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Private companies incorporated under the Companies Act 1956 or
Companies Act 2013 ("Act") and limited
liability partnerships (LLPs) formed under the Limited Liability
Partnership Act 2008 ("LLP Act") are two
forms of corporate business vehicles for undertaking business in
India.
There are some inherent differences in the manner in which these
two corporate forms are to be set up and operated. One of the
issues concerning private companies and LLPs which has recently
been considered by the Chennai Bench of the National Company Law
Tribunal ("NCLT") is the merger of LLPs
with private companies. More details in this regard are set out
below:
Facts:
M/s Real Image LLP and M/s Qube Cinema had filed a joint
petition under §230 to §232 of the Act read with the
Companies (Compromises, Arrangements and Amalgamations) Rules 2016
before the Chennai Bench of the NCLT for sanctioning a scheme of
amalgamation wherein M/s Real Image LLP is proposed to be
amalgamated and vested with M/s Qube Cinema Technologies Private
Limited as a going concern.
Issues:
The primary issue that arose was whether an Indian limited
liability partnership can amalgamate with an Indian private limited
company? Further, if such an amalgamation is possible, then whether
the petition seeking approval of the scheme can be filed before
NCLT?
Submissions for the Petitioner:
Language of both §60 to §62 of the LLP Act and
§230 to §234 of the Act dealing with amalgamations are
identical which empowers only the NCLT to sanction the scheme
proposed by the LLP or company.
Prior to the Act coming into force, §394(4)(b) of the
Companies Act 1956 allowed the transferor in a scheme of
amalgamation to be a body corporate, including a LLP, so long as
the resultant company which emerges from the proposed scheme is a
company as defined under the Companies Act 1956. This clause is
however missing in §232 of the Act.
However, it is interesting to note that under §234 of the
Act, a foreign company, the definition of which includes an LLP, is
allowed to merge into a company registered under the Act.
Therefore, it would be odd to suggest that while the legislature
was on board with a foreign LLP merging with an Indian private
limited company, it intentionally wanted to put an embargo on an
Indian LLP doing the same.
Decision of the NCLT:
Allowing the scheme of amalgamation of the Petitioner companies
under §232 of the Act, the Tribunal held that the legislative
intent behind enacting both the LLP Act and the Act is to
facilitate the ease of doing business and create a desirable
business atmosphere for companies and LLPs. For this purpose, both
the Act and the LLP Act have provided a procedure for merger or
amalgamation of two or more LLPs or companies.
The Tribunal further held that the issue in this petition was
dealt with by §394 of Companies Act 1956 but the same has not
been stipulated in the Act, which is a clear case of casus
omissus.
The Tribunal also accepted the Petitioners' argument that if
the legislature has permitted a merger of a foreign LLP with an
Indian company under §234 of the Act, then it would be
incorrect to assume that the same Act prohibits a merger of an
Indian LLP with an Indian private limited company, especially in
the circumstances where there are no provisions expressly barring
such an amalgamation.
Conclusion:
The decision of the Chennai Bench of the NCLT is welcome as it
paves the way for the merger of LLPs with private companies and
facilitates the ease of doing business in India. It also provides
entrepreneurs with flexibility in make business decisions and, to
some extent, reduces the procedural road blocks.
For further information on this topic please contact Tuli &
Co
Tel T +91 11 4593 4000, fax F +91 11 4593 4001 or email lawyers@tuli.co.in
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