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April 16, 2021

Whether a LLP can be a partner in a partnership firm constituted under Indian Partnership Act, 1932

by Mahesh Mara in Legal Court Judgement

Whether a LLP can be a partner in a partnership firm constituted under Indian Partnership Act, 1932

Fact of the case

The petitioner is a designated partner of Sleeplock LLP which is a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (for short “LLP Act”). The Sleeplock LLP formed a partnership firm along with one Gourav Raj in the name and style of M/s Morning Owl Sleep Solutions. A partnership deed was executed accordingly on 18.09.2020. The said deed -Ext.P1 was submitted for registration before the respondent. The respondent rejected the same on the ground that LLP cannot be a partner of a firm. Petitioner has stated that the partnership is formed in order to carry out the business of processing, manufacturing, trading, importing, exporting, distribution and sales of furnished and semi-furnished mattress, latex form cores, pillows, rubberised coir, coconut rubber, other rubber and coir products, through retail outlets and through online platforms.

Petitioner claims that a partnership along with an LLP is not prohibited under the Partnership Act and that LLP is a legal entity, as defined under the LLP Act and it is separate from its partners. It has perpetual succession and is having a common seal. Under Section 14 it is capable of suing and being sued, on its registration. It is also capable of acquiring, developing or disposing of movable or immovable properties.

Issue of the case

The petitioner claims that the LLP is liable to be treated as a person and there cannot be any objection for registering a partnership with an LLP which is a person. It is stated that the said LLP has been given Certificate of Incorporation.

Observation of the court

The court considered the judgment in Dhuli Chand’s case where the Income Tax Officer rejected an application submitted under Section 26A of the Income Tax Act on the ground that the deed of partnership consisted of three firms, one Hindu undivided family business and one individual. Apex Court found that a firm cannot be treated as a person who can enter into a partnership with other firms or individuals or Hindu Undivided Family.

Section 4 of the Partnership Act permits Constitution of a firm or partnership between one or more persons. In this case the partnership deed was executed between an individual and an LLP which is a body corporate having a legal entity and coming within the definition of “person”. The individual liability of the partners of LLP would not be relevant when the LLP itself would have liability independent of the liability of the partners. Therefore, the difference in the provisions under the Partnership Act relating to liability of the firm or the individual partners would not stand in the way of constitution of a partnership with an LLP. Hence I find that LLP cannot have a disqualification from entering into a partnership with an individual or other person. The judgment in Pulimood’s case where the Private Company was held entitled to be a partner would apply in the present case though the LLP is not a private company but is a legal entity.

Conclusion

The Judgement was decided in the favour of the petitioner directed the registrar of firm to reconsider the request of petitioner for registration and to take appropriate action on the same within a period of one month from the date of receipt of a copy of the judgment.

Read the full judgment order from below link

Jayama-Xavier-Vs-Registrar-of-Firms.

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