2021 (4) TMI 749 - HC - Indian Laws

LLP recognized as partner in partnership firm under Indian law

The Court concluded that an LLP can be a partner in a partnership firm under the Indian Partnership Act, 1932, as it qualifies as a 'person' under the ... LLP as a legal entity - capacity of a body corporate to enter into partnership - definition of 'person' under the General Clauses Act - separate legal personality and perpetual succession of LLP - distinction between liability of LLP and liability of partners - compatibility of LLP with the Partnership ActLLP as a legal entity - definition of 'person' under the General Clauses Act - capacity of a body corporate to enter into partnership - separate legal personality and perpetual succession of LLP - distinction between liability of LLP and liability of partners - An LLP can be a partner in a firm; an LLP is a 'person' capable of entering into partnership with an individual. - HELD THAT: - The Limited Liability Partnership is a body corporate and a legal entity separate from its partners, possessing perpetual succession and capacity to sue and be sued. Section 3(42) of the General Clauses Act, which includes companies and associations within the meaning of 'person', applies unless there is repugnancy in the subject or context. The Partnership Act permits a partnership between 'persons' who agree to share profits; therefore an incorporated body such as an LLP can be a partner. Differences between statutory provisions governing the liability of partners under the Partnership Act and the limited liability regime under the LLP Act do not prevent an LLP from joining a firm: when the LLP itself becomes a partner its liability as a partner is to be governed by the Partnership Act in the same manner as a company joining a firm, and the personal liability of individual LLP partners is not determinative of the LLP's capacity to be a partner. Earlier decisions holding a firm (not a separate legal entity) incapable of being a partner are distinguishable, and the authority recognising a corporate entity (a company) as capable of being a partner applies by analogy to an LLP which is a statutory body corporate. [Paras 15, 16, 17, 18, 20]Allowed the contention that an LLP is a person capable of entering into partnership with an individual; LLP is not disqualified from being a partner in a firm.Quashing of impugned order - reconsideration of registration - The impugned order (Ext.P2) declining registration is set aside and the Registrar is directed to reconsider the registration application. - HELD THAT: - In view of the conclusion that an LLP can be a partner of a firm, the order declining registration for the reason that an LLP cannot be a partner is unsustainable. The Registrar is directed to reconsider the petitioner's application for registration of the partnership deed and take appropriate action in accordance with law within the time fixed by the Court. [Paras 21]Ext.P2 is set aside; respondent directed to reconsider the request for registration and take appropriate action within one month from receipt of the judgment.Final Conclusion: Writ petition allowed; impugned order set aside and the Registrar directed to reconsider the registration of the partnership involving the LLP within one month. Issues Involved:1. Whether an LLP can be a partner in a partnership firm under the Indian Partnership Act, 1932.2. The liability implications of an LLP being a partner in a partnership firm.3. Interpretation of relevant provisions of the LLP Act, 2008 and the Indian Partnership Act, 1932.Detailed Analysis:Issue 1: Whether an LLP can be a partner in a partnership firm under the Indian Partnership Act, 1932.The petitioner challenged the Registrar of Firms' decision (Ext.P2) which declined the registration of a partnership firm on the ground that an LLP cannot be a partner of a firm. The petitioner argued that the LLP is a legal entity under the LLP Act, 2008, capable of forming a partnership. The respondent maintained that certain provisions of the LLP Act are inconsistent with the Indian Partnership Act, 1932, particularly regarding liability. The Court examined the definitions and provisions of both acts, noting that the LLP Act defines an LLP as a body corporate and a legal entity separate from its partners. The Court concluded that an LLP can be considered a 'person' under Section 3(42) of the General Clauses Act, 1897, and thus can form a partnership with an individual.Issue 2: The liability implications of an LLP being a partner in a partnership firm.The respondent's objection was based on the differing liability provisions between the LLP Act and the Partnership Act. The LLP Act restricts a partner's liability to the terms in the LLP agreement, whereas the Partnership Act holds partners jointly and severally liable. The Court noted that the liability of an LLP as a partner would be governed by the Partnership Act once it becomes a partner in a firm. The liability of the LLP itself would be similar to that of a company joining a partnership, independent of the individual liability of its partners.Issue 3: Interpretation of relevant provisions of the LLP Act, 2008 and the Indian Partnership Act, 1932.The Court analyzed the definitions and relevant sections of both acts. Section 4 of the Partnership Act defines “partnership” as a relation between persons who agree to share profits. The Court referred to Section 3(42) of the General Clauses Act, which includes any company or body of individuals as a 'person.' The LLP Act defines an LLP as a body corporate with perpetual succession and a legal entity separate from its partners. The Court held that the LLP, being a body corporate, fits the definition of 'person' and thus can form a partnership under the Partnership Act. The Court also distinguished the present case from the Supreme Court judgment in Dulichand Laxminarayanan vs. Commissioner of Income Tax, where a firm was not considered a 'person' capable of forming a partnership.Conclusion:The Court set aside the Ext.P2 order and directed the respondent to reconsider the petitioner's request for registration, acknowledging that an LLP can form a partnership with an individual under the Indian Partnership Act, 1932. The Writ Petition was allowed, and the respondent was instructed to take appropriate action within one month from the date of receipt of the judgment.