MERGER OF LLP INTO COMPANY

Provisions of Compromises, Arrangements, Amalgamation and Reconstruction are dealt in the Companies Act, 2013 under sections 230-234. Amalgamations are also treated in the LLP Act. 2008. But there is no explicit mentions for dealing with merger of LLP into Company or other way around. We look at the decision of NCLT Chennai Bench which shall set a precedent in cases of merging of LLP into companies.

M/s Real Image LLP vs. M/s Qube Cinema Technologies Pvt Ltd, NCLT Chennai Bench

In a merger filing made before the Chennai Bench of NCLT, Judicial Member CH. Sharief Tariq was tasked with just one question,

“…whether a Limited Liability Partnership (LLP) can be allowed to amalgamate with a private limited company under a scheme of amalgamation filed before the NCLT”

In answering the above question, Judicial Member observed that the legislative intent behind enacting both the LLP Act, 2008 and the Companies Act, 2013 is to facilitate ease of doing business and create a desirable business atmosphere for both companies and LLPs. Chennai bench of NCLT allows amalgamation of a LLP with a company.

FACTS OF THE CASE

1. The Companies Act, 2013 and the Chapter XII, section 60 to 62 of the LLP Act,2008, contain the provisions dealing with merger and amalgamation.
2. The wordings of relevant provisions under above statutes used are almost similar and empowers NCLT as the competent authority to sanction the scheme proposed by a LLP or a Company.
3. It was submitted that under Section 394(4)(b) of the Act, 1956, there was no bar for a transferor Company. Section 394 (4) clause (b) expressly and clearly stated “transferee-company” does not include any company other than a company within the meaning of this Act but “Transferor company” includes anybody corporate, whether a company within the meaning of this Act or not.” (Including a LLP).
4. The sections dealing with compromise and arrangement under Act, 2013, uses the word ‘company’ for both transferor and transferee company. As per Section 2 (20), “company” means a company incorporated under this Act or under any previous company law.”
5. However, section 234 allows foreign companies to merge with a company incorporated under the Act, 2013. As per Section 234, subject to the provisions of any other law for the time being in force, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and as per the terms specified in the Scheme. The Central Government may make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations provided under this section. The explanation to sub-section (2) of section 234 states- “For the purposes of sub-section (2), the expression “foreign company” means any company or body corporate incorporated outside India whether having a place of business in India or not.”
6. It was concluded that the issue involved in the present petition has been categorically dealt with by the Companies Act, 1956 but there is no specific provision in the Companies Act 2013. Therefore, this is the clear case of casus omissus i.e. a situation omitted from or not provided for by statute through inadvertence. If the intention of the parliament is to permit a foreign LLP to merge with an Indian Company, then it would be wrong to presume that the Act prohibits a merger of an Indian LLP with an Indian Company. Thus, there does not appear any express legal bar to allow/sanction merger of an Indian LLP with an Indian Company.

DECISION

The Hon’ble Bench thus held that there does not appear any express legal bar to allow/sanction merger of an Indian LLP with an Indian company. Accordingly, the petition for the merger of LLP with the company was allowed.

Here is a link to the Final Order from NCLT Chennai Bench.

CONCLUSION

The NCLT has rightly interpreted the gap in the law. The order passed by the Hon’ble Tribunal is also important from a perspective that since now a LLP could possibly be amalgamated with a company this will be available as a new avenue for restructuring.

MERGER OF COMPANY INTO A LLP

With the Tribunal approving the merger of LLP into a Company, question arises whether a Company can merger into a LLP?

No, the company cannot merger into a LLP. As per the definition of the Transferee company under the Act, 1956, states that “transferee-company” does not include any company other than a company within the meaning of this Act. Also, the Act,2013, uses the word ‘company’ for both transferor and transferee company. As, LLP does not fall in the definition of a Company it cannot be a “Transferee Company”. Hence, a company cannot get merged into Indian LLP under the provisions of the Companies Act or LLP Act.

MERGER OF LLP WITH A LLP

Merger/Amalgamation of LLPs involves the process which is similar to the provisions of Companies Act, 1956 or of the Companies Act,2013 in respect of Merger of Companies.  The LLP Act also provides for the procedure to be followed by the LLP’s. Though Chapter XII contains provisions for merger of LLP and the power is given to NCLT but there are no rules prescribed by NCLT in respect of Merger of LLPs. Thus, because of the practical difficulty Merger of two LLPs is not possible.