Whether a LLP can be a partner in a partnership firm constituted under Indian Partnership Act, 1932.
Jayama Xavier Vs Registrar of Firms
WP(C).No.25741 OF 2020(P)
Short Overview of the case:
The Hon’ble Kerala High Court in the case of Jayama Xavier Vs Registrar of firm was considering the rejection of registration of deed of partnership which was entered into with an LLP as one of the Partner where the appellant being the designated partner of LLP joined the partnership.
The registrar argued that since some of the provisions of LLP Act ran contrary to the provisions contained in Indian Partnership Act, 1932 , the partnership so formed was not valid and hence not eligible for registration.
The department relied on the decision of the Apex Court in Dulichand Laxminarayanan vs. Commissioner of Income Tax, Nagpur : AIR 1956 SC 354 where the apex court had held that a partnership between 3 partnership firms, a HUF and an individual was not valid.
However the court brushed aside the department’s argument by saying the liability of partners in an LLP cannot have any relevance when the LLP itself becomes a partner, when it would be bound by the provisions in the Partnership Act.
The liability of the LLP would be as in the case of a company which joins a firm after entering into a partnership.
Section 4 of the Partnership Act permits the 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.
In short, LLP can be a partner in a firm like company.
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