In a recent landmark order by the Chennai bench of the National Law Company Tribunal (“NCLT”), an interesting question arose, as to whether a limited liability partnership (“LLP”), could be allowed to amalgamate with a private limited company under a scheme of amalgamation, in the absence of an express provision in the Limited Liability Partnership Act, 2008 (“LLP Act”) and the Companies Act, 2013 (“New Companies Act”) permitting the same.
Brief Facts of the case.
Real Image LLP (“Transferor LLP”) sought to merge with a private limited company, Qube Cinema Technologies Private Limited (“Transferee Company”).Transferor LLP filed a joint company petition before the NCLT for the sanction of transfer of its business, assets and liabilities to the Transferee Company as under the scheme of amalgamation.
The scheme further provided for the issue and allotment of equity shares to each of the partners of the Transferor LLP in consideration of the amalgamation, after adjustment of the investment held by the Transferor LLP in the capital of the Transferee Company.
The NCLT was satisfied with the contention of the petitioners in relation to the safeguard of interests of the employees, as well as the accounting aspect of the amalgamation and therefore granted sanction for the scheme of amalgamation.
No objections were raised by the Regional Director, Southern region, the Registrar of Companies or the Official Liquidator with respect to the veracity of the scheme of amalgamation.
However, the issue that came up for consideration before the NCLT was ‘whether an LLP can be allowed to amalgamate with a private limited company under a scheme of amalgamation filed before the NCLT.’
The counsel for the Transferor LLP and Transferee Company (“Petitioners”) made the following submissions: The provisions of the LLP Act and the New Companies Act are worded identically and both provisions empower only the NCLT to sanction the scheme.
Section 394 (4)(b) of the Companies Act, 1956 did not have any bar for the transferor entity to be a body corporate which includes a LLP. However, the corresponding Section 232 of the New Companies Act, does not contain similar provisions.
The counsel for the Petitioners further contended that Section 234 of the New Companies Act permits amalgamation of a ‘foreign company’ with another company or vice versa. Foreign Company as per the said section also includes a ‘body corporate’ thus also including a foreign LLP within its purview.
Therefore, the legislation as it stands today permits a foreign LLP to merge with an Indian company but no such benefit has been extended for merger of an Indian LLP with an Indian company.
NCLT’S Opinion
The NCLT expressed its view on the legislative intent behind enacting both the acts and stated that the intention was to facilitate the ‘ease of doing business’ and create ‘a desirable business atmosphere’. The Companies Act, 1956 categorically deals with the issue in the present case, but the New Companies Act does not contain any specific provision in this regard. Further, if the legislation permitted a merger between a foreign LLP and an Indian company, then the legislative intent cannot be presumed to mean a prohibition of a merger of an Indian LLP and an Indian company. The NCLT therefore, treated the lack of parity between the Companies Act, 1956 and the LLP Act/New Companies Act as a case of ‘casus omissus’ i.e. a case of omission.
After this order it will be interesting to see the manner in which the tax authorities treat such an amalgamation as per the present tax provisions.
