum of money must be ascertained. See Illustration c, d, e.
The sum claimed must be legally recoverable. For example, winnings in a wager cannot be claimed in a set off.
The sum claimed must be recoverable by all the defendants against the plaintiff if there are more than one defendants.
The sum claimed must be recoverable from all the plaintiffs by the defendant if there are more than one plaintiffs.
In the defendant's claim for set off, both the parties must fill in the same character as they fill in the plaintiff's suit. See illustrations a, b, h.

Equitable Set off
The provisions of Rule 6 given above are for Legal Set off. However, these provisions are not exhaustive. This means that a set off is still possible in certain situations even when some of the above conditions are not satisfied. For example, in a transaction where by goods are exchanged for services as well as payment, the defendant may be allowed to claim a set off for an uncertain amount for damaged goods. In a suit by a washerman for his wages, the defendant employer should be able to set off the price of the clothes lost by the plaintiff. In such a case, driving the plaintiff to file another suit would be unfair. A set off in such situations is called an Equitable Set off.

SC illustrated equitable set off in the case of Harishchandra vs Murlidhar AIR 1957 as follows - Where A sues B to recover 50,000/- under a contract, B can claim set off towards damages sustained by him due to the breach of the same contract by A.

However, there is still one condition that must be satisfied for equitable set off - the set off claim must originate from the same transaction.
Legal Set Off
Equitable Set Off
Sum must be ascertained.
Sum need not be ascertained.
Claim need not originate from the same transaction.
Claim must origination from the same transaction.
Legal set off can be claimed as a right by the defendant and the court is bound to adjudicate upon the claim.
Equitable set off cannot be claimed as a right but by court's discretion.
Court fee must be paid on set off amount.
No court fee is required.
The amount must not be time barred.
The amount may be time barred. However, if the defendant's claim is time barred,  he can claim only as much amount  as is given in the plaintiff's claim.





6A. Counter-claim by defendant -
(1) A defendant in a suit may, in addition to his right of pleading a set-off under rule 6, set up, by way of counter-claim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time limited for delivering his defence has expired whether such counter-claim is in the nature of a claim for damages or not :
Provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the Court.
(2) Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce a final judgment in the same suit, both on the original claim and on the counter-claim.
(3) The plaintiff shall be at liberty to file a written statement in answer to the counter-claim of the defendant within such period as may be fixed by the Court.
(4) The counter-claim shall be treated as a plaint and governed by the rules applicable to plaints.

6B. Counter-claim to be stated - Where any defendant seeks to rely upon any ground as supporting a right of counter-claim, he shall, in his written statement, state specifically that he does so by way of counter-claim.

6C. Exclusion of counter-claim -  Where a defendant sets up a counter-claim and the plaintiff contends that the claim thereby raised ought not to be disposed of by way of counter-claim but in an independent suit, the plaintiff may, at any time before issues are settled in relation to the counter-claim, apply to the Court for an order that such counter-claim may be excluded, and the Court may, on the hearing of such application make such order as it thinks fit.

Q. On what grounds does a second appeal lie?
 

Section 100. Second appeal—

(1) Save as otherwise expressly provided in the body of this Code or by any other law for the time being in force, an appeal shall lie to the High Court from every decree passed in appeal by any Court subordinate to the High Court, if the High Court is satisfied that the case involves a substantial question of law.
(2) An appeal may lie under this section from an appellate decree passed ex parte.
(3) In an appeal under this section, the memorandum of appeal shall precisely state the substantial question of law involved in the appeal.
(4) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(5) The appeal shall be heard on the question so formulated and the respondent shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question :
Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law, not formulated by it, if it is satisfied that the case involves such question.

Section 100A - No further appeal in certain cases— Notwithstanding anything contained in any Letters Patent for any High Court or in any other instrument having the force of law or in any other law for the time being in force, where any appeal from an appellate decree or order is heard and decided by a single Judge of a High Court, no further appeal shall lie from the judgment, decision or order or such single Judge in such appeal or from any decree passed in such appeal.

Section 101 - Second appeal on no other grounds— No second appeal shall lie except on the ground mentioned in section 100.

Section 102 - No second appeal in certain suits— No second appeal shall lie in any suit of the nature cognizable by Courts of Small Causes, when the amount or value of the subject-matter of the original suit does not exceed three thousand rupees.

Section 103 - Power of High Court to determine issues of fact— In any second appeal, the High Court may, if the evidence on the record is sufficient, determine any issue necessary for the disposal of the appeal,—
(a) which has not been determined by the lower Appellate Court or both by the Court of first instance and the lower Appellate Court, or
(b) which has been wrongly determined by such Court or Courts reason of a decision on such question of law as is referred to in section 100.


Substantial question of law -
The expression substantial question of law has not been defined anywhere in the code. However, SC interpreted it in the case of Sir Chuni Lal Mehta & Sons Ltd vs Century Spg & Mfg Co Ltd (AIR 1962 SC 1314) as follows -

 "The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or call for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law."

To be "substantial" a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law "involving in the case" there must be first a foundation for it laid in the
pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the
facts and circumstance of each case whether a question of law his a substantial one and involved in the case or not, the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.

Monday, November 29, 2010

Limited Liability Partnership

Ø  INCORPORATION PROCEDURE:

1. DECIDING THE PARTNER:-
A LLP can be incorporated with a minimum of at least two partners who can be Individuals or Body Corporate through their nominees. Further for incorporating an LLP, of the total number no. of partners, at least two shall be Designated Partners, of which at least one must be an Indian Resident.
Parameters for deciding the Partners and Designated Partners:
  1. At least Two Partners; Individuals or Body Corporate through individual nominees.
  2. Minimum of Two Individuals as Designated Partners, of total no. of Partners.
  3. At least One Designated Partner to be Resident Indian.
A person ‘Resident in India’ means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one year. (Explanation to Section-7())
‘Designated Partner’ means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement

2.  OBTAINING DPIN
Designated Partner Identification Number (DPIN): Section 7 (6) of LLP Act 2008, provides that every Designated Partner to obtain a DPIN from the Central Government.
DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in e-Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees.
Digital Signature Certificate: As all the documents and forms required for incorporating an LLP in India to be filed electronically and under the signatures of Designated Partners, thus at least one Designated Partner to obtain the digital signature certificates from government recognized DSA’s. The signatures shall also be required for signing and filing of all relevant forms and documents to be filed, annually or event based after incorporation of the LLP, asking for approvals or as intimation.
Likewise the manual signatures, digital signature certificates are individual specific and no partner needs to obtain more than one.

3. CHECKING THE NAME AVAILABILITY:
The next step is to decide the name for the proposed LLP to be incorporated, anyone intending to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and make an application in Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name. The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India and it should not contains words prohibited under the ‘Emblems and Names (Prevention of improper use) Act, 1950’or which are also not ‘Undesirable’ in the opinion of Central Government or which satisfies the conditions prescribed under rule 18(2). For more information check Name Availability Guidelines. In case any Body Corporate is partner, copy of Board resolution authorizing the incorporation of LLP shall be attached.

4. DRAFTING OF LLP:
The next pertinent step is drafting of Limited Liability Partnership Agreement governing the mutual rights and duties among the partners and among the LLP and its partners.
The basic contents of Agreement are:
  • Name of LLP
  • Name of Partners & Designated Partners
  • Form of contribution
  • Profit Sharing ratio
  • Rights & Duties of Partners
  • Proposed Business
  • Rules for governing the LLP
In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable
It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in eform 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the formation of LLP, it is always beneficial to have the LLP Agreement drafted and executed before the incorporation of the LLP. In case the Agreement is executed outside India, than it must be notarized and consularized, for more information check “Incorporation of LLP” under FAQ’s
5.  INCORPORATION DOCUMENT:
Next is the filing of Incorporation documents, consent of Partners and declaration electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP. 

eForm 2: Incorporation Document
This is an informative document setting down the details of LLP, its Partners including designated partners along with their amount of contribution and consent for forming a Limited Liability Partnership to carry on a lawful business with profit motive along with declaration stating that all the requirements of Limited Liability Partnership Act, 2008 regarding incorporation of LLP in India have been complied with. 

eForm 3: Details of LLP Agreement
This form provides for the necessary information in respect to the LLP Agreement entered into between the partners.

eForm 4: Consent of Partners Consent of each partner to become a partner of Limited Liability Partnership along with their address and identity proof to be filed with the Registrar of Companies.
Subscription Sheet: Just like in case of Company formation, the partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered Accountant/Company Secretary/Advocate in practice.
In case the subscription sheet is executed outside India, than it must be notarized and consularized, for more information check “Incorporation of LLP” under FAQ’s
eForm 3 & 4 are required to filed within 30 days of the incorporation.
All the eforms will be digitally signed by any Designated partner and shall be certified by an advocate/company secretary/chartered accountant/cost accountant in practice engaged in the formation of LLP.

6. CERTIFICATE OF INCORPORATION:
After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days from date of filing of documents. The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP.

7. CLOSING OF LLP:
  • Declaring the LLP as defunct
  • Winding up of LLP
Declaring the LLP as Defunct
In case the LLP wants to close down its business or where it is not carrying on any business operations, it can make an application to the Registrar of Companies for declaring the company as defunct and removing the name of the LLP from its register of LLP’s.
The procedure is given below
  1. An application is required to be made in eForm 24 to the Registrar of Companies for Striking off the name of the LLP under clause (b) of sub rule 1 of Rule 37 of LLP Rules 2008 with the consent of all partners.
  2. The Registrar shall publish a notice on its website as to the content of the application for a period of one month for the notice of the general public.
  3. Application submitted to be supported by Indemnity Bonds to indemnify any person legally claiming after the LLP to be striked off and duly sworn Affidavits declaring all the information provided and statements given to be true, from all partners.
  4. Application filed also to be supported by approvals or No Objection Certificates from concerned Regulatory Authorities with which the LLP is registered. For eg. LLP engaged in or registered with RBI for Banking Business has to obtain NOC from RBI before winding up of its affairs.
  5. The Registrar, where he has sufficient cause to believe that the limited liability partnership has any asset or liability, satisfy himself that sufficient provision has been made for the realization of all amount due to the limited liability partnership and for the payment or discharge of its liabilities and obligations by the limited liability partnership within a reasonable time and, if necessary, obtain necessary undertakings from the designated partner or partner or other persons in charge of the management of the limited liability partnership.
  6. On the expiry of period of one month, the Registrar may, by an order, unless cause to the contrary is shown by the limited liability partnership, 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.
Guidelines
  1. There should have been no liability existing or obligation subsisted on part of LLP and its partners.
  2. There should be no litigation pending for or against LLP.
  3. The assets of the limited liability partnership shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the limited liability partnership from the register
  4. Liability of the Designated Partners subsists even after dissolution of LLP for payment of any legal dues to its creditors and other persons as if the LLP has not been dissolved.
Declaring the LLP as defunct is much easier process to close down the LLP as compared to wounding up because it does not involves high formalities and due to simplified procedure, the time consumed is comparatively very less. 

Winding up of LLP
Winding up is process, where all the assets of the business are disposed off to meet the liabilities of the same and surplus any, is distributed among the owners. The LLP Act 2008 provides for following two modes for winding up the LLP i.e.:
  1. Voluntary winding up-
  2. Compulsory winding up
Voluntary Winding up: Under this, the partners may between themselves decide to stop and wound up the operations of the LLP.
Compulsory winding up- A limited liability partnership may be compulsorily wound up by the Tribunal,—
  1. if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;
  2. if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;
  3. if the limited liability partnership is unable to pay its debts;
  4. if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
  5. if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
  6. if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.
The Ministry of Corporate Affairs has issued the draft rules in respect of the procedure to be followed for winding up of the LLP but the same has not been notified yet.
Contribution as per the lexicon interpretation means “Part or Share”. In reference to LLP, contribution can be termed as, What a partner is contributing towards the Limited Liability Partnership for running of his business. For ease of understanding, what Share Capital is in case of Company, is Contribution in case Limited Liability Partnership. Therefore, in case of LLP, the ownership will be judged on the basis of contribution by the partners in the LLP. 

IS IT NECESSARY TO CONTRIBUTE FOR A PARTNER?
No, as per LLP Act 2008 Contribution is not a pre requisite for formation of a Limited Liability Partnership or for being a Partner in any Limited Liability Partnership. Under the Act, organizational flexibility has been offered to the Partners through LLP Agreement wherein the Partners can decide the amount and form of Contribution as per their suitability. The LLP Agreement must specify the contribution intended to be paid by all the members and the form in which it will be paid.

Form of Contribution:
As per the requisite of Section 32(1) of LLP Act 2008 the contribution can be in the form of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property and contracts for services performed or to be performed.
The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed.
Valuation of Intangible Contribution In case of intangible form of Contribution, the value of the same shall be certified by a practicing Chartered Accountant or Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the Limited Liability Partnership in the manner as may be prescribed.

Return of contribution, in case of cessation of Partner
Whenever a partner of a LLP ceases to be a partner than unless otherwise provided in the LLP agreement, the former partner or a person entitled to his share in consequence of the death or insolvency of the former partner, shall be entitled to receive from the limited liability partnership, an amount equal to the capital contribution of the former partner actually made to the limited liability partnership.

AUDIT OF ACCOUNT:
Limited Liability Partnership alike Companies are required to get their accounts audited as per the provisions provided under Limited Liability Partnership Rules 2009.
Is it necessary for all LLPs?
No, Only the Limited Liability Partnership whose contribution exceed Rs. 25 Lakh or the Limited Liability Partnership whose turnover exceed Rs. 40 Lakh are required to annually get their accounts audited by any Chartered Accountant in practice.
Limited Liability Partnerships who are exempted from mandatory audit may also get their accounts audited as per the Limited Liability Partnership Rules 2009.
In case if the partners do not decide for the for audit of the accounts of the LLP a statement to be included in the Statement of Account and Solvency by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in the form mentioned below:
“We declare that the turnover does not exceed/exceeds 40 lakh or the contribution does not exceed/exceeds 25 lakh rupees. The partners/authorized representatives have taken proper care and responsibility for maintenance of adequate accounting records and preparation of accounts in accordance with the provisions of the LLP Act and the Rules made there under”.
This certificate to be filed with the Registrar of Companies, LLP along with e Form 8. 

Appointment of Auditor:
Limited Liability Partnerships who mandatory require auditing of their accounts shall appoint an auditor within 30 days before the end of each Financial Year i.e. before 1st March of each year. In case of First Financial year the auditor to be appointed before the end of the First Financial Year.
The Designated Partners responsible for the compliances of LLP will appoint the auditor also. However if the designated partner fails to appoint the auditor then the partners may appoint the auditor. The auditor appointed shall remain in office until new auditor is appointed or the majority of Partners have given a notice for the non appointment of existing auditor. Such notice of auditor of Partners may be in hard copy or electronic Form and must be authenticated by the Partners giving the notice.Remuneration of Auditors Remuneration of Partners may be fixed by the Designated Partners or if any procedure has been prescribed in the LLP Agreement the remuneration to be decided as per that provision.

Resignation of Auditor
An auditor may resign by depositing a notice in writing to that effect at the LLP’s registered office. Such Notice is to be accompanied by the statement of the circumstances connected with his ceasing to hold office. In case if a auditor is unwilling to be re –appointed he shall give a notice in writing to that effect at the LLP’s registered office, not less than 14 days before the end of the time allowed for appointing the new auditor.

Removal of Auditor
An auditor may be removed from his office at any time as per the procedure mentioned in the LLP Agreement. In the absence of LLP Agreement the auditor may be removed with the consent of all the Partners,
COMPLIANCE AND PENALTIES:
S. No.
Title
Section
Provision
Penalty for Non - Compliance
1.
No. of Designated Partners
7(1)
Every Limited Liability Partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India.
Provided that in case of a Limited Liability Partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.
Explanation.—For the purposes of this section, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs 10000 but which may extend to Rs 5,00,000.
2.
Consent of Designated Partners
7(4)
Every Limited Liability Partnership shall file with the Registrar the particulars of every individual who has given his consent to act as designated partner in such form and manner as may be prescribed within thirty days of his appointment.
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
3.
Compliances for being Designated Partners
7(5)
An individual eligible to be a designated partner shall satisfy such conditions and requirements as may be prescribed.
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
4.
Liability of Designated Partners
8
Unless expressly provided otherwise in this Act, a designated partner shall be—

(a) responsible for the doing of all acts, matters and things as are required to be done by the Limited Liability Partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the Limited Liability Partnership agreement; and

(b) liable to all penalties imposed on the Limited Liability Partnership for any contravention of those provisions.
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
5.
Vacancy in Designated Partner
9
A Limited Liability Partnership may appoint a designated partner within thirty days of a vacancy arising for any reason and provisions of sub-section (4) and sub-section (5) of section 7 shall apply in respect of such new designated partner :
Provided that if no designated partner is appointed, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
6.
Statement by professional regarding Compliances of Incorporation
11(1)
For a Limited Liability Partnership to be incorporated,—

(c) there shall be filed along with the incorporation document, a statement in the prescribed form, made by either an advocate, or a Company Secretary or a Chartered Accountant or a Cost Accountant, who is engaged in the formation of the Limited Liability Partnership and by anyone who subscribed his name to the incorporation document, that all the requirements of this Act and the rules made there under have been complied with, in respect of incorporation and matters precedent and incidental thereto.
If a person makes a statement under clause (c) of sub-section (1) which he—
(a) knows to be false; or
(b) does not believe to be true
The person making such false or untrue statement shall be punishable with imprisonment for a term which may extend to 2 years and with fine which shall not be less than Rs 10,000 but which may extend to Rs 5,00,000.
7.
Registered Office of LLP.
13
(1) Every Limited Liability Partnership shall have a registered office to which all communications and notices may be addressed and where they shall be received.
(2) A document may be served on a limited liability partnership or a partner or designated partner thereof by sending it by post under a certificate of posting or by registered post or by any other manner, as may be prescribed, at the registered office and any other address specifically declared by the Limited Liability Partnership for the purpose in such form and manner as may be prescribed.
(3) A Limited Liability Partnership may change the place of its registered office and file the notice of such change with the Registrar in such form and manner and subject to such conditions as may be prescribed and any such change shall take effect only upon such filing.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 2000 but which may extend to Rs 25,000.
8.
Change of Name on Government Direction
17
(1) Notwithstanding anything contained in sections 15 (Name) and 16 (Reservation of Name), where the Central Government is satisfied that a Limited Liability Partnership has been registered (whether through inadvertence or otherwise and whether originally or by a change of name) under a name which—

(a) is a name referred to in sub-section (2) of section 15 (identical or too nearly resembles to that of any other partnership firm or Limited Liability Partnership or body corporate or a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999 (47 of 1999) ; or

(b) is identical with or too nearly resembles the name of any other Limited Liability Partnership or body corporate or other name as to be likely to be mistaken for it,
the Central Government may direct such Limited Liability Partnership to change its name, and the Limited Liability Partnership shall comply with the said direction within three months after the date of the direction or such longer period as the Central Government may allow.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 10,000 but which may extend to Rs 5,00,000 and every designated partner of such limited liability partnership shall be punishable with fine which shall not be less than Rs 10,000 but which may extend to Rs 1,00,000.

9.
Use of ‘LLP’ & ‘Limited Liability Partnership’ in business name
20
No person or persons shall carry on business under any name or title of which the words “Limited Liability Partnership” or “LLP” or any contraction or imitation thereof is or are the last word or words unless duly incorporated as limited liability partnership,
Such person shall be punishable with fine which shall not be less than Rs 50,000 but which may extend to Rs 5,00,000.
10.
Name of LLP on invoices & Official Correspondence
21
(1) Every Limited Liability Partnership shall ensure that its invoices, official correspondence and publications bear the following, namely :—

(a) the name, address of its registered office and registration number of the limited liability partnership; and

(b) a statement that it is registered with limited liability.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 2000 but which may extend to Rs 25,000.
11.
Intimation for change of Name & Address of Designated Partner
25(1)
Every partner shall inform the Limited Liability Partnership of any change in his name or address within a period of fifteen days of such change.
Such partner shall be punishable with fine which shall not be less than Rs 2000 but which may extend to Rs 25,000.
12.
Cessation of Partners
25(2)
A Limited Liability Partnership shall—
(a) where a person becomes or ceases to be a partner, file a notice with the Registrar within thirty days from the date he becomes or ceases to be a partner; and

(b) where there is any change in the name or address of a partner, file a notice with the Registrar within thirty days of such change.
The Limited Liability Partnership and every designated partner of the limited liability partnership shall be punishable with fine which shall not be less than Rs 2000 but which may extend to Rs 25000.
13.
Unlimited Liability in case of Fraud.
30(1)
In the event of an act carried out by a Limited Liability Partnership, or any of its partners, with intent to defraud creditors of the Limited Liability Partnership or any other person, or for any fraudulent purpose, such limited liability Partnership or partners shall be punishable for such fraudulent transaction. Provided that in case any such act is carried out by a partner, the Limited Liability Partnership is liable to the same extent as the partner unless it is established by the Limited Liability Partnership that such act was without the knowledge or the authority of the limited liability partnership.
The liability of the Limited Liability Partnership and partners who acted with intent to defraud creditors or for any fraudulent purpose shall be un-limited for all or any of the debts or other liabilities of the limited liability partnership.
14.
Liability of the person knowingly party for any fraud transaction.
30(2)
Where any business is carried on with intent to defraud creditors of the Limited Liability Partnership or any other person, or for any fraudulent purpose, every person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be punishable.
Such person shall be punishable with imprisonment for a term which may extend to 2 years and with fine which shall not be less than Rs 50,000 but which may extend to Rs 5,00,000.
15.
Compensation to the victim in case of fraud
30(3)
Where a Limited Liability Partnership or any partner or designated partner or employee of such limited liability partnership has conducted the affairs of the limited liability partnership in a fraudulent manner, then without prejudice to any criminal proceedings which may arise under any law for the time being in force, the limited liability partnership and any such partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage by reason of such conduct.
Provided that such Limited Liability Partnership shall not be liable if any such partner or designated partner or employee has acted fraudulently without knowledge of the limited liability partnership.
The Limited Liability Partnership and any such partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage by reason of such conduct
16.
Books of Accounts
34
(1) The Limited Liability Partnership shall maintain such proper books of account as may be prescribed relating to its affairs for each year of its existence on cash basis or accrual basis and according to double entry system of accounting and shall maintain the same at its registered office for such period as may be prescribed.
(2) Every Limited Liability Partnership shall, within a period of six months from the end of each financial year, prepare a Statement of Account and Solvency for the said financial year as at the last day of the said financial year in such form as may be prescribed, and such statement shall be signed by the designated partners of the limited liability partnership.
(3) Every Limited Liability Partnership shall file within the prescribed time, the Statement of Account and Solvency prepared pursuant to sub-section (2) with the Registrar every year in such form and manner and accompanied by such fees as may be prescribed.
(4) The accounts of Limited Liability Partnerships shall be audited in accordance with such rules as may be prescribed :
Provided that the Central Government may, by notification in the Official Gazette, exempt any class or classes of limited liability partnerships from the requirements of this sub-section.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 25,000 but which may extend to Rs 5,00,000 and every designated partner of such limited liability partnership shall be punishable with fine which shall not be less than Rs 10,000 but which may extend to Rs 1,00,000.
17.
Annual Return
35
(1) Every limited liability partnership shall file an annual return duly authenticated with the Registrar within sixty days of closure of its financial year in such form and manner and accompanied by such fee as may be prescribed.
The Limited Liability Partnership shall be shall be punishable with fine which shall not be less than Rs 25000 but which may extend to Rs. 5,00,000 The designated partner of such limited liability partnership shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
18
Liability for any Miss-statement as required by LLP Act 2008.
37
If in any return, statement or other document required by or for the purposes of any of the provisions of this Act, any person makes a statement—
(a) which is false in any material particular, knowing it to be false; or

(b) which omits any material fact knowing it to be material,
Any person making such statement shall be punishable with imprisonment for a term which may extend to 2 years, and shall also be liable to fine which may extend to Rs. 5,00,000 but which shall not be less than Rs. 1,00,000.
19.
Investigation
47(5)
If any person fails without reasonable cause or refuses—
(a) to produce before an inspector or any person authorised by him in this behalf with the previous approval of the Central Government any book or paper which it is his duty under sub-section (1) or sub-section (2) to produce; or

(b) to furnish any information which it is his duty under sub-section (2) to furnish; or

(c) to appear before the inspector personally when required to do so under sub-section (4) or to answer any question which is put to him by the inspector in pursuance of that sub-section; or

(d) to sign the notes of any examination
Such person shall be punishable with fine which shall not be less than Rs. 2000 but which may extend to Rs 25,000 rupees and with a further fine which shall not be less than Rs. 50,000 but which may extend to Rs 500 for every day after the first day after which the default continues.
20.
Filing of Tribunal Order
60(3)
An order made by the Tribunal under sub-section (2) shall be filed by the limited liability partnership with the Registrar within thirty days after making such an order and shall have effect only after it is so filed.
The limited liability partnership, and every designated partner of the limited liability partnership shall be punishable with fine which may extend to Rs. 1,00,000.
21
Liability for any subsequent and offence
70
In case a limited liability partnership or any partner or designated partner of such limited liability partnership commits any offence, the limited liability partnership or any partner or designated partner shall, for the second or subsequent offence, be punishable for such offence.
Imprisonment as provided, but in case of offences for which fine is prescribed either along with or exclusive of imprisonment, fine shall be twice the amount of fine for such offence.
22.
Failure to comply with Tribunal Order.
73
Whoever fails to comply with any order made by the Tribunal under any provision of this Act shall be punishable for such non Compliance of the order.
Such person shall be punishable with imprisonment which may extend to 6 months and shall also be liable to a fine which shall not be less than Rs. 50,000.
23.
General Penalty
74
Any person guilty of an offence under this Act for which no punishment is expressly provided shall be liable as mentioned here.
Such person shall be liable to a fine which may extend to Rs. 5,00,000 but which shall not be less than Rs. 5000 and with a further fine which may extend to Rs. 50 for everyday after the first day after which the default continues.

Ø  Regular Compliance
S. No.
Head
Section
Compliance
Penalty for Non Compliance
1.
Minimum number of Designated Partners
7(1)
Every Limited Liability Partnership shall have at least 2 partners who would be designated partners and out of which at least 1 partner shall be resident in India.
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs 10000 but which may extend to Rs 5,00,000
2.
Procuring Designated Partners Identification Number
7(6)
Every Designated Partner should have to obtain a Designated partner Identification Number (DPIN) from the Central Government and in respect of this, all the provisions of sections 266A to 266G of the Companies Act, 1956 shall apply accordingly
Every individual or partner , who is in default shall be punishable with fine which may extend to Rs 5000 and where the contravention is continuing one, with further fine , which may extend to Rs 500 for every day during which the default continues.
3.
Consent and Particulars of Designated Partners
7(3) & 7(4)
Filing of consent of Designated Partner to act as such with the Registrar of Companies in eform 4 with in 30 days of the appointment as the designated partner
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
4.
Vacancy of Designated Partner
9
Filing of vacancy in Designated Partner with in 30 days of vacancy and intimation of same to Registrar of Companies and in case if no designated partner being appointed or if any time there is only one designated partner, then each partner shall be deemed to be the designated partner
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
5.
Change of Registered Office
13(3)
File the notice of any change in registered office with the Registrar of Companies in eform and any such change shall take effect only upon such filing.
The Limited Liability Partnership and its every partner shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000.
6.
Change of Name
19
A Limited Liability Partnership may change its name registered with the Registrar by filing with the Registrar notice of such change in such form and manner and on payment of such fees as may be prescribed.
Person guilty of offence shall be punishable & liable to a fine which may extend to Rs 5,00,000 but which shall not be less than Rs 5000 and with a further fine which may extend to Rs 50 for everyday after the first day after which the default continues.
7.
Name of LLP on Invoice and official Correspondence
21(1)
All invoices and official correspondence of the Limited Liability Partnership shall bear its name, address and registration number and a statement that it is registered with Limited Liability.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 2000 but which may extend to Rs 25,000.
8.
LLP Agreement & Changes there in
23(2)
A Limited Liability Partnership Agreement and any changes made therein shall be filed with the Registrar in such form and manner and accompanied by such fees as may be prescribed.
Person guilty of offence shall be punishable shall be liable to a fine which may extend to Rs 5,00,000 but which shall not be less than Rs 5000 and with a further fine which may extend to Rs 50 for everyday after the first day after which the default continues.
9.
Change in Partners
25(2)
Where a person becomes or ceases to be a partner or where there is any change in the name or address of a partner, notice of the same signed by the designated partner to be filed within 30 days to the Registrar.
The Limited Liability Partnership and every designated partner of the limited liability partnership shall be punishable with fine which shall not be less than Rs 2000 but which may extend to Rs 25,000.
10.
Books of Accounts
34(1)
Limited Liability Partnership shall maintain proper Books of Accounts for each year on cash basis or on accrual basis and according to the Double Entry System of Accounting at its registered office and shall get them audited in accordance with the rules as may be prescribed otherwise exempted by notification of the Central Government
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 25,000 but which may extend to Rs 5,00,000 and every designated partner of such limited liability partnership shall be punishable with fine which shall not be less than Rs 10,000 but which may extend to Rs 1,00,000
Ø  Annual Compliances
S. No.
Head
Section
Compliance
Penalty for Non Compliance
1.
Statement of Accounts & Solvency
34(2)
Limited Liability Partnership shall with in a period of six months from the end of every financial year prepare and file a Statement of Account and Solvency with the Registrar in such form and manner and accompanied by such fee as may be prescribed.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 25,000 but which may extend to Rs 5,00,000 and every designated partner of such limited liability partnership shall be punishable with fine which shall not be less than Rs 10,000 but which may extend to Rs 1,00,000
2.
Annual Return
35(1)
Limited Liability Partnership to file an Annual Return to the Registrar of Companies with in sixty days of closure of the financial year in such form and manner and accompanied by such fee as may be prescribed.
The Limited Liability Partnership shall be punishable with fine which shall not be less than Rs 25,000 but which may extend to Rs 5,00,000 and every designated partner of such limited liability partnership shall be punishable with fine which shall not be less than Rs 10,000 but which may extend to Rs 1,00,000

LLP BY PROFESSIONAL:-
In India professionals like the Chartered Accountants (CA), Company Secretaries (CS), Cost Accountants (CWA) and Advocates are allowed to practice their profession under partnership but they can enter into partnership with their own professional colleagues only. For instance, a CS partnership can have only CS as its partners; moreover they cannot practice their profession under Company form of business organization. The restriction on entering into partnership with professionals of other discipline is one of biggest reason for slow development of the profession and biggest obstacle in realizing the synergies of different professional expertise.

Even in case of partnership, the maximum number of persons, which can be made as partners, is restricted to 20, which severely restricts the scope of business and future expansion plans.
With the notification of Limited Liability Partnership Act, 2008, the Government of India has introduced the concept of Limited Liability Partnership (LLP) in India.

A Limited Liability Partnership is a hybrid of existing partnership firms and full-fledged Companies. A minimum of two partners are required for formation of an LLP. Besides, there is no limit on the maximum number of partners, unlike the current limit of 20 members in a partnership firm.
The concept of LLP offers great opportunity to professionals like CA/CS/CWA/Advocates to develop, as now they can enter into partnerships with professionals of different disciplines for instance, a CS can enter into partnership with CA. A LLP as a business organization for professionals offers following advantages:
  • No Limit on maximum number of partners, can have partners all round the globe
  • Can enter into partnership with professionals of other disciplines
  • Limited Liability except in case of fraud
  • Not liable for acts of other partners
  • No exposure to personal assets
  • LLP will be treated as Body Corporate and shall have perpetual succession
  • Joining & Cessation of partners, will not lead to dissolution of the firm.
  • Less compliances
  • More creditworthiness than partnership
LLP is already a renowned business organization worldwide and most of big professional firms like PWC, E & Y etc. are registered in form of LLP.

In case of Professional LLP, the major issues to be considered is whether these are allowed to render audit and certification services. As in case of partnership, there is no separate identity between the partnership firm and the partner and therefore , for example while signing the audited balance of any company, the partner signing is personally responsible but in case of LLP, since there exist separate identity and partners would be doing all acts on behalf of the LLP, therefore they would not be personally liable for their wrong done and consequently will not be rendering efficient services.
Therefore it would take time, before professionals like CA/CS etc can form and start practicing under multi disciplinary LLP’s as there regulators — Institute of Chartered Accountants of India (ICAI) and Institute of Company Secretaries of India (ICSI) etc have yet allowed CA & CS to form multi disciplinary LLP.

Company Secretaries can become passive partner in LLP
The Institute of Company Secretaries of India has allowed Company Secretaries in practice to become passive partner of Limited Liability Partnership the objects of which include carrying out non-attestation services which fall within the scope of the profession of Company Secretaries irrespective of whether or not the practicing member holds substantial interest in that LLP
“Attestation Services” include services which require signing any certificate, document, report or any other statements relating thereto on behalf of a Company Secretary in Practice or a firm of such Company Secretaries in his or its professional capacity or which require signing anything that is required to be signed by a Company Secretary in practice.
A “passive partner” means a partner of LLP who fulfils the following conditions:
  • he must not be a designated partner;
  • subject to the LLP agreement, he may make agreed contribution to the capital of LLP and receive share in the profits of the LLP; and
  • he must not take part in the management of the LLP nor act as an agent of the LLP or of any partner of the LLP;
Provided, none of the following activities shall constitute taking part in the management of the LLP:
  1. Enforcing his rights under the LLP agreement (unless those rights are carrying out management function).
  2. Calling, requesting, attending or participating in a meeting of the partners of the LLP.
  3. Approving or disapproving an amendment to the partnership agreement.
  4. Reviewing and approving the accounts of the LLP;
  5. Voting on, or otherwise signifying approval or disapproval of any transaction or proposed transaction of the LLP including -
    1. the dissolution and winding up of the LLP;
    2. the purchase, sale, exchange, lease, pledge, mortgage, hypothecation, creation of a security interest, or other dealing in any asset by or of the LLP;
    3. a change in the nature of the activities of the LLP;
    4. the admission or removal of a partner of the LLP;
    5. transactions in which one or more partners have an actual or potential conflict of interest with one or more partners or the LLP;
    6. any amendment to the LLP agreement;
“Substantial Interest” a member shall be deemed to have a substantial interest in the LLP if he/she is entitled at any time to not less than 25% of the profits of such LLP.

LLP AGREEMENT:
LLP Agreement means any written agreement between the partners of the limited liability partnership or between the limited liability partnership and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that limited liability partnership.
It is not necessary to enter into an LLP Agreement as per the LLP Act 2008. In absence of LLP Agreement, the mutual rights of Partners and in relation to LLP will be determined as per Schedule I of the LLP Act 2008.

Features of Standard clauses of Schedule I
  • All partners entitled to share equally in the Capital and Profits/losses.
  • Indemnity Clause
  • Every Partner shall take part in management
  • No partner shall be entitled to remuneration.
  • No partner introduced without consent of all partners.
  • All decisions with majority of partners consent
  • Minutes of decisions to be recorded within 30 days
  • Rendering of true accounts & information by all partners
  • All Disputes will be referred to Arbitration Act
Generally, every business and owners have their own way to manage to run the Business and therefore the standard clauses given in first schedule to LLP Act will not be practically acceptable in majority of the cases. Therefore to be on the secure side, it is always advisable to have a legally drafted agreement from qualified professionals.

Features can be inserted in agreement are :
  • Form & Manner of Contribution between parties
  • Profit & loss sharing ratio
  • Business to be carried on
  • Rights & Liabilities of Partner
  • Admission & cessation of partners.
  • Duties of partners
  • Partners accountable/authorized for banking process.
  • Specific decisions like Investment, taking/giving loan, disposition of property of LLP etc to be made by majority partners.
  • Requirement of disclosure of substantial interest of Partner in transactions to be entered by the LLP.
  • Manner of dispute resolution
In case of joint ventures & collaborations, it is always recommended to have clearly drafted LLP Agreement, which defines the rights & duties of all the parties to the Agreement, in order to avoid any dispute in future and smooth running of the business.
The LLP Agreement if executed is required to be registered with the Registrar of Companies. However if LLP agreement is executed before registration of LLP, the partners will have to ratify this agreement after incorporation of LLP and file with Registrar of Companies. LLP Agreement shall also be liable for stamp duty as per the Stamp Duty laws prescribed the related State Government, where the said agreement will be executed.
The LLP Agreement once entered into can be amended as per the terms and conditions mentioned in the Agreement and any change therein, must be intimated to the Registrar of Companies within 30 days of the change
The expert & experienced legal professionals of LLPonline.in can help you in drafting a clear LLP Agreement to meet all your business & personal needs. For further information click here.
DESIGNATED PARTNER:
“Designated partner” in reference to Limited Liability Partnership means any partner designated as such pursuant to section 7 of Limited Liability Partnership Act 2008. Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. In case if no partner is designated as such, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner of the LLP.

Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.

An individual cannot become a designated partner in any limited liability partnership unless he has given his prior consent to act as such to the limited liability partnership in such form and manner as may be prescribed and he is also required to obtain a Designated Partner Identification Number.

The role of Designated Partners in case of LLP is on same footage as of Directors in case of Company. The Designated Partners as provided under Section 8 are directly responsible for the compliances of all provisions provided under LLP Act, 2008 and the provisions specified in the LLP Agreement.

Rights of Designated Partner are same as of other Partners. Alike other partners they are not entitled to any remuneration for their participation in management of LLP unless otherwise specifically provided in the LLP Agreement they, yet they have additional responsibilities to comply with.

 
  A designated partner shall be
  1. responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and
  2. Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.
  Major duties of Designated Partner
  • Notify any changes in the LLP's to Registrar of Companies.
  • Notify any changes in the Partners names & residential addresses to Registrar of Companies.
  • Notify any change in Registered Office Address to Registrar of Companies.
  • Filing of any Annual return, Statement of Accounts and other documents specified under the provisions of LLP Act with the Registrar of Companies.
  • Statement of Accounts & Solvency to be signed by the Designated Partners of the Company.
  • to preserve and to produce before an inspector 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 limited liability partnership or, as the case may be, the other entity, which are in their custody or power
  • Responsible for signing all the eforms filed with the Registrar of Companies.
Any vacancy arising in the office of Designated Partner shall be filled within 30 days and the change shall be intimated to the Registrar of Companies

Partners are persons (whether natural or artificial) who have subscribed their name to the incorporation document and further any new person can be admitted to the LLP as per the provisions of LLP Agreement. The LLP Act 2008 defines the term partner under Section 2(q) as “Partner”, in relation to a limited liability partnership, as any person who becomes a partner in the Limited Liability Partnership in accordance with the Limited Liability Partnership Agreement.

Who can be a Partner?
There should be atleast 2 persons (natural or artificial) required to form a LLP. In case any Body Corporate is a partner, than it will be required to nominate any person (natural) as its nominee for the purpose of the LLP.
Following can become a partner in the LLP:
a) Company incorporated in and outside India
b) LLP incorporated in & outside India
c) Individuals resident in & outside India
The Government of India has not yet notified the policy for Foreign Direct Investment by Individuals resident in & outside India in LLP form of business and therefore, till the date policy is announced, such persons cannot form a LLP in India.

Role of Partner
Section 26 defines the role of partner and states that, every partner of a Limited Liability Partnership is, for the purpose of the business of the Limited Liability Partnership, the agent of the Limited Liability Partnership, but not of other partners. It means that the relation of principal and agent is only between the LLP & its partners and not between the partners per se.
Ø  Rights of Partners
Partners regarding the rights are alike the Partners in the traditional Partnership Firm. Partners have the right to participate in the management of the LLP though they are not entitled to any remuneration for participating in the management of LLP unless otherwise provided in the LLP Agreement. The partners would be entitled to share equal profits in the LLP or as may be provided by LLP agreement.

The rights of a partner to a share of the profits and losses of the limited liability partnership and to receive distributions in accordance with the Limited Liability Partnership agreement are transferable either wholly or in part provided that the :
  • The transfer of any right by any partner does not by itself cause the disassociation of the partner or a dissolution and winding up of the limited liability partnership.
  • Entitle the transferee or assignee to participate in the management or conduct of the activities of the limited liability partnership, or access information concerning the transactions of the limited liability partnership.

 Duties of Partners
Partners under ethical conduct are required to comply with all the provisions of LLP Act and LLP agreement and not to indulge in any fraudulent transaction with the creditors or outsiders. Further Partners for being transparent with the LLP are obligatory to provide some information to LLP like in case if there is any change in name and address of Partner he shall inform the same to LLP with 15 days of such change. In case of admission of partner the incoming partner shall give his prior consent to act as such partner. If any partner desires to resign from the partnership he shall inform the same by giving a 30 day notice to other partners.
Ø  Liability of Partners
  • The Liability of Partners in LLP unlike partnership Firm is limited to the extent of their contribution.
  • Any partner of the LLP would not be liable for the wrongful act or omission of any other partner of the limited liability partnership.
  • Partners are not personally liable for any obligation of LLP arising out of a contract or otherwise solely by reason of being a partner of the limited liability partnership.
  • .Partners shall be solely liable for all acts done without the authority of the LLP
  • For protecting the public interest, section 30 provides for unlimited liability of the partners in case any fraudulent transaction has been carried with the intention to defraud with the creditors or any other person dealing with Limited Liability Partnership.
Ø  Admission & cessation of Partner
A new partner can join the LLP or an existing partner can cease to be partner of the LLP subject to the compliance of the terms and conditions of the LLP Agreement.
TAX PROVISION ON LLP:-
Ø  Taxation aspect of Limited Liability Partnership
The Budget 2009-10 has introduced the provisions regarding taxation aspect of the newly introduced form of business Limited Liability Partnership.
As per the Budget 2009-10, LLP will be treated as Partnership firms for the purpose of Income Tax and will be taxed like a partnership firm. 

Ø  Change in Definition of Firm, Partner & Partnership
The Budget 2009-10 has amended the definition of Firm and Partners in the following manner:
  1. Firms shall have the meaning assigned to it in the India Partnership Act 1932 and shall include a limited liability Partnership as defined in the Limited Liability Partnership Act 2008.
  2. Partner shall have the meaning assigned to it in the Indian Partnership Act 1932 and shall include:
    • Any person, being a minor, has been admitted to the benefits of partnership ; and
    • A partner of a limited liability partnership as defined in the Limited Liability Partnership Act 2008.
  3. Partnership shall have the meaning assigned to it in the India Partnership Act 1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership Act 2008.
Ø  Tax rate:
  • 30% flat tax rate + 3% education cess
  • No Minimum Alternate Tax & Dividend Distribution Tax
Ø  Eligibility (section 184):
In order for Limited Liability Partnership to be assessed as firm as Income Tax Act, it has to satisfy the following criteria
  • The LLP is evidenced by an instrument i.e. there is a written LLP Agreement.
  • The individual shares of the partners are very clearly specified in the deed.
  • A certified copy of LLP Agreement must accompany the return of income of the LLP of the previous year in which the partnership was formed.
  • If during a previous year, a change takes place in the constitution of the LLP or in the profit sharing ratio of the partners, a certified copy of the revised LLP Agreement shall be submitted along with the return of income of the previous years in question.
  • There should not be any failure on the part of the LLP while attending to notices given by the Income Tax Officer for completion of the assessment of the LLP.
Ø  LLP can claim the following deductions:-
  • Interest paid to partners, provided such interest is authorised by the LLP Agreement.
  • Any salary, bonus, commission, or remuneration (by whatever name called) to a partner will be allowed as a deduction if it is paid to a working partner who is an individual.
  • The remuneration paid to such working partner must be authorised by the LLP Agreement and the amount of remuneration must not exceed the given limits

    When section 184 is not complied with, the consequence is that no deduction towards interest and remuneration is allowed. This is the mandate of the section 185.
Ø  Steps for Computation of taxable income of a LLP:-
  • Find out the firms income under the different heads of income, ignoring the prescribed exemptions. The heads of income are:-
    • Income from House Property
    • Profits and Gains of Business or Profession
    • Capital Gains
    • Income from other sources including interest on securities, winnings from lotteries, races, puzzles, etc. ('Salary' income head is not included)
  • The payment of remuneration and interest to partners is deductible if conditions of section 184 and section 40(b) of the Income Tax Act are satisfied. Any salary, bonus, commission or remuneration which is due to or received by partners is allowed as a deduction from income of the partnership firm and the same is taxable in the hands of partners.
  • Make adjustments on account of brought forward losses/ disallowances of interests, salary, etc paid by firm to its partners. The total income so obtained is the "gross total income".
  • From the "gross total income", make the prescribed deductions and the balancing amount is the "net income" of the firm.

Assessment of Partners of LLP:
  • Exemption of partner’s share income from LLP :
    Section 10(2A) exempts the share income from the LLP in the hands of the partner. The share of a partner in the total income of a LLP separately assessed as such shall, be an amount which bears to the total income of the LLP the same proportion as the amount of his share in the profits of the LLP in accordance with the LLP Agreement bears to such profits.

    The share of the partner in the income of the LLP is not included in computing his total income i.e. his share in the total income of the LLP shall be exempt from tax.
  • If conditions of Section 184 and 40(b) of the Act are satisfied, then any interest, salary, bonus, commission or remuneration paid/payable by the LLP to the partners is taxable in the hands of partners (to the extent these are allowed as deduction in the hands of the LLP). 
  • The points to be noted are :-
    • Remuneration to partner not to be treated as salary income : Explanation 2 to section 15

      This Explanation provides that the salary, bonus or commission received by a partner from his LLP will not be treated as salary. This Explanation implies that the provision of tax deduction at source for salary (section 192) will not be attracted to the remuneration received by the partner from the LLP.

    • Treatment of remuneration and interest to a partner as business income : Clause (v) of section 28. Section 28(v) provides that interest and remuneration received by a partner from his LLP shall be chargeable to income-tax as profits and gains of business. The proviso clarifies that where the remuneration, interest, etc., is in excess of the ceiling fixed under the new section 40(b) and is disallowed in part for that reason then the income under the head referred to in section 28(v) shall be adjusted to the extent of the amount not so allowed to be deducted.

      Any expenditure incurred in order to earn such income can be claimed as a deduction from such income. For example, if a partner borrows money to make his capital contribution to the LLP and he is paid interest on his capital contribution, the amount of such interest will be taxed under the head "Profits and gains of business or profession", but the interest paid by him on the borrowed money will have to allowed as a deduction. If the whole or a part of salary/interest is not allowed as deduction in the hands of the LLP, than the whole or that part of salary/ interest is not taxable in the hands of the partners. In other words, in the hands of partners the entire remuneration/ interest (excluding the amount disallowed under section 40(b) and/or section184 of the Act) is chargeable to tax.
CEILING AS TO REMUNERATION PAYABLE TO WORKING PARTNERS AND INTEREST TO PARTNERS: SECTION 40(B)
Section 40(b) is a disallowance provision and disallows remuneration, interest, etc., received by the partners from the firm provided the same exceeds the ceiling prescribed in the same provision. It also specifies as to how the matter of deductibility of interest and remuneration is to be dealt with where a partner is a partner in representative capacity.

The Explanation 3 defines the term “book profit” which is relevant for computing the upper ceiling of remuneration payable to all the working partners put together. The Explanation 4 defines “working partners” who alone are made entitled to remuneration if the deductibility of the related amount in the hands of the LLP is not to be barred by section 40(b).

Limits of Remuneration to Partners:

The Income Tax Act prescribes the ceiling limit upto which any payment of salary, bonus, commission or remuneration will be allowed as deduction for income of LLP, the limits of remuneration are outlined below:
On First Rs 3,00,000 of book profit or in case of loss
Rs 1,50,000 or at the rate of 90% of the book-profit, whichever is more
On the balance of book profit
at the rate of 60%
Ø  Signing of Income tax Return:
·         The designated partner shall be responsible for signing the income tax return of LLP , where for unavoidable reasons, such designated partner is not able to sign the same or where there is no designated partner, any partner will sign the return.

LLP not covered under Presumptive Taxation

Under the Income Tax, if an eligible assessee is carrying on any eligible business, than for the purpose of calculation of his taxable income, a sum equal to 8% of the turnover or gross receipts of the assessee in the previous year on account of such business or as the case may be, a sum higher than the aforesaid sum ,claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". Tax payable on such income is called as presumptive tax.

An eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains calculated as aforesaid and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB of Income Tax Act.

Explanation.—

a) "eligible assessee" means,—

(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008; and

(ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C.—Deductions in respect of certain incomes" in the relevant assessment year;

b) "eligible business" means,—

(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and

(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of forty lakh rupees.'
·         Capital Gain on conversion of Partnership into LLP
·         LLP and general partnership is being treated as equivalent (except for recovery purpose) in the Act, the conversion from a general partnership firm to an LLP will have no tax implication, if the rights and obligation of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. If there is a violation of these conditions , the provision of capital gain will apply.
·         * Capital Gain on conversion of Company into LLP
·         The Finance Bill 2010-11 has proposed to insert a new clause (xiiib) under Section 47 of the Income Tax Act, 1961 whereby any transaction concerning transfer of a capital asset or intangible asset by a Private Company or unlisted Public Company to a Limited Liability Partnership as a result of conversion of the company into a Limited Liability Partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 would be exempted from the provision of Capital Gain Tax, only if the following conditions are satisfied .
a.                  All the assets and liabilities of the Company immediately before the conversion shall become the assets and liabilities of the limited liability partnership;
    1. All the shareholders of the Company immediately before the conversion shall become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in LLP should remain in the same proportion as their shareholding in the company on the date of conversion;
    2. The shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;
    3. The aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than fifty per cent at any time during the period of five years from the date of conversion;
    4. The total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and
    5. No amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.
However in case of non compliance of any of the conditions provided as aforesad, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership for the previous year in which the requirements of the said proviso are not complied with.”.
*Carry forward and set off of accumulated loss and unabsorbed depreciation allowance, on conversion into LLP:
In case of reorganization of business by way of conversion of a Private Company or unlisted Public Company to Limited Liability Partnership, which fulfills the conditions laid down in the proviso to clause (xiiib) of section 47 of the Income Tax Act 1961, the accumulated loss and the unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor limited liability partnership for the purpose of the previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly
However in case of non compliance of the conditions provided under section 47(xiiib) , the set off of loss or allowance of depreciation made in any previous year in the hands of the successor limited liability partnership, shall be deemed to be the income of the limited liability partnership chargeable to tax in the year in which such conditions are not complied.
*Amortization of expenditure incurred under Voluntary Retirement Scheme
In case of reorganization of business by way of conversion of a Private Company or unlisted Public Company to Limited Liability Partnership, which fulfills the conditions laid down in the proviso to clause (xiiib) of section 47, the provisions of section 35 DDA of the Income Tax Act 1961 shall, as far as may be, apply to the successor limited liability partnership, as they would have applied to the said company, if reorganisation of business had not taken place, which means that successor LLP shall be allowed to carry forward the expenditure incurred under voluntary retirement scheme by the predecessor company and amortize the same in accordance the provisions of section 35DDA ,while calculating the profit and gains of the business in previous year
*Benefit of tax credit in respect of Minimum Alternate Tax (MAT) paid by the Company
In case of conversion of a Private Company or unlisted Public Company into a Limited Liability Partnership under the Limited Liability Partnership Act, 2008, the provisions of section 115JAA of the Income Tax Act 1961, providing for credit of MAT paid by the Company in the previous year out of the tax payable in the succeeding years, shall not apply to the successor Limited Liability Partnership. In other words, any benefit of the MAT credit in hands of Private Company or unlisted Public Companies will not be continued in the hands of successor LLP.
*The aforesaid provisions have been proposed by the Finance Bill 2010-11, which is not yet approved by the Parliament of India. Once approved, the said provisions will be effective from the assessment year 2011-12.


Key Highlights:
  • LLP’s will be treated as Partnership Firms for the purpose of Income Tax w.e.f assessment year 2010-11
  • No surcharge will be levied on income tax.
  • Profit will be taxed in the hands of the LLP and not in the hands of the partners.
  • Minimum Alternate Tax and Dividend Distribution Tax will not be applicable for LLP.
  • Remuneration to partners will be taxed as “Income from Business & Profession”.
  • No capital gain on conversion of partnership firms into LLP.
  • Designated Partners will be liable to sign and file the Income Tax return.
  • LLP shall not be eligible for presumptive taxation.
  • Capital Gain on conversion of Company into LLP will be exempt from tax, if prescribed conditions are complied with.
  • On conversion, the successor LLP , will be allowed to carry forward and set off of accumulated loss and unabsorbed depreciation allowance
  •  On conversion, the successor LLP will be allowed to amortize the expenditure incurred under voluntary retirement schemeOn conversion, the successor LLP will not be allowed to take the credit of MAT paid by the predecessor company.