On February 14, 2023, the Delhi High Court rendered a decision in the matter of Sahil Arora v. Commissioner of Excise Government of National Capital Territory of Delhi and Others. The contested order, dated 13.01.2023, required Mr. Sahil Arora, one of the partners of M/s Popular Spirits LLP, to deposit Rs. 1 crore with the Excise Department within four weeks in order to satisfy the requirements of the Recovery Certificate issued under section 29 of the Delhi Excise Act, 2009.

This order was the subject of the appeal. The aim of the Recovery Certificate was to obtain Rs. 98,28,771 from M/s Popular Spirits LLP. Both the rented property in Delhi, named as S-22/5, 2nd Floor, DLF Phase-III, Gurgaon and the personal property of Mr. Sahil Arora, the LLP partner, also requested to be attached, with the address D-240, 3rd Floor, Defence Colony, New Delhi.

The case highlighted the issue of how much a limited liability partnership's (LLP) participants are liable for the duties that the LLP has under the LLP Act of 2008 and the Delhi Excise Act of 2009. Najmi Waziri, J., heard the case in a hybrid format (physical and virtual hearing), and the decision was spoken. The case discussion will go through the arguments put forward by the GNCTD's standing attorney, Mr. Santosh Kumar Tripathi, and the appellant's knowledgeable senior advocate, Mr. Sudhir Nandrajog, as well as examine the court's justifications and ruling.

Background
Judge Najmi Waziri rendered a decision in the matter of Sahil Arora v. Commissioner of Excise Government of National Capital Territory of Delhi and Others, LPA 92/2023, on February 14, 2023. Sahil Arora is one of the three partners of M/s Popular Spirits LLP, and the lawsuit involves the collection of money owed by that company under the 2009 Delhi Excise Act in the amount of Rs. 98,28,771.

The personal property of the appellant was sought to be attached in accordance with the Recovery Certificate issued under section 29 of the Delhi Excise Act, 2009, The appellant requested the attachment of his personal property, which was located in Gurgaon at S-22/5, 2nd Floor, DLF Phase-III, and his rented property in Delhi at D-240, 3rd Floor, Defence Colony, New Delhi. The attachment procedures were, however, halted by the contested judgement dated 13.01.2023, which also ordered the appellant to deposit Rs. 1 crore with the Excise Department within four weeks.

Through his attorney, Mr. Sudhir Nandrajog, the appellant argued that the impugned decision was incorrect in requiring him to deposit the specified sum since the limited liability partnership firm's obligations cannot be recovered from the members' individual assets. The limited liability partnership firm's obligations and liabilities are wholly those of the firm, and the firm's liabilities must be satisfied out of the firm's assets, according to sections 27(3) & (4) and section 28 of the LLP Act, 2008, on which the appellant relied.

Section 29 of the Delhi Excise Act, which grants the respondent Excise Department a lien for the collection of duty and other levies from the defaulter, was the basis on which the respondent Excise Department based its argument. According to the clause, any excise taxes owed to the government under the Act may be collected from those legally responsible for paying them, their legal heirs, their surety, or their agent, just as if they were unpaid land taxes.

Any person licenced under this Act who fails to pay excise taxes or otherwise defaults shall be responsible for having his factory, warehouse, shop or premises, as well as any fixtures, equipment, liquor stocks or materials used to make the same, attachment in connection with any excise tax claim or in regard to any damage sustained by the government as a result of such default and shall be sold to settle such claim, which shall be the first charge against the profits of such sale.

In response to the combined request, the court gave notice and heard from the appellant's and respondent's attorneys. According to the appellant's attorney, the impugned decision erred in ordering the appellant to deposit the funds. The respondent's attorney cited section 29 of the Delhi Excise Act, which allows for the collection of excise tax from a defaulter's property, including his personal property, in cases of excise revenue default or other circumstances.

In order to recover unpaid fees for the limited liability partnership business in which the appellant is a partner, the court had to determine whether the Excise Department had the authority to seize the appellant's personal property.

Analysis
The Delhi High Court heard the matter of Sahil Arora v. Commissioner of Excise Government of National Capital Territory of Delhi and Others, and on February 14, 2023, it rendered a decision. Sahil Arora filed an appeal in response to the contested decision of January 13, 2023, which directed him to deposit INR 1 crore with the Excise Department within four weeks while staying the attachment proceedings against his personal property and leased property. For the purpose of recovering INR 98,28,771/- owed by M/s Popular Spirits LLP, of whom Sahil Arora was one of the three partners, the Recovery Certificate was granted on October 4, 2022 under section 29 of the Delhi Excise Act, 2009.

The appellant's Senior Advocate, Mr. Sudhir Nandrajog, argued that the impugned order was incorrect in ordering the appellant to deposit the specified sum of money because the limited liability partnership's liabilities should be paid from its assets, not from the partners' personal assets. He cited Sections 27(3) & (4) and 28 of the LLP Act, 2008, which specify that the Limited Liability Partnership's obligations and liabilities are solely those of the Limited Liability Partnership and shall be satisfied from the Limited Liability Partnership's assets, respectively. He made the case that the partners' private property should not be utilised to satisfy the limited liability partnership's debts.

The Delhi Excise Act's Section 29, which grants the Excise Department a lien to recover duties and other levies from defaulters, was considered by the court. The court pointed out that any excise taxes owed to the government under this Act may be recouped from the person responsible for paying them, their legal successors, his surety, or their agent just as they would be if they were unpaid land taxes.

Any person licenced under this Act who is in default in paying excise revenue or in any other way may have his factory, warehouse, shop, or premises, as well as all fixtures, equipment, stocks of alcohol, or materials used to make the alcohol held within shall be subject to attachment in connection with any excise tax claim or in regard to any damage sustained by the government as a result of such default and shall be sold to settle such claim, which shall be the first charge against the profits of such sale.

The limited liability partnership and its partners' potential responsibility was also reviewed by the court under LLP Act sections 27 and 28. According to the court, a participant in a limited liability partnership is not personally liable, either directly or indirectly, for an obligation mentioned in section 27's subsection (3). The provisions of Sections 27's Subsection (3) and Section 28's Subsection (1) shall not limit a partner's personal liability for his own wrongdoing or failure to act, but a partner shall not be held personally liable for the wrongdoing or failure to act of any other partner of the limited liability partnership.

The court determined that the challenged decision was incorrect to the extent that it could not be used to attach the appellant's personal property in order to recover the money owed by the limited liability partnership. The court emphasised that the LLP Act limits the partners' culpability and that any recovery should only come from the limited liability partnership's assets. The appellant was not required to deposit any money with the Excise Department as a result.

The court ruled that the attachment proceedings against the appellant's personal property and the challenged order's requirement that the appellant pay INR 1 crore with the Excise Department

Opinionated Note
The ruling rendered by Najmi Waziri, J., is appropriate in this situation, in my opinion. The LLP Act, 2008's provisions, which stipulate that the limited liability partnership is fully responsible for its responsibilities, regardless of whether they result from a contract or another circumstance, have been appropriately interpreted by the judge. The limited liability partnership's assets must be used to cover its debts and other obligations. A partner's involvement in the limited liability partnership does not make them personally responsible, either directly or indirectly, for any of the obligations mentioned in section 27's subsection (3).

The Delhi Excise Act, 2009, which grants a lien to the Excise Department for the recovery of duty and other levies from the defaulter, has also been implemented by the judge in an acceptable manner. All excise income due to the government under this Act may be collected from the person responsible for paying it, his legal heirs, his surety, or his agent as if it were unpaid land revenue.

The case is noteworthy because it maintains the LLP Act, 2008's provisions and reiterates the idea of the partners of an LLP having limited responsibility. The ruling is consistent with the Supreme Court's ruling in Saloman v. Saloman and Co. Ltd. (1897), which determined that a corporation has a distinct legal personality from its shareholders and that its obligations are distinct from those of those owners.

The ruling is significant because it sets this case apart from Official Liquidator of Security Pacific National Bank v. Ram Bahadur Thakur and Others (2013), in which the court determined that a partner in a partnership is personally accountable for the debts and liabilities of the partnership. The court stated that because of the LLP Act, 2008, which limits the partners' responsibility, this case does not apply to LLPs.

The judge properly concluded that the challenged order's instruction for the appellant to deposit the disputed sum of money was improper. The licensee is a limited liability partnership company, and one of the three partners is the appellant. The partners' private assets cannot be used to satisfy the limited liability partnership's obligations. The judge has also properly ruled that the limited liability partnership's assets may be used by the Excise Department to recoup the money owed by M/s Popular Spirits LLP.

Conclusion
As a result, the judgement in Sahil Arora v. Commissioner of Excise Government of National Capital Territory of Delhi and Others is crucial for the interpretation of the Delhi Excise Act of 2009 and the Limited Liability Partnership Act of 2008. According to the ruling issued by the court on February 14, 2023, and in accordance with sections 27(3) and (4) and section 28 of the LLP Act, a limited liability partnership firm's liabilities cannot be satisfied out of the personal assets of its partners.

The Delhi Excise Act's Section 29's lien on the defaulter for the recovery of duty and other levies was also made clear by the court. The challenged judgement requiring the deposit of Rs. 1 crore with the Excise Department within four weeks was annulled by the court after it accepted the appeal. This ruling clarifies the relationship between participants in limited liability partnerships and the duties of the company. In conclusion, the court determined that the order was incorrect and that the LLP's liabilities could not be paid from its partners' individual assets.

References:

1. The Delhi Excise Act, 2009 (10 of 2010).
2. The Limited Liability Partnership Act, 2008 (6 of 2009).
3. The Delhi Excise Act, 2009 (10 of 2010) s 29.
4. The Limited Liability Partnership Act, 2008 (6 of 2009) ss 27, 28.
5. The Civil Procedure Code, 1908 (5 of 1908).
6. The Limitation Act, 1963 (36 of 1963).
7. Sahil Arora v. State (NCT of Delhi), 2023 SCC OnLine Del 1169.
8. Salomon v. Salomon & Co. Ltd. - (1897) A.C. 22, [1896] UKHL 1.