Can the Companies Act apply to LLPs - In the name of achieving substantial justice?

For substantial justice, can the technicalities be overlooked in case of a business disputes?

No.

The recent judgment in Anirudh Kumar v. Hydraulics & Pneumatics India LLP, CA-133(ND)/2022 Decided on 26-07-2024 underlines that.

The applicant being part of an LLP (with 11.33% shares) wanted the NCLT to investigate the activities of the LLP. Section 43(3) of the LLP Act requires that a minimum of one-fifth of the total number of partners file a petition for investigation of the affairs of the LLP.

The waiver from the requirement under Section 43(3) of the LLP Act was requested through an application under Rule 11 of NCLT Rules read with proviso to Section 241 of the Companies Act, 2013.

Responding to this, the NCLT quoted the case Union of India v. Deoki Nandan Aggarwal, 1992, and reiterated SC's observation that

"it is not the duty of the Court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The Court cannot rewrite, recast, or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the courts. The Court cannot add words to a statute or read words into it which are not there. Assuming there is a defect or an omission in the words used by the legislature, the Court could not go to its aid to correct or make up the deficiency.”

The NCLT also noted that no notification extends the applicability of the Companies Act provisions to LLPs in this context.

"Will the Companies Act apply to LLPs when there is already an LLP Act standing as a substantive law?"

The answer is yes - the Companies Act applies to LLPs in various cases or contexts. Here are some of them:

• Winding Up and Dissolution: Provisions related to winding up and dissolution of companies under the Companies Act can be applied to LLPs with certain modifications as per the LLP Act and relevant rules.
• Compounding of Offences: The Companies Act’s provisions on the compounding of offences are also applicable to LLPs in specific instances.
• Penalties and Fines: Certain penalties and fines imposed under the Companies Act can be extended to LLPs.
• Financial Statements and Audit: The Companies (Amendment) Act, 2020, introduced provisions whereby LLPs, like companies, must maintain proper books of accounts and prepare financial statements. These are similar to the requirements under the Companies Act.
• Applicability of National Company Law Tribunal (NCLT): The NCLT, which deals with company-related disputes, also has jurisdiction over LLP-related cases in certain contexts, such as disputes regarding conversion of a company into an LLP.
• Provisions via Notification: The Ministry of Corporate Affairs (MCA) has, from time to time, notified the applicability of certain sections of the Companies Act to LLPs.

The sections of the Companies Act that apply to LLPs are:

• Section 67 - Restrictions on Purchase by Company or Giving of Loans by it for Purchase of its Shares
• Section 92 - Annual Return
• Section 164 - Disqualifications for Appointment of Director
• Section 165 - Number of Directorships
• Section 206(5) - Power to Call for Information, Inspect Books and Conduct Inquiries
• Section 210(1)(b) - Investigation into Affairs of Company
• Section 447 - Punishment for Fraud
• Section 448 - Punishment for False Statements
• Section 449 - Punishment for False Evidence

The existence of different acts for companies and LLPs recognizes the diverse needs of businesses and entrepreneurs. The Companies Act caters to larger, more complex enterprises requiring formal governance structures, while the LLP Act provides a flexible, partner-driven model suitable for smaller businesses and professionals who desire limited liability without the regulatory burden of a company.

Ref: https://www.scconline.com/blog/post/2024/08/03/absence-of-specific-waiver-provision-indicates-legislative-intent-to-strictly-follow-section-43-of-llp-act-nclt-scc-times/

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