Assessing the Validity of Winding Up Petitions for Limited Liability Partnerships in the Absence of LLP Endorsement

Assessing the Validity of Winding Up Petitions for Limited Liability Partnerships in the Absence of LLP Endorsement

CORAM: Hon’ble Member (Technical) Shri. Shyam Babu GautamandHon’ble Member (Judicial) TMT. (Retd.) Justice T Krishna Vall

INTRODUCTION

Whether a winding up petition can be presented by a partner of a limited liability partnership without the support of the limited liability partnership and the requirement of strict compliance with legal provisions of the Limited Liability Partnership Act, 2008 (“LLP Act”) and the Limited Liability Partnership (Winding Up and Dissolution) Rules, 2010 (“LLP Rules”) is considered in the case of Hiran Valiyakkil Lal and Ors. (“Applicants”) v. K.V. Sreeja and Ors. (“Respondents”)^[i].

FACTS

The Applicants were the partners of the Hardoll Enterprises LLP (“LLP”) (one of the Respondents herein) that was incorporated on September 06, 2016, with a total capital contribution of INR 50,00,000 (Rupees Fifty Lakhs Only). On December 19, 2022, a petition was filed by K.V. Sreeja seeking to wind up the LLP (“Main Petition”) under Section 63 and 64(f) of the LLP Act.

The Applicants moved to National Company Law Tribunal, Kochi Bench (“NCLT”) to file an application for dismissal of the Main Petition. NCLT vide order dated August 09, 2023, dismissed Applicant’s application, stating that the Main Petition could proceed wherein the issue of admission of the Applicant’s petition and order of winding up of the LLP would be taken up. Thereafter being aggrieved by the NCLT order, the Applicants approached the Hon’ble High Court of Kerala. The Hon’ble High Court remitted the matter back to the NCLT for reconsideration, emphasizing the need for the Main Petition to be taken up for admission before deciding on the maintainability application.

ISSUE

Whether a winding up petition presented by a single partner of LLP without accompanying the petition with statement of affairs and 3/4^th (three-fourth) resolution of partners is maintainable under LLP Act and LLP Rules?

SUBMISSION OF THE PARTIES

Submissions of the Applicants

The Applicants advanced the following arguments:

1. That the Main Petition was not maintainable as it did not comply with Rule 26(4) of the LLP Rules, which requires ‘statement of affairs and a resolution of 3/4^th (three-fourths) of the partners to be filed along with the petition. Even the petition for winding up to be filed in Form 28, mandates the filing of the documents mentioned herein above. However, the Main Petition is filed by 1 (one) of the partners solitarily, without the backing of the resolution.

2. That the Main Petition is barred by the mandate of res judicata as previously another petition for winding up the LLP was filed with same cause of action and facts as to dispute and praying for similar relief and that was subsequently withdrawn without liberty to pursue the legal remedy again. In this regard, the Applicants relied on the judgment of Hon’ble Supreme Court in the case of Ebix Singapore Pte Ltd v. Committee of Creditors of Educomp^[ii], wherein it was observed that “…This principle of res judicata is embodied in relation to suits in Section 11 of the Code of Civil Procedure; but even where Section I1 does not apply, the principle of res judicata has been applied by courts for the purpose of achieving finality in litigation. The result of this is that the original court as well as any higher court must in any future litigation proceed on the basis that the previous decision was correct.”

3. That the Respondents are engaged in forum shopping as they initiated an arbitration proceeding to seek relief with regard to the appointment of administrator to manage the LLP, which was also subsequently dismissed.

4. That the NCLT was not the appropriate forum for adjudicating the dispute as inter se it is a dispute between the partners of the LLP and thus, the civil courts would have the relevant jurisdiction. In this regard Applicants relied on the Hon’ble Delhi High Court’s judgment in Aanchal Mittal v. Ankur Shukla^[iii], wherein it was observed that the mere inclusion of a limited liability partnership within the definition of “body corporate” under Section 2(1)(d) of the LLP Act does not inherently designate NCLT as the exclusive forum for resolving disputes between partners of a limited liability partnership. Further, contrary to Section 430 of the Companies Act, 2013, which restricts civil court jurisdiction, the LLP Act contains no analogous provision. Consequently, pursuant to Section 9 of the Civil Procedure Code, 1908, the suit is maintainable before a civil court.

Submissions of the Respondents

The Respondents advanced the following arguments:

1. That the petition was admissible under Section 63 and 64 of the LLP Act as in accordance with Rule 26(1) and (2) of the LLP Rules, the petition for winding up can be filed by LLP or any of its partner or partners and Rule 26(4) mentioning about the requirement of production of statement of affairs and 3/4^th (three-fourth) resolution of partners requires consideration only for the purpose of admission of LLP to winding up. Further, as per Rule 28 of the LLP Rules the tribunal is empowered to issue an order directing the LLP to submit a statement of affairs along with any objections, if deemed necessary. Furthermore, should the LLP pass a resolution by a 3/4^th (three-fourths) majority and submit the statement of affairs as asserted by the Applicants, the LLP shall proceed with voluntary winding up rather than pursuing the matter under Rule 26(1) of the LLP Rules.

2. That as per the Rule 33 of the LLP Rules, the NCLT has the jurisdiction to entertain matters relating to any suit or proceedings against the LLP including matters relating to winding up of the LLP.

3. That the matter was not barred by res judicata as the parties and prayers were not the same in the previous petition.

ANALYSIS AND JUDGMENT

The NCLT observed that as per Rule 26(1)(a) of the LLP Rules, the petition for winding up can be presented by any partner. To analyse the requirement for production of statement of affairs and resolution as per Rule 26(4) of the LLP Rules, NCLT noted the provisions of Rule 28 and 101 of the LLP Rules, which states that in case where any person other than limited liability partnership filing a winding up petition, in which case, the tribunal can if circumstances appear so, order such limited liability partnership to file its objections along with statement of affairs and the petition in case is made by limited liability partnership shall accompany with the statement of affairs, respectively. Thus, the petition can be filed by a partner without LLP’s support, but such petition must be accompanied by statement of affairs and 3/4^th (three-fourths) resolution because it is not a case of voluntary winding up but only a winding up sought in view of the disputes alleging oppression and mismanagement.

Thus, considering the above-mentioned legal position, NCLT found the Main Petition to be maintainable in law and thereby directed the Respondents to file a statement of affairs as on date in prescribed form and manner and within a period of 4 (four) weeks from the date of this order.

Therefore, the maintainability application was dismissed, and the Main Petition was scheduled for further proceedings on the issue of admission of winding up of the LLP.

CONCLUSION

The judgment underscores the paramount importance of adherence to the statutory provisions enacted and advocates for minimal judicial interference when the language of such provisions is clear and unambiguous. It elucidates the procedural clarity concerning the filing of a winding up petition by any partner of a limited liability partnership, provided that such action complies with the stipulations of the LLP Act and LLP Rules.