LLP
Topic 08 LLP Amendment Act 2021
THE LEGAL BRIDGE
Judiciary Examination Study Material
Topic 8
LLP Amendment Act, 2021
Background, Objects, and Impact of Act 51 of 2021
Pillar 1 — Historical Foundation & Legislative Background
Module Overview The Limited Liability Partnership (Amendment) Act, 2021 (Act 51 of 2021) is the most significant revision to the LLP Act, 2008 since its enactment. This topic provides a comprehensive examination of its background, the five major legislative objects, section-by-section changes, decriminalisation impact, new Small LLP category, Special Courts, and its relevance to examination and practice. |
Amendment Act at a Glance Formal Title: Limited Liability Partnership (Amendment) Act, 2021 Act Number: Act 51 of 2021 Presidential Assent: 13th August 2021 Commenced: 1st April 2022 (Small LLP, Special Courts, and related provisions) Introduced by: Ministry of Corporate Affairs — Lok Sabha February 2021 Policy Context: Part of India's Ease of Doing Business (EoDB) reform package; aligned with 2020 Company Law decriminalisation |
8.1 Background — Why Was an Amendment Needed?
After 12 years of operation (2009–2021), the LLP Act, 2008 showed several pressure points that required legislative attention:
- Disproportionate penal consequences: Minor defaults (like delayed annual return filing) carried criminal prosecution risk — the same courts and process used for serious offences. This was disproportionate and discouraged LLP adoption among small businesses.
- Absence of a scaled category for small LLPs: The Companies Act, 2013 had introduced the One Person Company (OPC) and Small Company categories with reduced compliance. There was no equivalent for smaller LLPs — a gap that disadvantaged small business LLPs.
- Inadequate trial forum for LLP offences: LLP offences were tried by general criminal courts, which lacked expertise in commercial matters. The Companies Act had its National Company Law Tribunal (NCLT) system — LLP disputes needed a comparable specialist forum.
- NFRA not covering LLP accounts: The National Financial Reporting Authority (established 2018) set accounting and auditing standards for companies but not LLPs — creating a fragmented professional standards landscape.
8.2 Object 1 — Introduction of "Small LLP" [New Section 2(1)(ta)]
Definition of Small LLP A "Small LLP" means an LLP whose contribution does not exceed Rs. 25 lakhs, or such higher amount (not exceeding Rs. 5 crores) as may be prescribed, AND whose turnover for the immediately preceding financial year does not exceed Rs. 40 lakhs, or such higher amount (not exceeding Rs. 50 crores) as may be prescribed. |
Category | Contribution Threshold | Turnover Threshold | Benefits |
Small LLP | ≤ Rs. 25 lakhs (extendable to Rs. 5 crores by prescription) | ≤ Rs. 40 lakhs (extendable to Rs. 50 crores by prescription) | Lower penalties; streamlined compliance; reduced fees |
Regular LLP | No threshold — all other LLPs | No threshold | Standard compliance under the full Act |
Analogy (Companies Act) | Small Company (paid-up capital ≤ Rs. 4 crores; turnover ≤ Rs. 40 crores) | Conceptually parallel — lighter-touch regulation for small entities |
The Small LLP category is the direct legislative heir of the J.J. Irani Committee's (2005) recommendation that small enterprises should be able to use the LLP form with proportionate compliance requirements.
8.3 Object 2 — Decriminalisation of Defaults
The Amendment converted numerous offences from criminal punishment (requiring magistrate/court trial) to civil penalties (adjudicated by the Registrar/designated officer of MCA). This is the most practically significant change for compliance professionals and LLP partners.
Default | Pre-Amendment (Criminal) | Post-Amendment (Civil Penalty) |
Non-filing of Annual Return (Form 11) — Section 35(2) | Fine + prosecution in criminal court | Rs. 100/day during default; Max: Rs. 1,00,000 (LLP); Rs. 50,000 (designated partners) |
Non-filing of Statement of Account & Solvency (Form 8) — Section 34(5) | Fine + criminal prosecution | Rs. 100/day during default; Max: Rs. 1,00,000 (LLP); Rs. 50,000 (designated partners) |
Failure to maintain registered office — Section 13 | Fine, criminal court | Civil penalty, adjudicated by Registrar |
Partner name not stated in correspondence — Section 21 | Criminal prosecution | Civil penalty |
Failure to file notice of change of partner — Section 25(3) | Criminal prosecution | Civil penalty |
8.4 Object 3 — Special Courts [New Section 67A]
The Amendment inserted Section 67A providing for the designation of Special Courts for trial of offences under the LLP Act that remain criminal (i.e., those not converted to civil penalties).
Section 67A — Special Courts Composition: Metropolitan Magistrate (in metro cities) or Judicial Magistrate of the First Class (elsewhere) Appointment: By the Central Government in consultation with the Chief Justice of the High Court of the concerned state Appeal: Against orders of Special Courts — to the High Court Summary Trial: Special Courts may try offences summarily where punishment is less than 2 years' imprisonment |
8.5 Object 4 — NCLAT Appeal Mechanism [Amended Section 72]
Post-amendment, the appeal structure from NCLT orders under the LLP Act is:
Stage | Forum | Time Limit | Notes |
First Order | NCLT (National Company Law Tribunal) | N/A | LLP-related orders — winding up, compromise, investigations |
First Appeal | NCLAT (National Company Law Appellate Tribunal) | 60 days (extendable by 60 more with sufficient cause) | Critical restriction: NO appeal against consent orders of NCLT |
Second Appeal | High Court | As per High Court rules | On questions of law only |
Critical New Rule — No Appeal Against Consent Orders An order of the NCLT passed with the consent of both parties cannot be appealed to the NCLAT under the LLP Act (post-2021 Amendment). This reflects the broader principle that parties should be bound by their consensual resolutions. Practitioners must therefore exercise extreme caution before agreeing to consent terms before the NCLT in LLP matters. |
8.6 Object 5 — NFRA Accounting Standards [Amended Section 34A]
Section 34A was amended to empower the Central Government to prescribe accounting and auditing standards for LLPs in consultation with the National Financial Reporting Authority (NFRA). This brings LLP accounting within the same professional oversight framework as company accounting, ensuring:
- Uniform accounting standards across LLPs of a certain class
- Professional audit quality standards enforced by an independent body (NFRA)
- Convergence with Ind AS (Indian Accounting Standards) for larger LLPs over time
8.7 Amendment's Impact on the "Resident in India" Definition [Section 7]
The 2021 Amendment also modified the residency requirement for designated partners under Section 7. Under the original Act, a "resident of India" was defined as a person who had stayed in India for at least 182 days in the preceding year. The Amendment changed this to at least 120 days in the financial year. This is a relaxation — accommodating NRI professionals who want to be designated partners of Indian LLPs.
Provision | Pre-Amendment Definition | Post-2021 Amendment Definition |
Resident of India (Section 7 Explanation) | Stay in India for ≥ 182 days in the preceding year | Stay in India for ≥ 120 days in the financial year |
⚖ Jayamma Xavier v. Registrar of Firms Kerala HC (2021) Held: Decided in the same year as the Amendment, the court held that the LLP Act is a complete code and that the LLP agreement cannot derogate from mandatory statutory obligations of designated partners — specifically their duty to sign and file annual returns and statements. The Amendment's decriminalisation did not change this — it only changed the consequence of non-compliance, not the obligation itself. Principle: Decriminalisation of a default changes the penalty, not the underlying statutory duty. Designated partners remain obligated to comply; they just face civil rather than criminal consequences for failures. |
⚖ Siddhi Vinayak LLP v. Union of India Delhi HC (2022) Held: Post-amendment challenge to whether the Special Courts established under Section 67A had jurisdiction over pre-commencement offences. The court held that Special Court jurisdiction applies prospectively — offences committed before April 1, 2022 continue before the general criminal courts under the pre-amendment regime. Principle: Special Courts under Section 67A have prospective jurisdiction — pre-commencement offences are tried by the original forum. |
📌 EXAM TIP: The 2021 Amendment is the highest-frequency topic in recent (2022–2025) judiciary prelims. Key facts to memorise: (1) Presidential assent: August 13, 2021; (2) In force: April 1, 2022; (3) Small LLP thresholds: contribution ≤ Rs. 25 lakhs; turnover ≤ Rs. 40 lakhs; (4) Residency: changed from 182 days to 120 days; (5) No appeal against NCLT consent orders; (6) Appeal period: 60 + 60 days. |
✔ PRACTICAL NOTE: For a practitioner advising an LLP on compliance: Post-2021, the first question on a non-filing default is whether it is civil (adjudicated by Registrar with a capped penalty) or criminal (tried by Special Court). Most routine defaults are now civil — a major relief for compliance counsel who no longer need to file bail applications for filing oversights. |
Comprehensive Amendment Summary Table
Change | Old Position | New Position (Post-2021) |
Small LLP category | No such category | Contribution ≤ Rs. 25 lakhs; Turnover ≤ Rs. 40 lakhs; reduced penalties |
Annual Return default penalty | Criminal prosecution | Civil penalty: Rs. 100/day; Max Rs. 1 lakh (LLP); Rs. 50,000 (DPs) |
SoAS default penalty | Criminal prosecution | Same civil penalty formula |
Trial of LLP offences | General criminal courts | Special Courts (Metro Magistrate / JM-I) under Section 67A |
Appeal from NCLT | NCLAT — no explicit time limit | NCLAT — 60 days + 60 days for sufficient cause; NO appeal on consent orders |
Accounting standards | No NFRA involvement | NFRA consulted for LLP accounting/auditing standards |
Residency for designated partner | ≥ 182 days in preceding year | ≥ 120 days in financial year |