Section 10 of the LLP Act prescribes specific penalties for violations of the designated partner requirements established in Sections 7 and 9[40]. This section provides the enforcement mechanism for the structural requirements of LLPs.

Penalty for Contravention of Section 7

Section 10(1) addresses penalties for failure to comply with Section 7’s requirement of having at least two designated partners. Prior to the Limited Liability Partnership (Amendment) Act, 2021, the provision prescribed that if the LLP contravened Section 7(1), the LLP and every partner would be punishable with fine up to five lakh rupees[41].

The Amendment Act, 2021 substantially revised Section 10(1) to provide:

“If the limited liability partnership contravenes the provisions of sub-section (1) of section 7, the limited liability partnership and its every partner shall be liable to a penalty of ten thousand rupees and in case of continuing contravention, with a further penalty of one hundred rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of the limited liability partnership and fifty thousand rupees in case of partners.”[42]

This means:

1. Initial Penalty: Rs. 10,000 payable by the LLP and each partner for the contravention
2. Continuing Penalty: Rs. 100 per day for each day the contravention continues after the first day
3. Maximum Cap for LLP: The total penalty on the LLP cannot exceed Rs. 2,00,000
4. Maximum Cap for Partners: The total penalty on each partner cannot exceed Rs. 50,000
5. Joint Liability: Both the LLP and every partner are liable, meaning partners face personal liability

Penalty for Contravention of Section 9

Section 10(2) addresses penalties for failure to appoint designated partners within the 30-day period prescribed in Section 9. As amended in 2021, it provides:

“If a limited liability partnership or any partner contravenes the provisions of section 9, the limited liability partnership and every designated partner of the limited liability partnership shall be liable to a penalty of ten thousand rupees and in case of continuing contravention, with a further penalty of one hundred rupees for each day after the first during which the contravention continues, subject to a maximum of one lakh rupees in case of limited liability partnership and twenty-five thousand rupees in case of designated partners.”[43]

Key features:

1. Initial Penalty: Rs. 10,000 payable by the LLP and each designated partner
2. Continuing Penalty: Rs. 100 per day for continuing contravention
3. Maximum Cap for LLP: Rs. 1,00,000
4. Maximum Cap for Designated Partners: Rs. 25,000 per designated partner
5. Designated Partner Liability: Only designated partners (not all partners) face personal liability for Section 9 violations

Rationale for Penalties

The penalty structure under Section 10 serves several purposes:

1. Deterrence: Financial penalties deter non-compliance with fundamental structural requirements
2. Escalation: The continuing penalty structure creates increasing pressure to remediate violations
3. Proportionality: Maximum caps prevent penalties from being disproportionate to the violation
4. Personal Accountability: Personal liability on partners ensures individual accountability
5. Revenue Function: Penalties collected contribute to government revenue
6. Regulatory Signal: Penalties signal the importance of designated partner requirements to LLP governance