Topic 52 Fraudulent Conduct Section30

Module Overview

Section 30 of the LLP Act imposes unlimited personal liability on every person who knowingly carries on LLP business with intent to defraud creditors or for fraudulent purposes. This topic — examining Section 30 in the investigation context — covers how investigation generates evidence for Section 30 proceedings, both civil and criminal consequences, and how Section 30 differs from Section 27(4).

Section 30(1) — Unlimited Civil Liability

If it is found that the business of a limited liability partnership has been carried on with intent to defraud creditors of the limited liability partnership or any other person, or for any fraudulent purpose, every person who was knowingly a party to the carrying on of the business in the aforesaid manner shall be personally liable, without any limitation of liability, for all or any of the debts or other liabilities of the limited liability partnership as the court may direct.

Section 30(2) — Criminal Liability

Any person who was knowingly a party to the carrying on of business in the manner aforesaid shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

Element

Requirement

Business carried on

LLP actively conducting business — not wound up or dormant

Intent to defraud creditors

Subjective dishonest intent — negligence or recklessness insufficient

OR any fraudulent purpose

Alternative, broader ground — fraud on any party (employees, suppliers, government)

Every person

Not just partners — any officer, manager, employee who was a knowing party

Knowingly a party

Actual knowledge of the fraudulent purpose required

Court direction

NCLT decides extent of personal liability — proportional to participation

Feature

Section 27(4)

Section 30

Trigger

Partner's OWN wrongful act (negligence, tort)

Entire business carried on with fraudulent purpose

Who is liable

Only the partner who committed the wrong

Every KNOWING participant — even those who didn't personally commit a wrong

Quantum

Personal liability for own act only

Unlimited liability for ALL LLP debts — NCLT decides extent

Intent required

No — negligence sufficient

Yes — actual knowledge of fraudulent purpose required

⚖ Official Liquidator v. Rajiv Mohan Sharma NCLT New Delhi (2020)

Held: The NCLT, following an investigation, held the designated partner personally liable under Section 30(1) for continuing to accept client deposits while unable to pay existing creditors. The inspector's report was admitted as evidence. The NCLT ordered personal repayment of all LLP debts.

Principle: Investigation findings are the evidentiary foundation for Section 30 proceedings — the inspector's report, examination statements, and seized documents are central to establishing fraudulent conduct.

📌 EXAM TIP: Section 30 in the investigation context: (1) Investigation → S.49 report → S.52(b) criminal complaint → S.30(2) criminal liability; (2) Investigation → S.49 report → S.52(a) winding-up petition → S.30(1) civil liability order; (3) S.46 examination statements admissible to prove "knowingly a party"; (4) S.27(4) covers own wrongful act; S.30 covers knowing participation in fraudulent scheme — can apply simultaneously.

Key Point

Core Content

Section 30(1)

Unlimited civil liability — NCLT directs extent based on participation

Section 30(2)

Criminal: imprisonment up to 2 years + Rs.50,000 min — Rs.5 lakh fine

Who is liable

Every KNOWING party — not just partners; includes officers, managers

vs Section 27(4)

S.27(4): own wrongful act; S.30: knowing participation in fraudulent scheme → all LLP debts

Evidence link

Inspector's report + S.46 examination statements + seized documents all admissible