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The Bombay High Court made a key decision when it ruled that a Limited Liability Partnership might associate with an individual or other people.
In the instant case titled Raj Shipping Agencies v. Barge Madhwa, the issue raised for clarification before the Bombay High Court was:
Can LLP be considered a person for the purposes of forming a partnership with an individual?
The Court categorically stated that under the Partnership Act, the liability of LLP partners and the liability of the LLP as a partner would be distinct. Since the Partnership Act's rules would apply to it, the responsibility of an LLP's partners cannot be relevant after the LLP becomes a partner. The LLP's liability would be the same as that of a business that joins a firm after forming a partnership.
The Partnership Act's Section 4 enables the formation of a firm or partnership between one and more people, the Court further said. In this instance, a person and an LLP, a body corporate possessing a legal entity and falling within the definition of "person," executed a partnership deed. When the LLP itself would have liability separate from the liability of the partners, the individual culpability of the partners would be irrelevant.
“A partnership can be entered into between two persons. Such persons can be an incorporated body of individuals. LLP is a body corporate. It can be said to be a person, as defined in Section 3(42) of the General Clauses Act, 1897 if there is no repugnancy in the subject or context. To examine the same, it is necessary to look at some more provisions in both the Acts viz. Partnership Act and LLP Act".
Therefore, the formation of a partnership with an LLP would not be hindered by the differences in the rules of the Partnership Act relating to the firm's liability or the individual partners. The Court determined that LLP could not be barred from forming a partnership with a person or other people.