A year ago when a new law allowed Indian businessmen to form limited liability partnerships (LLPs), corporate houses felt it would be an easy way to escape tax. But today, many are running into a wall. And, the resistance is coming from an unlikely quarter: the Reserve Bank of India (RBI).

Even though the LLP Act is intended to give smaller businesses and entities like law firms, and accountancy partnerships a flexible business structure followed in many countries, there is nothing in the law that stops big businesses from rejigging their holding and investment companies into LLPs which are spared of dividend distribution tax and minimum alternative tax, or MAT. Thus, the amount of dividend a holding company would eventually pass on to the promoter would be higher if the holding or investment company is converted into an LLP.

But, corporates planning to convert their holding companies into LLPs have been told by the registrar of companies (ROC) to get a no-objection certificate (NOC) from RBI; and the central bank is unwilling to give one.