In this article, Sushant Pandey of Vivekananda Institute of Professional Studies, Delhi, discusses the impact of the criminal conviction on the ability to be a partner of an LLP.
The Limited Liability Partnership (LLP in short) is much long awaited form business type. Many of the countries in the world adopted this type of business. Limited Liability Partnership Act, 2008 was enacted with the objectives to make provisions for the formation and regulation of limited liability partnership and for the matters connected therewith or incidental thereto.
Limited Liability Partnership
The Limited Liability Partnership is the hybrid of the provisions of Partnership Act and the Companies Act, 1956. limited liability partnership is a body corporate and therefore a legal entity separate from its partner is like the general partnership but having one important difference. Unlike partnership the individual partners are liable for the partnership firms liability or organisation, LLP provides each of its individual partners with limited liability for the firm’s liability.
Does a criminal conviction in Indian courts impact ability to be a partner of LLP?
A person’s ability to become a partner of the LLP will be affected if he is convicted by Indian courts. If any of the disqualifications mentioned under Sub-rule (1) of Rule 9 of LLP Rules is found, he will be disqualified which includes the criminal conviction mentioned as a disqualification to become a partner of LLP, under Rule 9(1)(3).
According to Rule 9 of Limited Liability Partnership rules, 2009, which says:
A person shall not be capable of being appointed as a designated partner of a limited liability partnership if he –
- Has at any time within the preceding five years been adjudged insolvent; or
- Suspends, or has at any time within the preceding five years suspended payment to his creditors and has not at any time within the preceding five years made, a composition with them; or
- Has been convicted by a Court for any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months; or
- Has been convicted by a Court for an offence involving section 30 of the Act.
- The disqualification mentioned under sub-rule 9(1)(1) and Sub-rule 9(1)(2) can be removed by the Central Government by notification in the Official Gazette, either by generally or in connection to any Limited Liability Partnership or Limited Liability Partnerships specified in the notification.
Putting things Simply
- While dealing with the first sub-rule, a person who has been adjudged insolvent at any time within preceding 5 years cannot be said to be qualified to become a partner of limited liability partnership.
- The second Essential if a person has been suspended or in the past 5 years’ payment of his creditors and has not been a close composition with them if preceding 5 years.
- The third essential says when a court has convicted a person of the offence involving moral turpitude and has been accordingly sentenced to imprisonment for not less than 6 months.
- Hence if a person is being convicted offence relating to moral turpitude for not less than 6 months cannot be qualified as a partner of the limited liability partnership And lastly a person who has been convicted for the fraud committed two partners or to the firm.
Criminal conviction
In layman’s term, criminal conviction means “the judgment of a jury or judge that a person is guilty of a crime as charged”
Rajasthan High Court in Nanda @ Chhittar vs The State Of Rajasthan defined what is a criminal conviction. The old. Judge said
“6. Therefore, there can be no doubt that the term “conviction” has two meanings. In the general sense, it means “a finding of guilt” but in legal parlance, it means “a finding of guilt followed by some order”. Maxwell on the interpretation of statutes, twelfth Edition at page 279, while dealing with “Identical expressions” and referring to the safety rule that the same word is used in the same sense in a statute has observed “the presumption as to identical meaning is, however, not of much weight.
The same word may be used in different senses in the same statute and even in the same section”. The author has again said, “there are many modern examples of the same word being given distinct meanings.” He further says at page 280, “the usual reason for attributing different meanings to the same word is simply that it occurs in different contexts”.
Criminal conviction as a ground for disqualification of a partner
Under rule 9(1)(3) of LLP Rule,2009, it talks about a criminal conviction, which says that if a person has been convicted and sentenced for imprisonment for not less than 6 months, shall be disqualified for becoming the partner of a limited liability partnership. If a person has been convicted by a Court of law in India and has been punished following essentials are necessary:
- There must be conviction for any offence
- That offence must be of nature involving moral turpitude
- The person must be sentenced to imprisonment
- Period of punishment shall not be less than 6 months
If a person who wanted to become a partner and fulfils essentials is disqualified for becoming a partner of LLP.
There must be conviction
A person should be convicted of the offence. Conviction is defined as a formal declaration by a verdict of jury or decision of a judge in a court of law that someone is guilty of a criminal offence. Similarly, the person has been charged any offence cannot be made liable unless until he has been convicted. A person who has been charged with an offence and later acquitted well not fall under this sub-rule.
Offence related to moral turpitude
Firstly, there must be an offence. An offence is described as the violation or breach of law or rule etc. or public wrong or crime. Hence the presence of offence is accordingly mandatory.
Secondly “Moral turpitude” is an expression which is used in law as also societal parlance to describe conduct which is inherently base, vile, depraved or having any connection showing depravity”
Kerala High Court in Joy Alias Itty Abraham And Anr. v. State Of Kerala And Ors observed that:
The expression “moral delinquency” or “moral turpitude” has not been defined. All offences do not necessarily involve moral turpitude, e.g., violation of traffic Rules or non-compliance with certain statutory requirements such as filing of returns or remittance of money, etc., are not offences which can possibly be said to involve any moral turpitude or moral delinquency.
Madras High Court in A.Padmanabhan vs Joint Commissioner Of Labour held that,
The term ‘moral turpitude’ can safely be understood to mean that it is a conduct which is not only contrary to the accepted behaviour, but also a behaviour which is grossly misdirected.
The application of the term depends upon the facts of each case, which, in turn, depends upon the act or behaviour which is sought to be described as moral turpitude. The standard of application of the term cannot be the same when it concerns with criminal jurisprudence and civil jurisprudence, particularly when the application of provisions of labour laws, which are beneficial in nature and in both cases, the consideration may entirely vary.
Imprisonment
The person must be convicted of the offence and is imprisoned and sent to Jail. If a person so not been sentenced to imprisonment but has been ordered to pay fine, this sub-rule will not attract and the person will be qualified.
Period of sentence
The sentence should be more than 6 months and if it is less the person will be qualified to become a partner. This is made to exclude all the trivial matters and If a person possesses these essentials he/she shall be not legally eligible for becoming a partner of LLP
How will penal action on errant partners who are not residents of India be taken?
The limited liability partnership act provides for freedom to appoint more than one resident directors and for statutory compliances provisions of at least one resident directors partner in every LLP is would ensure that one partner is available in India for at least six months for regulatory compliances requirement. The liability of LLP as an entity would be for regulatory or other compliances. For civil liability on such partner would be tried by the courts under the civil laws which recognise “Foreign awards” and for criminal liability would require adjudication or enforcement by the courts including the extradition process.
Does an ongoing case impact the stability of a partner inside an LLP?
Rule 9(1)(3) of LLP Rules,2009 states there must be a conviction for any offence and it does not talk about the ongoing case/ prosecution. If a partner against whom a case is pending before any of the courts in India will not vitiate the stability of the partner inside an LLP, unless the agreement between the partners i.e. LLP agreement, expressly provides for such a disqualification. Hence, if the agreement talks about the stability in case of ongoing case/ prosecution, then only a person can be disqualified to stand as a partner in LLP, else no disqualification.
If disqualified person becomes a partner fraudulently
Even after possessing any of the disqualification a person becomes Partner, he can be removed by a majority of the other Partner but the LLP agreement must expressly provide such powers. If the LLP Agreement provides such power, a Partner can be removed and to affect the removal Form 4 must be filed.
Filing of LLP Form 4
To effect a resignation or removal or cessation of Partner from LLP, LLP Form 4 mentioned under LLP Rules, 2009 must be filed within 30 days of removal or resignation or cessation of Partner. Form 4 must be signed by the Designated Partner of the LLP and must be filed along with a Certificate from a Chartered Accountant or Company Secretary or Cost Accountant in practice. The Chartered Accountant or Company Secretary or Cost Accountant must also certify that the books and records of the LLP have been found to be true and correct.
Conclusion
A person who wants to become a partner of limited liability partnership must fulfil both the essentials mentioned under section 5 of LLP Act, 2008 and Rule 9 of LLP Rules, 2009. If he is criminally convicted of an offence of nature involving moral turpitude and has been convicted for more than 6 months he cannot be said to be a qualified person for becoming a partner of LLP.
