V, S and N incorporated VSN Consulting LLP on 1st April, 2025. The LLP agreement was executed but never filed with the Registrar. The agreement…

CA Intermediate · Corporate and Other Laws · PYQS · May 2026
V, S and N incorporated VSN Consulting LLP on 1st April, 2025. The LLP agreement was executed but never filed with the Registrar. The agreement contained the following clauses: Profit sharing: V-40%, S-35%, N-25%Only V and S were authorized to enter into contracts on behalf of the LLP.Any act beyond consultancy services required unanimous consent of partners. The following events took place subsequently: (1) N, without informing V and S, entered into a loan agreement with Quick Bank in the name of the LLP for expansion into real estate advisory, which was not part of the LLP's usual business. Quick Bank was unaware of the internal restrictions. (2) S retired from the LLP on 30th September, 2025. On 5th of October 2025, as usual T Ltd, entered into a consultancy contract with the LLP believing S to be still a partner, as the company had no notice of his cessation. (3) Due to continuous losses, the LLP was unable to pay its creditors and Quick Bank initiated proceedings against all partners. With reference to the provisions of the Limited Liability Partnership Act, 2008, answer the following: (i) Whether VSN Consulting LLP is bound by the loan agreement entered by N with Quick Bank? (ii) Whether S can be held liable for obligations arising from the contract with T Ltd. after his retirement? (5 Marks)

Suggested Answer and Working Notes:

(a) (i) As per section 27 of the Limited Liability Partnership Act, 2008, (1) A LLP, is not bound by anything done by a partner in dealing with a person if: (a) the partner in fact has no authority to act for the LLP in doing a particular act; and (b) the person knows that he has no authority or does not know or believe him to be a partner of the LLP. In the given question, though the LLP agreement contained restrictions that only V and S were authorised to enter into contracts on behalf of the LLP and that any act beyond consultancy services required unanimous consent, N entered into a loan agreement with Quick Bank for expansion into real estate advisory without informing V and S. Although N had no authority under the LLP agreement to enter into such transaction, Quick Bank was unaware of the internal restrictions and believed N to be a partner of the LLP. Therefore, VSN Consulting LLP shall be bound by the loan agreement entered into by N with Quick Bank. (ii) According to section 24 of the Limited Liability Partnership Act, 2008, (1) Where a person has ceased to be a partner of a limited liability partnership (hereinafter referred to as former partner), the former partner is to be regarded (in relation to any person dealing with the limited liability partnership) as still being a partner of the limited liability partnership unless: (a) the person has notice that the former partner has ceased to be a partner of the limited liability partnership; or (b) notice that the former partner has ceased to be a partner of the limited liability partnership has been delivered to the Registrar. (2) The cessation of a partner from the limited liability partnership does not by itself discharge the partner from any obligation to the limited liability partnership or to the other partners or to any other person which he incurred while being a partner. In the given question, S retired from the LLP on 30th September, 2025. However, T Ltd. entered into a consultancy contract with the LLP on 5th October, 2025 believing S to still be a partner, since it had no notice of his retirement. Therefore, in relation to T Ltd., S shall still be regarded as a partner of the LLP and will be held liable for obligations arising from the contract entered into after his retirement.

Topics: The Limited Liability Partnership Act, 2008

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